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Latest Milk Production Report Viewed as Neutral by Dairy Trade

by Lee Mielke

Published: Friday, December 2, 2022

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

U.S. milk production continues to recover. USDA's latest data shows October output at 18.85 billion pounds, up 1.2% from October 2021, fourth consecutive month to best that of a year ago. The 24-state total, at 18.1 billion pounds, was up 1.4%. The latest WASDE projects 2022 output will total 227 billion pounds, up just .3% from 2021. Revisions lowered the 50-state September total by 13 million pounds to 18.3 billion, up 1.4% from a year ago instead of the 1.5% increase originally reported.

October cow numbers totaled 9.418 million, up 1,000 head from September numbers, which were revised 6,000 head higher. The October herd was up a hefty 31,000 from a year ago and 51,000 more than in January. The October 24-state count was up 42,000 head from a year ago.

Output per cow averaged 2,001 pounds, up 17 pounds, or .9%, from October 2021. September output per cow was revised down 3 pounds, to 1,940 pounds.

California cows produced 3.4 billion pounds, down 18 million pounds, or .5%, from a year ago. Cow numbers were up 4,000 but output per cow was down 15 pounds. Wisconsin put 2.7 billion pounds in the tank, up 17 million, or .6%. Cow numbers were down 7,000 but output per cow was up 25 pounds. Idaho was up 3.2% on a 35-pound gain per cow and 10,000 more cows. Michigan was up .3% despite a loss of 7,000 cows. Output per cow was up 45 pounds.

The report is viewed as neutral to the market. StoneX Dairy points out that, while 12 of 24 states lost cows in October, overall cow numbers are growing following some contractions in the herd the last few months.

Dairy cow culling was down again in October. An estimated 252,800 head were sent to slaughter under federal inspection, according to the latest Livestock Slaughter report, down 7,700 head from September and 3,400, or 1.3%, below October 2021. Culling in the 10-month period totaled 2.53 million head, down 63,100, or 2.4%, from a year ago.

Checking the cooler, U.S. butter stocks were below those of a year ago in October, according to the Agriculture Department's latest Cold Storage report. Oct. 31 stocks totaled 239.6 million pounds, down 27.7 million pounds, or 10.4%, from September, but that's well below the typical October drawdown of 47 million pounds, according to the Nov. 22 Daily Dairy Report, and likely due to the high prices. Stocks were also 39.2 million pounds, or 14.1%, below those a year ago.

American-type cheese stocks fell to 830.8 million pounds, down 12.3 million pounds, or 1.5%, from September, and 12.5 million, or 1.5%, below a year ago.

The "other" cheese category saw stocks dip to 595.9 million pounds, down 7.7 million, or 1.3%, from the September level, but up 12 million pounds, or 2.1%, above a year ago.

The total cheese inventory fell to 1.448 billion pounds, lowest since January, down 21.7 million pounds, or 1.5%, from September, and 460 million pounds, or .03%, below a year ago.

The DDR points out that this is only the second time in 18 months that cheese stocks slipped under prior-year volumes. HighGround Dairy (HGD) sees the report as neutral on cheese but bearish on butter.

Dairy prices were mixed in the shortened Thanksgiving Day week. The Cheddar blocks closed last Wednesday at $2.15 per pound, down 8.25 cents on the week but 29.25 cents above a year ago. No block was traded and only two cars of barrel.

After plunging 13.50 cents the previous week, the barrels fell to $1.8050 last Tuesday, lowest since Aug. 8, and a loss of 24.75 cents in five consecutive sessions. They recovered 1.25 cents last Wednesday to close at $1.8175, 11 cents lower on the week, but 29.25 cents above a year ago. They were also at a 33.25 cent deficit to the blocks, which HGD stated that, "When excluding 2020, Tuesday saw the highest block premium over barrels since the non-pandemic record high of 43.25 cents per pound set on Sept. 23, 2019.

"We excluded 2020," said HIGD, "because of the COVID-19 pandemic dramatically impacting the supply/demand fundamentals of cheese, particularly blocks, where the spread got as wide as $1.0125 per pound on Sept. 21, 2020."

Central cheese production schedules varied last week, according to Dairy Market News. Some plants were finding extra milk in a somewhat consistent range with previous weeks, while others saw discounts as low as $4.50 under class.

Western retail demand for cheese is steady, though food service demand is mixed. Restaurants were operating reduced hours around Thanksgiving while some said increased traveling may contribute to higher sales for those that are open. Export cheese demand remains strong, thanks to competitive prices. Milk is available for cheese makers to run busy schedules but some say labor shortages and delayed deliveries of supplies continues to limit output.

Butter, after dropping 9.50 cents the previous week, was flirting with $3 again, shooting to a $2.9475 per pound close, up 13.75 cents on the week and 95.75 cents above a year ago. There were 17 loads traded on the short week.

Butter producers stayed somewhat busy Thanksgiving week, according to DMN, with some running through the weekend with spot loads of cream at multiples below 1.20 for the second week in a row. Some plants are behind on order fulfillment and were churning as much as possible. DMN said, "Butter market tones continue to find bullish tailwinds, defying some contacts' expectations."

Milk production is steady to higher in the West and contributing to increased cream availability. Strong demand is present for cream, though some had additional loads for sale, at lower multiples ahead of the holiday. Strong demand is present for cream from butter makers and Class II processors, says DMN.

Grade A nonfat dry milk closed last Wednesday at $1.3975 per pound, down 3 cents on the week and 16.50 cents below a year ago, with four sales on the week.

CME whey held fast at 44 cents per pound for nine consecutive sessions, 26 cents below what it was trading at a year ago, with two sales on the short week.

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