Higher Milk Production Creates Bearish Scenario for Milk Prices
Published: Friday, December 25, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
High milk prices produce high milk production and preliminary data in the USDA's November Milk Production report proves that. Output totaled 18 billion pounds, up a very bearish 3 percent from November 2019, biggest gain since December 2014 with November output in the top 24 producing states hitting 17.2 billion, up 3.1 percent.
Revisions lowered the October 50-state and 24-state totals 7 million pounds, putting the 50-states at 18.55 billion pounds, still up 2.3 percent from October 2019.
November cow numbers totaled 9.41 million in the 50 states, up 12,000 from October's count, which was revised up 5,000 head, and is 62,000 above a year ago. November output per cow averaged 1,916 pounds, up 43 pounds, or 2.3 percent from a year ago.
California milk output was up a hefty 2.6 percent from a year ago, thanks to a 55-pound gain per cow offsetting 5,000 fewer cows milked. Wisconsin was up 2.7 percent, on a 60-pound gain per cow offsetting 5,000 fewer cows. That's a lot of extra milk.
In the week ending Dec. 5, 65,900 dairy cows were sent to slaughter, up 10,800 from the previous week, but 300, or .5 percent, below a year ago.
Meanwhile, the Agriculture Department's monthly Livestock, Dairy, and Poultry Outlook, issued Dec 16, mirrored milk price and production projections in the Dec. 10 World Agricultural Supply and Demand Estimates report.
The outlook stated that the National Agricultural Statistics Service revised its September milk cow estimate upward by 10,000, to 9.376 million, and estimates that the average for October increased to 9.39 million. The estimate for milk per cow was 1,977 pounds, up 37 pounds from October 2019. The 2021 herd size forecast was raised to 9.395 million head, up 15,000 from last month's estimate.
The world still loves butter. It led the gains in the last Global Dairy Trade (GDT) auction of 2020. The overall weighted average moved up 1.3 percent, following a 4.3 percent jump on Dec. 1, and 1.8 percent on Nov. 17. Traders brought 69.9 million pounds of product to auction, down from 70.7 million on Dec. 1.
Butter was up for the sixth consecutive session, jumping 6 percent, following a 3.8 percent rise Dec. 1. Anhydrous milkfat was up 1.9 percent, after gaining 2.6 percent last time. Cheddar was up 4.2 percent, after gaining 2.4 percent, and lactose was up 1.5 percent, after leading the gains last time with a 13.5 percent jump. Skim milk powder was up 1.2 percent following a 3.6 percent rise, and whole milk powder was .5 percent higher, after a 5 percent gain.
StoneX equated the GDT 80 percent butterfat butter price to $1.8680 per pound U.S., up 10.4 cents from the last event. CME butter closed Friday at a bargain $1.4550. GDT Cheddar equated to $1.7659 per pound, up 7.2 cents, and compares to last Friday's CME block Cheddar at $1.6175. GDT skim milk powder averaged $1.3290 per pound, up from $1.3103, and whole milk powder averaged $1.4560, up from $1.4435. CME Grade A nonfat dry milk closed last Friday at $1.15.
U.S. commercial disappearance in October was below year ago levels on most products. Total cheese, at 1.18 billion pounds, was off 2.5 percent from a year ago. HighGround Dairy however points out American-style cheese saw the strongest demand on record, but non-American demand pulled the overall category lower.
Butter totaled 214.9 million pounds, down 4.8 percent and the lowest October since 2017, according to HGD.
Nonfat dry milk/skim milk powder totaled 194.4 million pounds, down 7.2 percent, and dry whey disappearance amounted to 91.4 million pounds, down 2.7 percent.
October fluid milk sales did not fare well. The latest data shows 3.7 billion pounds of packaged fluid products sold, down 1.8 percent from October 2019. Conventional sales totaled 3.7 billion pounds, down 2.1 per-cent. Organic products, at 237 million pounds, were up 2.8 percent, and represented 6 percent of total sales for the month.
Whole milk sales totaled 1.3 billion pounds, down 1.6 percent from a year ago. Sales for the 10-month period totaled 12.9 billion pounds, up 3.5 percent from 2019, and made up 32 percent of total milk sales for October and 33.7 percent thus far for the year.
Skim milk sales, at 232 million pounds, were down 16.3 percent from a year ago and down 14.6 percent year to date.
Total packaged fluid milk sales, January through October, amounted to 38.4 billion pounds, up .2 percent from 2019. Conventional product sales so far, totaled 36 billion pounds, down .5 percent. Organic products, at 2.4 billion pounds, were up 11 percent and represented 6.2 percent of total fluid milk sales so far for the year.
CME dairy prices showed little reaction to the Milk Production report. The Cheddar blocks marched to $1.6525 per pound last Tuesday but closed last Friday at $1.6175, unchanged on the week and 24.25 cents below a year ago.
The barrels finished at $1.4750, up 3.25 cents, but 19 cents below a year ago and 14.25 cents below the blocks. 17 cars of block traded hands at the CME the week before Christmas and 16 of barrel.
StoneX Dairy says food-service data from Black Box Intelligence showed sales in the last week of November down 16 percent from a peak of about negative 6.5 percent in early October. It was the third consecutive week of negative growth and all regions it collected data from saw negative growth, "clear that the winter weather is taking its toll on foodservice on top of many cities banning indoor dining."
StoneX calculated domestic sales disappearance year-over-year levels without government purchases and warned, "It paints a grim picture. Without a renewal of government purchases we could likely see a movement toward the trend that our milk, butter and cheese figures are presenting. Over the course of the pandemic we have seen a decline in non-government domestic sales compared to 2019 levels. It isn't a factor of consumers not wanting dairy products as much as it is an issue of demand disappearing due to the removal of normal school and restaurant purchases," says StoneX Dairy.
Dairy Market News reports that Midwest cheese market tones have "steadied." Mozzarella and/ or pizza-style cheesemakers say buyers are returning. Curd and barrel producers say interest remains but sales have slowed. Food service demand is "tricky at best." Spot milk is widely available and offers remain well below class, but production is steady. Cheesemakers also report that employees are returning after COVID quarantines, but staffing remains a concern in plants.
Western cheesemakers have no issue getting milk, thus cheese output is active. Retail and pizza cheese sales have been adequate to solid but food service demand is disappointing, says DMN. "As schools enter their winter breaks and pockets of the region face tighter restrictions on sit-down dining, food service demand could diminish into the abysmal category." One positive note is that with the lower market prices, buyers, including those from export markets, are more interested in seeking cheese deals, says DMN.
Cash butter got a small boost from the GDT, climbing to $1.4750 per pound last Tuesday, but it was short-lived and closed the week at $1.4550, 2.50 cents lower and 55 cents below a year ago, with 36 cars finding new homes.
Bulk butter is available according to most contacts, but plant managers report continued interest in keeping supplies in check, says DMN. Cream availability is wide and putting stress on suppliers, particularly in trying to find homes Christmas and New Year's week. Butter market tones are "uncertain."
Western butter output shows no sign of slowing as cream supplies are heavy. Butter makers' concerns have pivoted to processing bulk butter for storage and use for near term 2021 needs, says DMN. Interest is following normal seasonal patterns as a few buyers assess near-term needs. The domestic butter price remains competitive in the export market, as evidenced in the latest GDT, and "industry representatives are keeping a close watch on the global butter price."
Grade A nonfat dry milk closed last Friday at $1.15 per pound, up 2.25 cents on the week but 10 cents below a year ago. Eleven sales were reported on the week.
Spot dry whey finished at 45.50 cents per pound, 1.25 cents lower on the week but 14 cents above a year ago, with three sales for the week at the CME.
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