Friday, August 27, 2021
CapitalPress.com 5
Wheat tops $10 a bushel,
but will it stay that high?
By MATTHEW WEAVER
Capital Press
USDA dairy assistance
addresses Class I shortfall
By CAROL RYAN DUMAS
Capital Press
Aid for dairy operators
hurt by the quirky milk mar-
ket caused by a COVID-19
relief program leaves out
many farmers, a dairy orga-
nization says.
USDA will provide
about $350 million in assis-
tance to dairy producers in
federal marketing orders
who received lower pay-
ments for their milk due
to market abnormalities
caused by the pandemic.
Under the Pandemic
Market Volatility Assis-
tance Program, USDA will
reimburse producers on rev-
enue losses on the sale of
fl uid milk — Class I milk
— on 80% of the revenue
diff erence between a newer
pricing formula for that milk
and the previous formula.
The assistance addresses
an
unforeseen
conse-
quence of the new formula
caused by pandemic-re-
lated government purchases
of cheese in its food box
program.
The formula’s “mover”
sets the Class I base price
to which a location diff er-
ential is added. The calcu-
lation for the mover was
changed in 2019 to provide
better risk management for
fl uid milk processors. But
that change proved costly
to dairy farmers in the pan-
demic’s wildly abnormal
markets.
The previous mover was
calculated as the “higher
of” the advance prices for
Class III (milk for cheese)
and Class IV (milk for but-
ter and powder).
It was changed to the
average of the Class III
and Class IV prices plus 74
cents per hundredweight,
which refl ected the average
diff erence of the Class III
and Class IV prices and the
higher of the two.
The change was meant
to be revenue-neutral, with
equity among market par-
ticipants a stated goal. It
was until July 2020, when
Class III milk prices soared,
driven by government pur-
chases of cheese.
The signifi cant gap
between Class III and Class
IV prices resulted in a lower
average price.
Thus the Class I mover
was lower than it would
Dairy aid raises questions
By CAROL RYAN DUMAS
Capital Press
Milk pricing is complex to start with. Adding gov-
ernment assistance to the mix raises the bar.
USDA announced this week it will reimburse milk
producers in federal marketing orders on lost revenue
on sales of milk for fl uid consumption — Class I milk
— during the pandemic. The payments will be based
on monthly sales from July through December 2020
and are capped at 5 million pounds of annual milk
production.
The reimbursement is for 80% of the revenue diff er-
ence between what that milk sold for under a change in
the pricing formula that began in May 2019 and what it
would have sold for under the previous formula.
USDA’s payment rate will vary by region based on
actual losses on pooled milk. USDA will make pay-
ments to independent handlers and cooperatives, which
will distribute the money to their dairy producers.
But it’s not so simple, especially considering the
production cap.
Milk for all utilization in federal orders is pooled,
and milk producers in the pool are paid a blend price
based on the prices for and volumes of milk in each uti-
lization — such as fl uid, cheese or powder.
Sales of fl uid milk contribute to that blend price. So
reimbursement payments will be shared by producers
within the pool — but there are caveats.
Peter Vitaliano, chief economist at the National
Dairy Producers Federation, said he’d like to see more
detail from USDA.
But conceptually, the total payments to each fed-
eral order pool for each of the months July through
December 2020 — during which the current and pre-
vious Class I movers were so divergent — can be cal-
culated, he said.
“And it will refl ect the diff erence between the
respective total contributions of Class I skim milk to
each pool each month and, therefore, the same diff er-
ence in the uniform statistical (blend) price paid to pro-
ducers from each pool each month, based on their indi-
vidual pooled milk volumes,” he said.
Producers whose milk was depooled from any of
the orders during any of the six months will not get
payments, he said.
“Total cumulative payments to each producer will
be added up for each month and payments stopped
to each producer when their cumulative total reaches
payment for 5 million pounds,” he said.
It will make a diff erence for each producer whose
total payment is limited by the production cap if the
calculation is made sequentially from July to Decem-
ber or if it is based on an average over all six months,
he said.
have been previously, and
farmers lost money on
Class I milk. Revenue from
that milk is shared in federal
order pools, which market
milk for diff erent uses.
The newly announced
assistance program will
pay 80% of the revenue
loss to dairy farmers on an
annual production of up to
5 million pounds of milk on
fl uid milk sales from July
through December 2020.
The payment cap rep-
resents the annual produc-
tion of 210 cows in 2020,
according to USDA data.
While the 5 million pounds
of annual production covers
the majority of dairies in the
U.S., many in the West have
signifi cantly more cows and
higher production.
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USDA has come up with a way to reimburse small- and medium-scale dairy farmers
for low milk prices last year, but a national organization says the agency left out
many large-scale operations.
The price of soft white winter wheat
has rocketed past $10 per bushel in the
past week, but marketing experts dis-
agree on whether it will remain that
high.
The price of soft white wheat ranged
from $9.80 to $10.25 per bushel Aug. 17
on the Portland market.
“It really depends on what Austra-
lia does,” said Dan Steiner, grains mer-
chant at Morrow County Grain Growers
in Lexington, Ore.
“The USDA thinks the Pacifi c North-
west lost 100 million bushels worth of
production” this year because of the
drought, Steiner said. “Australia found
it. They’re on track right now for what
could be a huge crop.”
Australia had a record wheat crop of
1.2 billion bushels last year. This year’s
crop is estimated at 1.1 billion bushels.
That nation grows hard and soft vari-
eties and exports up to 75% of its total
production, according to the Australian
Export Grains Innovation Center.
USDA’s Aug. 12 World Agricultural
Supply and Demand Estimates report
projected U.S. soft white wheat pro-
duction this year would be 214 million
bushels, down 29% from 302 million
bushels last year.
USDA projections translate into about
a 93.2 million bushel crop for Washing-
ton state, the smallest since 1973, said
Glen Squires, CEO of the Washington
Grain Commission.
The state’s 2020 crop was 165.6
million bushels, according to the
commission.
“Tighter supplies from reduced pro-
duction certainly adds to price strength
relative to demand,” Squires said.
“With constrained supply this year
due to tight stock carryover plus the
reduction in production with the drought
impacts, we are seeing the strength of
that price,” said Amanda Hoey, Oregon
Wheat CEO, adding that higher prices
are “important for producers in this year
of low production.”
Australia could still experience pro-
duction problems, Steiner said.
“If they have a hiccup, if they have
hot weather come in, if it quits rain-
ing, or anything like that, we’re cer-
tainly, certainly going to
go higher,” he said. “If
Australia stumbles ... we
could be at $15 in very
short fashion.”
However, soft white
wheat prices would have
Dan Steiner a tough time rallying any
higher if Australia’s crop
continues at its current pace, Steiner
said.
At the same time, the market is short
enough that Steiner doesn’t see a lot of
downside for prices.
Another expert believes prices won’t
remain at their current levels for long.
Omaha, Neb., market analyst Darin
Newsom expects prices to snap back
lower, like a rubber band. The market
could drop by a dollar, he said.
“We did go to a new contract high
late last week,” he said. “That normally
doesn’t last long. When that rubber band
breaks, it snaps back to its base, which
is fundamentals, and so we see the mar-
ket sell off .”
Fundamentals include acres planted,
yield and demand. Newsom wants to see
them get more bullish, prompting inves-
tors to believe the market will go higher.
The export market could heat up this
year if — “and it’s a huge asterisk” —
USDA projections about a drop in global
wheat production prove correct.
Newsom said he is not yet convinced
supplies are tighter, except for high-pro-
tein hard red spring wheat.
“Markets are going to be searching
for some protein wheat, anything right
now,” he said, adding that “there’s just
not going to be a lot of spring wheat, in
Canada or the U.S.”
Soft white winter wheat discounts
for high protein due to heat stress will
likely remain, he said, since higher pro-
tein isn’t as desirable for products made
using that particular wheat class.
Steiner estimates the Pacifi c North-
west lost 30% to 50% of its wheat pro-
duction this year due to heat and drought,
depending on the area.
The market will fi gure out a way to
use any wheat, he said, even the wheat
with higher protein caused by heat stress.
“Right now they max out discounts
at 60 cents,” he said. “You’re looking at
$9.40 wheat. What’s wrong with $9.40
wheat? That’s a good number.”