Milk Report Shows Output Lagging for Seventh Consecutive Month
Published: Friday, July 1, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. milk production continues below that of a year ago, with May being the seventh consecutive month. Preliminary data shows output at 19.7 billion pounds, down .7 percent from May 2021, and follows a 1 percent drop in April. Output in the top 24 states totaled 18.8 billion pounds, down .6 percent. Revisions lowered the 50-state April estimate of 3 million pounds to 19.1 billion, still 1 percent below a year ago.
While dairy farmers have added 38,000 cows to the milking string since the first of the year, they only added 2,000 in May, putting the herd at 9.41 million head, 102,000 less than a year ago. The April tally was revised, up 1,000 head. May output per cow averaged 2,096 pounds, up 8 pounds from May 2021.
Speaking in the June 27 Dairy Radio Now broadcast, Matt Gould, editor and analyst with the Dairy and Food Market Analyst newsletter, called the Milk Production report "a big deal." The industry is watching the monthly reports, wondering when dairy farmers will "turn it on or ramp it up," he said, referring to milk output, and this report did not give any indication that is happening. He said it's a global occurrence, citing lower output in New Zealand and Europe, calling it "good news for American dairy farmers, as that will keep support in the market for the foreseeable future."
He doesn't see a milk shortage, like we did on toilet paper, but says the pandemic resulted in "long effects." Expansions, both at the farm and processor level, were delayed. "Farmers are now getting the economic signal to expand, but how long will that take? Normally it takes six months of profitability to trigger a meaningful increase in cow numbers and milk output." If that holds true, Gould said we should see that indication this summer. "The longer it takes for the supply response, the longer prices are going to stay high," he concluded.
Meanwhile, the June 21 Daily Dairy Report says, "Low slaughter rates and high milk prices suggest that dairy producers could continue to add cows. However, amid high feed costs, supply management programs and low heifer inventories, growth in the dairy herd will likely remain incremental."
High milk prices continues to keep cows milking. Culling fell in May but was slightly above a year ago, according to the latest Livestock Slaughter report. An estimated 225,200 head were sent to slaughter under federal inspection, down 12,600 from April but 1,800 head above May 2021. Culling in the five-month period totaled 1.29 million head, down 38,000, or 2.9 percent, from a year ago.
U.S. butter stocks climbed higher in May but remained well below a year ago. The Agriculture Department's latest Cold Storage report shows the May 31 inventory at 321.6 million pounds, up 23.3 million pounds, or 7.8 percent, from April but 92.3 million, or 22.3 percent, below a year ago, the eighth consecutive month stocks were below the previous year. The April tally was revised down 1.3 million.
American-type cheese stocks hit 857.9 million pounds, up 22.2 million pounds, or 2.6 percent, from April, and up 29.9 million, or 3.6 percent, above those a year ago. The "other" cheese category crept up to 628.3 million pounds, up 7.1 million, or 1.1 percent, from April, and 19.8 million pounds, or 3.3 percent, above a year ago.
The total cheese inventory hit a bearish record high 1.512 billion pounds, up 31.1 million pounds, or 2.1 percent, from April, and 53.6 million, or 3.7 percent, above a year ago.
The "recovery" in the Global Dairy Trade auction suffered a relapse as the weighted average fell 1.3 percent, after inching up 1.5 percent on June 7 ending five consecutive declines prior to that.
Cheddar led the declines, dropping 9 percent, after falling 3.6 percent in the previous event. Anhydrous milkfat was down 4.7 percent, after gaining 2.7 percent, and whole milk powder was off .6 percent, following a .3 percent slip.
Butter was up 2.4 percent, which follows a 5.6 percent advance, and skim milk powder was up 1 percent, after a 3 percent rise last time.
StoneX says the GDT 80 percent butterfat butter price equates to $2.7496 per pound U.S., up 6.5 cents after gaining 14.1 cents in the previous event, and compares to CME butter, which closed last Friday at $2.9150. GDT Cheddar, at $2.2114, was down 22.2 cents after losing 12.3 cents last time, and compares to last Friday's CME block Cheddar at $2.09. GDT skim milk powder averaged $2.0573 per pound, up from $1.9231. Whole milk powder averaged $1.8713 per pound, down from $1.8861. CME Grade A nonfat dry milk closed last Friday at $1.79 per pound.
Indications are "the elephant in the room" is still not in the room, meaning lack of China's purchases plays a big role in the GDT. May dairy imports likely reflect that much of China's population was in lockdown. Whole milk and skim milk powder imports totaled just 162.9 million pounds, down 36.9 percent from May 2021.
Whey products totaled 98.3 million pounds, down 39.3 percent, although HighGround Dairy points out that China increased whey and nonfat dry milk imports from the U.S., thanks to our competitive prices.
Butter imports amounted to 16.8 million pounds, down 26.5 percent. However, HGD says China continues to lock in product at the GDT, "indicating supplies are tight."
Cheese totaled 37 million pounds, up 2.6 percent. HGD says the pairing with larger purchases of fat on GDT hint toward an inventory rebuild for foodservice, especially with May cheese imports moving counter-seasonally to the upside.
HGD adds that New Zealand's exports to China nearly halved from a year ago, down 46 percent. Whole milk powder saw the steepest losses, down 66 percent, skim milk powder fell 51 percent, fluid milk down 20 percent, and butter was down 44 percent from 2021.
Milk Price Unchanged
Back home, the July federal order Class I base milk price was announced by the USDA at $25.87 per hundredweight, unchanged from the record high June price, but $8.45 above July 2021. The seven-month average sits at $23.69, up from $16.31 a year ago, $15.94 in 2020, and $16.12 in 2019.
Block cheese fell for the fifth week in a row at the CME, closing the Juneteenth holiday-shortened week at $2.09 per pound, down 5.50 cents on the week, 30.25 cents below its recent peak, but still 60 cents above a year ago.
The barrels finished at $2.1475, down a penny, sixth week of loss, 29.25 cents below its peak, but 65.75 cents above a year ago, and 5.75 cents above the blocks. There were three sales of block at the CME and only one of barrel.
While cheese producers continue to face labor and supply chain shortages, milk availability is moving in the other direction, according to Dairy Market News. Spot milk prices fell as low as $5 under class, with no expectation of change before the July 4th holiday. Plants continue to work through widely available milk while having lighter employee numbers.
Demand for cheese is trending lower across both retail and food service markets in the West. Restaurants are reducing operating hours due to high food costs, reduced consumer spending and labor shortages. Export demand remains strong. Cheesemakers are running busy schedules, as Class III milk remains available, though some remain below capacity due to labor shortages and delayed deliveries of production supplies, according to DMN.
Cash butter oscillated some but closed the last Friday of June at $2.9150 per pound, 2.50 cents lower but $1.1975 above a year ago on 17 sales for the week.
Central butter makers say cream is still "reachable," despite stronger ice cream production, but some loads are easier to pull from the Rocky Mountain region. Butter prices near $3 prompted a push of production, but week after week, regular reports of employee shortages continues to depress full output. Butter demand is quiet, as expected in the early days of the summer, but there remains a concern that late summer/early fall demand will outweigh availability. Inventories are balanced now, says DMN, "but expectations are unclear moving into a hot summer with clear expectations of lower milkfat output at the farm."
Grade A nonfat dry milk closed last Friday at $1.79 per pound, down a penny on the week but 52.50 cents above a year ago, with seven cars finding new homes.
Dry whey fell to a Friday finish at 47.50 cents per pound, 3.25 cents lower and 10.25 cents below a year ago, with 14 sales reported on the week at the CME.
The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC says, "Dairy margins were steady to slightly weaker the first half of June as projected feed costs increased while milk prices retreated, although not before advancing to new contract highs at the beginning of the month."
"Class III milk futures prices have been supported by strong cheese demand, with Class IV prices receiving support from butter that recently eclipsed $3 per pound. Strong cheese demand drove dairy product exports higher in April."
"Dairy product manufacturers prioritized the production of Class III products in April," the MW stated, citing data from the latest Dairy Products report. "Lighter production of Class IV products will support butter and powder," the MW said, "although historically the butter market does not remain above $3 for very long before dropping sharply. The last time butter was above $3 in both 2014 and 2015, prices finished the year significantly lower. High prices are already showing signs of demand destruction with domestic butter use during the first four months of the year down 3.6 percent from the record levels of 2021," according to the MW.
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