Milk Production Forecast Drops, Expected Butter Prices Rise
Published: Friday, July 26, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
As reported last week the Agriculture Department lowered its 2024 and 2025 milk production forecasts in World Agriculture Supply and Demand Estimates, based on slower growth in milk per cow more than offsetting higher cow numbers.
Cheese is expected to average $1.82 per pound for 2024, up 3 cents from last month's estimate, and compares to $1.7593 in 2023 and $2.1122 in 2022. The 2025 average was raised 6 cents to $1.8550 per pound.
The 2024 butter price average was raised to $3.0050 per pound, up 3.5 cents from last month's projection, and compares to $2.6170 in 2023 and $2.8665 in 2022. The 2025 average was projected at $2.9650, up 2 cents from last month.
Nonfat dry milk is expected to average $1.1850 per pound in 2024, compared to $1.1856 in 2023 and $1.6851 in 2022. The 2025 average was projected at $1.19.
Dry whey is projected to average 44 cents per pound in 2024, up from 36.18 cents in 2023, but compares to 60.57 cents in 2022. The 2025 average was projected at 42.50 cents per pound.
Class III and IV milk price forecasts were raised on the higher product prices and tighter milk supplies. The stronger prices are expected to carry into 2025. The 2024 Class III was projected to average $18.25 per hundredweight, up 35 cents from last month's estimate and compares to $17.02 in 2023 and $21.96 in 2022. The 2025 average was estimated at $18.45, up 75 cents from a month ago.
The Class IV projection for 2024 is $20.75, up 25 cents from last month's estimate, and compares to $19.12 in 2023 and $24.47 in 2022. The 2025 average was pegged at $20.60, up 50 cents from last month's estimate.
Dairy cow slaughter for the week ending July 6 totaled 40,200 head, down 6,300 from the previous week, and 10,400, or 20.6%, below a year ago. Year to date, 1,428,900 have been culled, down 243,300 head, or 14.5%, from 2023.
The USDA's Livestock, Dairy and Poultry Outlook, issued July 18, mirrored milk price and production projections in the July 12 World Agricultural Supply and Demand Estimates report but added, "With higher all-milk prices and lower feed costs in the near-term, dairy farm margins are expected to further improve through the second half of 2024, which could have a lagged positive impact on the number of cows in 2025.
"However, relatively tight supplies of dairy heifers may constrain the ability to expand rapidly. Consequently, the forecast for the average size of the dairy herd in 2025 is revised upward by 5,000 head to 9.375 million head. Conversely, the yield per cow is lowered 30 pounds to 24,440 pounds after adjusting for lower expected yields in 2024," the outlook reported.
Bird flu in dairy cows continues to spread. Oklahoma became the 13th state. Some 156 dairy herds are affected, according to CDC. Human cases in the U.S. total nine since 2022. Four cases followed exposure to dairy cows, reported between April 1 and July 3, and there has been five cases following exposure to poultry in three states. The FDA and USDA continue to assure consumers that the commercial milk supply is safe because of the pasteurization process and the diversion or destruction of milk from sick cows.
Dairy product prices remain well above year ago levels and HighGround Dairy's Alyssa Badger credited limited milk production in the July 22 "Dairy Radio Now" broadcast. She blamed scorching high temperatures in the Midwest and West and said heat stresses cows a lot sooner than humans. University of Minnesota data shows stress begins at 72 degrees with 50% humidity. Two and a half pounds of milk per cow per day can be lost, she said, and as much as 10 pounds, depending on how hot it gets. It also takes time for the cows to return to their normal output.
This will likely show up in the June and July milk production, she said, and if you add that to losses from bird flu, we could see U.S. milk output remain depressed. That points to dairy prices remaining strong, according to Badger, who also cited dairy disappearance data. Cheese utilization was up in May, third month in a row, and butter, which remains above $3 per pound even with production up considerably, saw domestic demand jump 18.2%. Domestic use accounts for 97% of total consumption, according to Badger, and this was the highest May number since this data became available in 2011.
Traders anticipating the June Milk Production report on July 23, took the Cheddar blocks to $1.86 per pound last Monday, lowest since June 21, but closed last Friday at $1.8650, down 2.50 cents on the week and 8.25 cents above a year ago when they jumped 30.25 cents. The barrels finished at $1.9125, up 6.25 cents on the week, 25.75 cents above a year ago when they advanced 26.25 cents, and 4.75 cents above the blocks. Sales totaled 23 of block on the week and 22 of barrel.
StoneX stated in its July 15 "Early Morning Update," "Slower export sales in June (not what will be reported for June but sales made in June) and perhaps a pause in domestic buy side activity may have a hand in this burst of additional available supply of fresh Cheddar on offer at the CME. We also believe the risk of strong cheese prices still exists. Besides the under-whelming overall milk production situation this year, present pockets of fresh milk tightness, and general lack of ability by producers to respond quickly to high priced milk markets, we've just made less Cheddar so far this year. Cheddar production this year is down 8.2% after adjusting for leap year and that matters when it comes to persistent availability of fresh cheese to come to market."
Midwest cheesemakers tell Dairy Market News that demand ranged from on par to quieter last week. Some suggest market price volatility was playing a part and buyers may be waiting for potential price dips. Cheese production is active and "the writing is on the wall regarding tightening milk supplies in the region," said DMN. There were sub-class prices reported last week but others were $1.50-over class and spot milk is being sought after.
Western cheese output is steady to weaker but demand for Class III milk is strong as milk output throughout the region is seasonally weakening. Cheese is widely available. Domestic demand is stronger, says DMN, but export demand is moderate as U.S. prices become less competitive.
Butter crept to $3.1375 per pound last Tuesday but closed last Friday at $3.0750, down 2.50 cents on the week but still 49.25 cents above a year ago. There were 69 sales on the week, highest weekly total since August 2023.
Butter makers note demand began to soften the past two weeks and the price fell to $3.10 per pound the previous week. Customers may have sensed some potential weakness albeit relatively slight. Cream availability made a somewhat rare move for this time of year, as it increased in the Midwest.
Churns are running atypically strong for this time of the year but are far from capacity. Cream is arriving from both the West and Central regions, says DMN.
Western butter production is weaker. Fat components are decreasing in the southwest. Cream volumes are tighter throughout the region. Ongoing churn maintenance is taking place while milk volumes are seasonally lower. Domestic demand is steady to lighter. Exports are moderate, according to DMN.
Grade A nonfat dry milk closed last Friday at $1.1975 per pound, up 1.75 cents on the week, highest since June 21, and 7.75 cents a year ago, with 10 sales.
CME dry whey ended up at 51.75 cents per pound, .75 cents higher, highest since Feb. 23, and 26.50 cents above a year ago, with only two sales reported.
The Daily Dairy Report's Monica Ganley Quarterra wrote on the July 12 Milk Producers Council newsletter, "Manufacturers continue to show a distinct preference for value added products like whey protein isolates and high protein whey protein concentrates. As a result, the portion of the whey stream routed to dry whey remains limited and is likely to keep prices supported in the near term."
Fluid milk sales continue to impress, registering gains in January and February of 2.4% and 2.5%, respectively. They dropped 4.1% in March but were up 5.9% in April and were up .3% in May, according to USDA's latest data.
Packaged sales totaled 3.6 billion pounds, up .3% from May 2023. Conventional product sales totaled 3.3 billion, down .4% from a year ago. Organic products, at 263 million pounds, were up 10.2%, and represented 7.3% of May's sales.
Whole milk sales totaled 1.3 billion pounds, up 1.8% from a year ago, up 3.1% year to date, and represented 35.1% of total sales for the month.
Packaged fluid sales in the five-month period totaled 18.1 billion pounds, up 1.3% from 2023. Conventional product sales totaled 16.9 billion pounds, up .9%. Organic products, at 1.3 billion pounds, were up 6.3%, and represented 7% of total milk sales in the five months, according to the USDA.
The Agriculture Department announced the August federal order Class I base milk price at $21.32 per hundredweight, up 21 cents from July and $4.70 above August 2023, the highest Class I since January 2023. It equates to $1.83 per gallon, up from $1.43 a year ago. The eight-month Class I average stands at $19.43, up from $19.07 a year ago, but compares to $23.87 in 2022.
Dairy margins were largely flat over the first half of July with milk prices and feed costs holding steady, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.
"Milk prices continue to be supported by limited spot supply availability and strong demand for cheese. The combination of heat stress, avian influenza and limited heifer supply has constrained milk output with USDA reporting that 'multiple cheesemakers relayed receiving zero spot offers for milk,' almost unheard of during a holiday week," the MW stated.
The MW detailed the latest Dairy Products report and cited highlights from U.S. dairy export data, stating, "May cheese exports increased 46.6% from the prior year to 105.9 million pounds, the highest volume ever recorded for the month with record-high cheese exports to Mexico of 40.4 million pounds. Also, U.S. cheese exports have set a record for seven straight months after adjusting for seasonal trends, and domestic demand has been record-large in 10 of the past 17 months," the MW concluded.
Last Tuesday's weighted average in the Global Dairy Trade auction, inched up .4%, following a 6.9% drop on July 2 and a .5% slip June 18. Volume fell to 50.6 million pounds, down from 53.2 million on July 2, and the average metric ton price rose to $3,837, up from $3,782.
GDT Cheddar led the gains, up 6.2%, after dropping 6.9% on July 2. Mozzarella was off .8%. After leading the declines on July 2, with a 10.7% drop, anhydrous milkfat was up 4% last Tuesday, while butter was up .8% after plunging 10.2% last time. Whole milk powder was down 1.6%, after a 4.3% loss, and skim milk powder was off 1.1%, after dropping 6.1% on July 2. Lactose was off .6%.
StoneX says the GDT 80% butterfat butter price equates to $2.9234 per pound, up 2.6 cents from July 2 when it plunged 35.6 cents, and compares to CME butter which closed last Friday at $3.0750. GDT Cheddar, at $1.9127, was up 10.7 cents, and compares to last Friday's CME block Cheddar at a bargain $1.8650. GDT skim milk powder averaged $1.1638 per pound, down from $1.1731, and whole milk powder averaged $1.4253 per pound, down from $1.4598. CME Grade A nonfat dry milk closed last Friday at $1.1975 per pound.
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