Americans Chew Through Cheese
Published: Friday, September 1, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Falling cow numbers and output per cow put a small dent in July U.S. milk production as summer heat took its toll. The Agriculture Department's preliminary data put output at 19.075 billion pounds, down 105 million, or .5%, from July 2022. The top 24-state total, at 18.26 billion pounds, was down .6%.
The June 50-state total was revised up 37 million pounds from last month's estimate, which put output up .2% instead of the .2% decrease originally reported. The 24-state revision was up 37 million pounds, .4% above June 2022, instead of the .2% gain originally reported.
July cow numbers totaled 9.40 million head, down 3,000 from the June count which was revised down 5,000 head. The herd is 13,000 below a year ago, and the smallest since February 2022. The 24-state count was down 7,000 from June but dead even with a year ago.
Output per cow averaged 2,029 pounds, down 9 pound,s or .4%, from July 2022 in the 50 states and down 13 pounds to 2,047 pounds, or .6%, in the 24 states. Productivity losses were largest in parts of the West and Southwest. Michigan was up 4.1%, on 13,000 more cows and 25 pounds more per cow. Texas had a 3% drop in June, its first decline since January 2016, then saw a 4.3% drop in July due to 15,000 fewer cows and a 45-pound drop per cow.
Plenty of incentive remains for culling. The latest Livestock Slaughter report shows an estimated 244,200 dairy cows were sent to slaughter under federal inspection in July, down 11,500 from June, but 14,100, or 6.1%, above July 2022.
The week ending Aug. 17 saw 61,900 dairy cows go to slaughter, up 1,400 head from the previous week, and 4,300, or 7.5%, more than a year ago. Year-to-date 1,974,600 have been culled, up 108,700 head, or 5.8%, from a year ago.
StoneX says a substantial shift lower in beef heifer slaughter in the week ending Aug. 12 led to dairy cows accounting for over 10% of the beef market share.
Americans chewed through July butter and cheese inventories. The Agriculture Department's latest Cold Storage report shows butter holdings on July 31 at 331.6 million pounds, down a bullish 18.2 million, or 5.2%, from the June inventory, which was revised up 2.3 million pounds. But, stocks were 16.5 million pounds, or 5.2%, above those in July 2022.
American cheese stocks fell to 838.2 million pounds, down 15.3 million pounds, or 1.8%, from June, and 21.8 million, or 2.5%, below a year ago.
The "other" cheese category slipped to 627.8 million pounds, down 6.4 million pounds, or 1%, from June, and down 11.5 million, or 1.8%, below a year ago.
The total cheese inventory stood at 1.49 billion pounds, down 21.7 million, or 1.4%, from the June total, and down 33.2 million, or 2.2%, below a year ago.
StoneX broker Dave Kurzawski said the report came in under expectations in the Aug. 28 "Dairy Radio Now" program. However, it justified the high butter prices. "That doesn't underpin the market going forward but justifies what has happened" he said, adding it's a similar scenario on cheese and justifies the higher prices.
When asked about the USDA hearing that got underway last week on market order milk pricing, Kurzawski said, "It's a very significant process." The industry told USDA that we need to restructure the way we price milk in this country, he explained, and said over 20 organizations will make their proposals.
The National Milk Producers Federation called the hearing "a critical moment for dairy's future," and "following USDA's initial presentations, the hearing will launch into discussions of specific issues including milk composition; surveyed commodity products; Class III and Class IV formula factors; the Base Class I skim milk price; and Class I and Class II price differentials."
After the hearing's conclusion, entities involved will have time to respond to the testimony, followed by a USDA draft decision, then more discussion, and ultimately a vote by farmers on a final proposal, likely in the second half of 2024.
Cash cheese prices weakened last week as the Cheddar blocks fell to $1.89 per pound last Wednesday, lowest since July 27, but closed last Friday at $1.9450, down 8.25 cents on the week and 20.50 cents above a year ago.
The barrels finished at $1.80, 75 cents lower, 8.25 cents below a year ago, and 14.50 cents below the blocks. Sales totaled four cars of block and nine of barrel.
Cheesemakers tell Dairy Market News that demand is on par with previous years in mid to late August. Orders are average and inventories are balanced, but moving smoothly. Spot milk at mid-week was at Class III to 50 cents over. A number said they had not been offered any extra milk the past few weeks.
Western cheese demand is strong to steady, weighted more by the blocks. Export demand is reported as moderate to light, with Mexican purchasers showing less hesitation. Milk and cream volumes have tightened throughout the West but cheesemakers are running steady production, according to DMN. But, U.S. cheese prices remain above global levels and therefore uncompetitive.
Butter closed last week at $2.67 per pound, down 3 cents on the week and 41.25 cents below a year ago when it sat at $3.0825. There were 70 sales on the week. By the way, the highest butter price ever was $3.2675 on Oct. 6, 2022.
High summer temperatures are permeating a lot of the country, says DMN, but butter plants in the Midwest say cream became more available last week. School milk cream spinoff and lighter demand from Class II processors added to the supply and some processors were taking cream from the West. Cream handlers said Labor Day related preparations have already begun.
Cream tightened throughout the West and in some cases is short and or available at increased multiples. Manufacturers report steady to reduced butter output. Retail and food service demand is strong to steady while exports are more bearish as domestic prices are uncompetitive, says DMN.
Grade A nonfat dry milk closed at $1.1050 per pound, unchanged on the week, but 45.50 cents below a year ago. There were nine sales on the week.
Dry whey saw last Friday's finish at 28 cents per pound, up a penny on the week, highest since June 13, but 19 cents below a year ago, on 11 sales for the week.
Speaking of milk prices, the September federal order Class I base price was announced at $18.90 per hundredweight, up $2.28 from August but $4.72 below September 2022. It equates to $1.63 per gallon, down from $2.03 a year ago.
Fluid milk sales returned to their old ways in June after posting a tiny .2% gain in May, first increase since August 2022. The USDA's latest data shows packaged fluid sales totaled 3.2 billion pounds, down 1.3% from June 2022.
Conventional product sales totaled 3.1 billion pounds, down 1% from a year ago. Organic products, at 224 million pounds, were down 4.5%, and represented 6.8% of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 2.2% from a year ago, up 1.1% year to date, and represented 34.8% of total sales for the first half of the year. Skim milk sales, at 164 million pounds, were down 7.5% from a year ago and down 7.3% year to date.
Total packaged fluid sales for the six-month period amounted to 21.2 billion pounds, down 2% from 2022. Conventional product sales totaled 19.8 billion pounds, down 2%. Organic products, at 1.4 billion pounds, were down 2%, and represented 6.7% of total milk sales for the period.
China's July dairy import data looked a little more positive but no one is breaking out the champagne. Whole milk powder (WMP) imports were up 23.9% from July 2022 but HighGround Dairy says that's against a backdrop of relatively weak import volumes the previous year and only two-thirds of those in 2021.
HGD notes that New Zealand dominated the market with an 88% market share, "displacing every other region, a sign of how much of a discount New Zealand WMP exporters have been offering to move volumes."
Skim milk powder (SMP) imports were up 20.6%, and up 21%, year-to-date, but significantly lower than those in 2021. A key highlight, says HGD, was the impressive 74% year over year growth from New Zealand. Imports reached an all-time high volume for the month of July and possessed a 52% market share.
Whey product imports were down 4.4% but up 26% year to date. HGD said, "Trade with the U.S. dropped below prior year levels for the second consecutive month, a result of reduced demand for whey, but also SMP. Whey imports from the U.S. fell 30% from prior year, dragging overall volumes lower, though European-sourced whey jumped 18% from a year ago. More product flowed in from the Netherlands and Poland, says HGD. SMP from the U.S. dropped to just 1.1 million pounds, the weakest since May 2020.
Butter imports were down 34.4%, however, cheese imports were up 51.4%. HGD says cheese from the U.S. hit the highest since May 2018, up 323% YoY.
Fluid milk and cream imports slowed again in July, "a perceived marker of how weak demand is for imported fluid milk while China is flush with excessive local milk," said HGD. The most significant drop was from Australia, down 62%.
Last Tuesday's GDT Pulse saw a little over 2.2 million pounds of Fonterra whole milk powder sold at $2,450 per metric ton, down $325 from the last Pulse and down $30 from the Aug. 15 GDT.
HGD reported, "The C2 Regular WMP price tumbled further, setting a new record low for the Pulse Auction with each decline. Minimal Asian demand coupled with additional product volume coming to the market place perpetuates a bearish outlook for the near-term."
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