2021 Milk Production Reduced; Class 3 Milk Price Down 65 Cents
Published: Friday, July 23, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department lowered its 2021 milk production estimate in its World Agricultural Supply and Demand Estimates (WASDE), as slower-than-expected growth in milk per cow more than offset higher forecast cow numbers.
The 2022 production estimate was raised, however, based on higher expected cow numbers. The WASDE stated that USDA's Cattle report, to be released on July 23, will provide a mid-year estimate of the cow inventory and producer intentions regarding retention of heifers for dairy cow replacement.
2021 production and marketings were estimated at 228.2 and 227.2 billion pounds, respectively, down 300 million pounds on production from last month's estimates and 200 million pounds less on marketings. If realized, 2021 production would still be up 5 billion pounds, or 2.2 percent, from 2020.
2022 production and marketings were estimated at 231.6 and 230.5 billion pounds, respectively, up 500 million pounds on both. If realized, 2022 production would be up 3.4 billion pounds, or 1.5 percent, from 2021.
Cheese, butter, nonfat dry milk (NDM) and whey price forecasts for 2021 were lowered from last month on relatively high stocks and weaker-than-previously-expected demand. As a result, Class III and Class IV prices were lowered.
USDA analysts project a 2021 Class III average of $16.80 per hundredweight, down 65 cents from last month's projection, and compares to $18.16 in 2020 and $16.96 in 2019. Last Thursday's futures settlements, added to the already announced Class III prices, would portend a $17.23 average for 2021. The 2022 average was estimated at $16.75, down 40 cents from last month's estimate.
The 2021 Class IV average was estimated at $15.40, down 45 cents from last month, and compares to $13.49 in 2020 and $16.30 in 2019. The 2022 Class IV average was projected at $15.75, down 20 cents from a month ago.
Price forecasts for cheese and butter in 2022 were lowered on larger expected stocks and higher production, but forecasts for NDM and whey were unchanged.
The U.S. corn outlook was for larger supplies, greater feed and residual use, increased exports and higher ending stocks. Beginning stocks were lowered 25 million bushels, based on greater feed and residual use as indicated in the June 30 Grain Stocks report. Corn production was forecast 175 million bushels higher, based on greater planted and harvested area from the Acreage report.
The national average corn yield was unchanged at 179.5 bushels per acre. High temperatures and drought may change that. Total corn use was forecast 75 million bushels higher, with increases for feed and residual use and exports. Feed and residual use was raised reflecting a larger crop. Exports were raised 50 million bushels, with sharply lower exports expected for Brazil. With supply rising more than use, ending stocks were up 75 million bushels. The season-average farm price received by producers was lowered 10 cents to $5.60 per bushel.
Soybean production was projected at 4.4 billion bushels, unchanged from last month, despite widespread drought. Harvested area, forecast at 86.7 million acres, was unchanged from last month, but up 4.4 million from last year. The soybean yield forecast was unchanged at 50.8 bushels per acre.
Soybean supply and use forecasts were also unchanged. Ending stocks were unchanged at 135 million bushels. The season-average soybean price was forecast at $11.05 per bushel, down 20 cents, and soybean meal was projected at $395 per short ton, down $10.
Dairy economist and principal Bill Brooks, of Missouri-based Stoneheart Consulting, reported in the July 19 Dairy Radio Now broadcast that dairy farm profitability this year will be about $1.81 per hundredweight below that of a year ago, based on July 12 futures prices, and $1.17 below the five-year average. On a brighter note, he said profitability looks a little more promising next year.
In the week ending July 3, 52,900 dairy cows were sent to slaughter, down 2,900 from the previous week but 6,500, or 14 percent, above that week a year ago.
Dairy demand remains good, according to USDA's latest data. May total cheese demand was down 4.7 percent from the record set in April, but was 1.7 percent above May 2020, the fifth consecutive month to top a year ago, and up 6.1 percent year to date.
Butter disappearance was up 4.5 percent from April but 1 percent below a year ago, though year to date is up 4.4 percent.
There was lots of red ink on the powder. Nonfat dry milk and skim milk powder was down 15.4 percent from April and 21.4 percent below a year ago. HighGround Dairy points out that while nonfat dry milk exports jumped to another record high into May, it was not enough to overcome a steep decline in domestic disappearance.
Dry whey was down 11.5 percent from April, weakest May volume on record due to weak domestic demand, according to HGD, and was 4.6 percent below a year ago.
Fluid milk sales continue to falter. May sales totaled 3.6 billion pounds of packaged fluid products, down 4.3 percent from May 2020. Conventional product sales totaled 3.4 billion pounds, down 3.9 percent from a year ago. Organic products, at 225 million, were down 10.6 percent, and represented 6.2 percent of total sales for May.
Whole milk sales totaled 1.2 billion pounds, down 9.7 percent from a year ago, with year to date consumption down 8.3 percent from a year ago. Whole milk represented 32.4 percent of total milk sales for the five-month period.
May skim milk sales, at 203 million pounds, were down 15.3 percent from a year ago and down 14.7 percent year to date.
Total packaged fluid milk sales for the five months amounted to 18.7 billion pounds, down 4.8 percent from 2020. Conventional product sales totaled 17.5 billion pounds, down 5.1 percent. Organic products, at 1.2 billion pounds, were down .4 percent, and represented 6.4 percent of total milk sales for the period. The figures represent consumption in federal milk marketing order areas, which account for approximately 92 percent of total fluid milk sales in the U.S.
Checking CME dairy prices, the 40-pound Cheddar blocks climbed to $1.7525 per pound last Tuesday, highest since May 13, but then came Wednesday and prices retreated from there. They closed the third Friday of the month at $1.6150, down 11 cents on the week and $1.0450 below a year ago when they plunged 25.50 cents, after setting a new record high of $3 per pound on July 13.
The 500-pound barrels got to $1.6475 last Tuesday, highest since June 15, but saw their Friday close at $1.44, down 14 cents, 99 cents below a year ago, and 17.50 cents below the blocks. Seven cars of block were sold on the week and 27 of barrel.
Spot milk remains widely available in the Midwest, according to Dairy Market News. Cheese production is busy, but a growing number of cheesemakers are staying clear of the spot milk market as they already have plenty. Staffing and labor shortages are becoming more problematic. Cheese demand is steady to busy. Food service orders from the Eastern region, namely pizza cheese buyers, are keeping Midwestern producers busy, says DMN.
Western retail and food service cheese demand held steady last week and export demand was strong due to competitive prices. Limited available vessel space and port congestion continues to cause delays to exports and domestic transportation is not faring much better as contacts report delays and rising prices due to a shortage of truck drivers and difficulties obtaining shipping supplies. That's also limiting warehouse space. Milk continues to be available in the region, though output has passed its peak. Cheese output remains busy.
The continuing shortage of containers for 640-pound cheese is raising concern on the effect on prices. StoneX speculates, "It would seem if we have an issue with 640s, production will flip to 40s and that would mean more lots available to come to spot, but it also likely means that the blocks will remain a bit tighter. That could shift some production to the barrels as well, leaving them a bit over supplied, and could result in a wider block/barrel spread for a period of time."
StoneX adds, "One area we believe may be underestimated by the trade is schools opening up this August and September. And not just schools, but the expected bump in food service as people cover their grills and eat out more. In fact, the confluence of both of these factors is normally known and priced in. But this year it's worth asking if the supply chains have what they need.
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