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Cheddar, Milk Powder Sales Give a Lift to the Global Dairy Market

by Lee Mielke

Published: Friday, January 27, 2023

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

Things look a little better globally. The second Global Dairy Trade event of 2023 saw its weighted average slip just .1% following a 2.8% drop on Jan. 3 and 3.8% on Dec. 20. Traders brought 70.3 million pounds of product to market, down from the 73.8 million on Dec. 20. The average metric ton price inched up to $3,393 U.S., up from $3,365 on Jan. 3.

Cheddar buoyed the market, up 4%, after falling 2.7% on Jan. 3. Whole milk powder inched .1% higher, after falling 1.4% last time. Skim milk powder was down .3%, after dropping 4.3%. Anhydrous milkfat led the declines, down .9%, following a 5.1% drop, and butter was off .6%, after dropping 2.8%.

StoneX Dairy Group says the GDT 80% butterfat butter price equates to $1.9687 per pound U.S., down 1.4 cents, after losing 5.5 cents last time, and compares to CME butter which closed last Friday at $2.3225. GDT Cheddar, at $2.2097, was up 8.2 cents, and compares to last Friday's CME block Cheddar at $1.8350. GDT skim milk powder averaged $1.2891 per pound, up from $1.2874, and whole milk powder averaged $1.4598 per pound, up from $1.4552. CME Grade A nonfat dry milk closed last Friday at $1.1750 per pound.

Buyers in North Asia, which includes China, were a lot less engaged in this event, according to Dustin Winston, as volume purchased fell from both the last event and last year. South East Asia, the Middle East, and South/Central America were the only regions whose purchases exceeded year-ago levels.

HighGround Dairy said, "Unless there's massive buying from China post-Lunar New Year, it believes that whole milk powder remains in a quiet state with little volatility ahead. The current freight differential between the U.S. and E.U. makes European-sourced skim milk powder more attractive, and buyers of U.S. product remain in wait-and-see mode. China's butter volume dropped to its lowest levels in three months and the contract 2 price is at lows not seen since July 2021."

StoneX points out, "For now the expected rebound in demand from China is somewhat more satisfied by strong domestic production rather than their usual thirst for external sourced product. It is still largely cheaper to import dairy, but it doesn't advance their agenda. While domestic milk production is strong in China, domestic demand still suffers from COVID. And profit margins are weaker heading into 2023."

Chinese imports in December were actually much better than expected, according to StoneX, up 14.5% from last year. "Exports out of the major exporters to China were down 30% during November. Since most of that product lands in China during December, we were expecting Chinese imports to be down at least 20%. But comparing this December-January to previous December-January periods is tricky."

"China has a free trade agreement with New Zealand that allows a limited amount of dairy products into China at a reduced tariff rate on a first-come basis. So in the past we've seen New Zealand shipments to China surge in November and December, but then sit in customs and not clear through until January to take advantage of the reduced tariff. However, the volume of product eligible for this reduced tariff is reportedly zero in 2023, which means there is no incentive to clear the product through customs in January versus December," said StoneX.

"Chinese importers didn't sit on product in December like they have in the past, they just pulled it all through customs. That is how we end up with exports to China down 30% and official Chinese imports up 14.5%, or at least we think that is what is going on here. If we're right, January imports could be down 30-40% from last year since a lot of product cleared in December and wasn't held over into January," StoneX concludes.

CME dairy prices headed lower in the shortened Martin Luther King Day holiday week. The Cheddar blocks closed last Friday at $1.8350 per pound, down 16.50 cents on the week, lowest since Sept. 6, 2022, but 2.75 cents above a year ago.

The barrels finished at $1.58, 12.75 cents lower on the week, lowest since Nov. 29, 2021, 23.25 cents below a year ago, and 25.50 cents below the blocks, which may be reflecting actual supply and demand. Sales totaled five cars of block and 12 of barrel on the week, as the annual IDFA Dairy Forum kicked off in Orlando.

"The cheese demand spectrum has widened from week two," said Dairy Market News. Some processors continue to say demand remains quiet, while others, namely retail Cheddar and Italian pizza-style cheesemakers, say orders have picked up some. Milk availability has not changed and spot prices were as low as $10 under class again last week, fourth week in a row. Cheese output is therefore plentiful though some plants say upcoming scheduled maintenance could keep even more downward pressure on available milk. Market tones are a little uncertain, says DMN, but there is plenty of processing going on.

Demand for cheese is unchanged in western retail markets, though some report strengthening food service sales. Football playoffs are contributing to increased demand for Mozzarella from pizza makers in the region. Export demand remains steady, though lower international prices may lighten that demand going forward. Sales to Asian markets are strong. Milk is plentiful in the region and cheesemakers are busy, though labor shortages and continued delayed deliveries of supplies is keeping some plants from operating full schedules.

Butter fell to last Friday's finish at $2.3225 per pound, lowest since Dec. 27, 2021, down 10.25 cents on the week, and 61.25 cents below a year ago when it jumped 21 cents. There was only one sale on the week at the CME.

Cream is still readily available, reports DMN, though cream prices rose somewhat midweek. Churning has been busy. Butter demand is "meeting seasonal expectations." Plant management is focused on spring holiday inventory readiness, says DMN. Market tones are holding somewhat firm.

The West continues to see plenty of cream which was outpacing demand in some cases. Butter production remains strong. Unsalted butter stocks remain tighter than salted as availability continues to work towards balancing with demand. Butter demand is unchanged. Some contacts report first quarter sales being covered, but a lagging start to second, third and fourth quarter sales, as hesitation remains for booking into the remaining quarters of 2023, says DMN.

Grade A nonfat dry milk fell to the lowest level it has seen since March 26, 2021, closing last Friday at $1.1750 per pound, down 8 cents on the week and 64 cents below a year ago. There were 20 loads that exchanged hands on the week.

Dry whey closed last Friday at 32.50 cents per pound, 75 cents lower on the week, lowest CME price since Aug. 13, 2020, and 47.50 cents below a year ago. There were 16 sales reported for the week.

The February federal order Class I base milk price was announced by the USDA at $20.78 per hundredweight, down $1.63 from January, 86 cents below February 2022, and the lowest Class I price in 12 months. It equates to $1.79 per gallon, down from $1.86 a year ago. Part of the reason the Class I is falling is because fluid milk sales continue to flounder. The Agriculture Department's latest data shows November sales of packaged fluid products at 3.69 billion pounds, down 2.9% from November 2021.

Conventional product sales totaled 3.5 billion pounds, down 2.7% from a year ago. Organic products, at 230 million pounds, were down 4.9%, and represented a typical 6.2% of total sales for the month.

Whole milk sales totaled 1.3 billion pounds, up 1.5% from a year ago, up 1.4% year to date (YTD), and represented 34.1% of total milk sales YTD. Skim milk sales, at 187 million pounds, were down 8.7% from a year ago and down 8.5% YTD. Total packaged fluid sales for the 11 months amounted to 39.5 billion pounds, down 2.3% from 2021. Conventional product sales totaled 36.9 billion pounds, down 2.4%. Organic products, at 2.6 billion, were down 1.2%, and represented 6.6% of total milk sales for the period.

The figures represent consumption in federal milk marketing order areas, which account for approximately 92% of total fluid milk sales in the U.S.

Checking other demand data, November U.S. total cheese disappearance hit 1.197 billion pounds, up just .4% from November 2021, and it was only up that much because of exports. Domestic utilization fell below the previous year for the first time since July 2022, according to HGD Dairy, off .4%, while exports, at 82.6 million pounds, were up 12.8%.

Butter utilization totaled 219 million pounds, down 6.1%, with domestic use down 11.3%. Exports, at 18.6 million pounds, were up 158.3%, highest since March 2014, according to HGD. Year-to-date butter utilization was down 6.7% domestically, while exports were up 52.7%.

Nonfat dry milk utilization, at 191.8 million pounds, remained below a year ago for the sixth consecutive month, down 10.7% from a year ago, due to weak domestic demand which was down 33.1%, and had been poor throughout 2022. Exports totaled 155.2 million pounds, down 3% from a year ago, and down 7.2% YTD.

Dry whey exports amounted to 70.2 million pounds, down 5.3% from a year ago, with domestic use down 28.3%, and exports totaling 43.8 million were up 17.4%.

Speaking in the Jan. 23 Dairy Radio Now broadcast, HGD's Eric Meyer, referenced the above data and the falling CME product prices, levels not seen in months or years in some cases. He also warned of milk production growth in the northern hemisphere, specifically Europe, where he said output has turned positive the last few months.

He said we are still absent November data for a couple countries but, "We expect a number that's going to be close to 2% year-over-year growth. They're having a significantly warmer winter season that's leading to decent milk production growth," he explained, "So European dairy commodity prices have fallen and it appears that the U.S. market is following," he concluded.

Down on the farm, dairy culling in the U.S. was up in December but slightly below December 2021, according to the USDA's latest Livestock Slaughter report. An estimated 266,300 head were sent to slaughter under federal inspection, up 15,400 head from November but 1,500, or .6%, above December 2021. Culling for the year totaled 3.05 million head, down 59,100, or 1.9%, from a year ago.

Meanwhile, the Agriculture Department's monthly Livestock, Dairy and Poultry Outlook, issued Jan. 19, said, "Based on expectations of lower milk prices, and steady to higher feed costs, the number of milk cows is projected lower in 2023 at 9,405 million head, down 15,000 from last month's report."

The USDA Cattle report, which will be issued Jan. 31, is expected to provide a better sign of future changes in the dairy herd size, according to the outlook. The average yield per cow projection for 2023 was unchanged at 24,370 pounds.

Dairy export projections for 2023 were increased as domestic prices for dairy product are expected to be competitive compared to international prices. The outlook mirrored milk price and production projections in the Jan. 12 World Agricultural Supply and Demand Estimates report, which I previously reported.

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