Dairy Product Demand Reportedly Weak at Home but Strong Abroad
Published: Friday, December 24, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department gave us the latest on U.S. dairy product demand. Starting with cheese, October disappearance totaled 1.18 billion pounds, up just .7 percent from October 2020, with strong exports overcoming weaker domestic disappearance, according to HighGround Dairy's Lucas Fuess in the Dec. 20 "Dairy Radio Now" broadcast. It was the weakest October domestic disappearance since 2017, according to HGD.
American-style cheese disappearance, at 458.8 million pounds, was down 4.1 percent from a year ago and down for the second consecutive month. Fuess warned that, if the domestic disappearance decline persists, we could see prices drop after holiday demand subsides.
Butter disappearance totaled 209.8 million pounds, down 1.3 percent in total and down 3.6 percent domestically, first year over year decline since June following impressive gains in third quarter. Exports were up 91.4 percent but only totaled 9.8 million pounds.
Fuess speculated that holiday butter demand may have been front-loaded in August and September as buying appeared earlier than normal. He's says that's not overly concerning, because butter output is weaker and inventories are declining at a pretty quick pace.
Interestingly, the Dec. 15 Daily Dairy Report pointed out that Canada is the top market for U.S. butter and milkfat, accounting for more than 30 percent of U.S. exports in the past five years and 28 percent so far in 2021. Canada is also the primary market for U.S. cream. In the first 10 months of 2021, three out of every four loads was sent to Canada, according to the DDR, and through October, Canada imported a record-breaking 43 million pounds of butter, 30 percent more than in 2020.
Recent heavy rains and flooding in the lower mainland of British Columbia may have resulted in larger imports in November and December. The DDR said, "The BC Dairy Assn. reported that the province was able to fill fluid milk orders, but industrial processing dropped 20 percent in the weeks after the flooding."
Nonfat dry milk-skim milk powder disappearance hit 227.6 million pounds in October, up 9.3 percent, though exports were down 12.3 percent. The increase follows two consecutive months of weakness, says HGD, and the strength was driven by domestic demand. Exports year-to-date however are up 10.6 percent from a year ago and Fuess said we're probably looking at another record year for powder exports.
Total dry whey disappearance amounted to 83.4 million pounds, down 3 percent from a year ago. Domestic demand was down for the sixth consecutive month, driven by lower exports, which were down 21.5 percent, as China has imported less.
HGD says whey's domestic weakness is "likely driven by weaker supply and tight product availability. While demand is firm and the price recently hit a record high at the CME, disappearance has struggled with limited product to sell."
Meanwhile, the big topic of the recent American Dairy Products Institute's Dairy Ingredients Seminar in Santa Barbara, Calif. was inflation, according to the Dec. 3 Dairy and Food Market Analyst. Editor and analyst Matt Gould wrote that attendance was high and so were spirits, as most attendees were bullish.
However, "Virtually everyone is experiencing significant cost pressure and, looking into 2022, will raise prices and overages on their customers," wrote Gould. "The million-dollar question: How much of a cost increase can we pass on? Answers that we heard ranged from 5 percent to 15 percent."
Dairy product prices are soaring in Europe, according to the DFMA. European 82 percent-fat butter traded above $3 per pound, the week of Dec. 6, and Cheddar cheese traded between $2.20 and $2.30 per pound.
European milk production is crashing, the DFMA reported, and the latest period saw output down 3.7 percent in the big-three milk producing regions of Germany, France and the United Kingdom.
Things aren't much better "down-under." DMN reports that Australian milk output through October, the fourth month of the season, continued to be disappointingly low. "October is the usual high point of seasonal milk production. While there are more seasonal months to follow than have occurred so far, production will be trending lower, so making up for the past will be a challenge in the future."
Season to date, the DDR says Australian milk production is down 2.9 percent, compared to July through October 2020.
"New Zealand milk production through October is also termed disappointing," said DMN. "While hopes are for a recovery, the typical trend of lower production month after month through the rest of the season will require a decent rebound to overcome the deficit so far. Early observations of the November results are said to suggest that when official results are released, November will offer little help."
"The New Zealand dairy herd declined for the third consecutive year during the 2020-21 season, according to the DFMA, after finishing last season at 4.9 million head, 1.8 percent lower than the count in 2018 and .4 percent smaller than a year earlier. The number of acres in dairy production shrank to a total of 4.2 million, which was an eight-year low and down 1 percent from a year earlier," the DFMA stated.
Back on the home front, CME dairy prices were mixed the week before Christmas. The markets didn't have a lot to feed on as regularly monitored USDA reports were few. However, traders were anticipating last Monday's November Milk Production report. The last Global Dairy Trade of 2021 is Tuesday and the November Cold Storage report is released Wednesday.
The Cheddar blocks appeared to make an attempt at $2 per pound and got to $1.9475 per pound last Wednesday, highest since Jan. 12, 2021, but closed last Friday at $1.8875, 2.25 cents higher on the week and 27 cents above a year ago.
The barrels didn't fare so well, closing at $1.63, down 5 cents on the week, ending four consecutive weeks of gain, 15.50 cents above a year ago, and 25.75 cents below the blocks. CME sales included nine cars of block and 38 of barrel.
Retail cheese orders are very busy, according to several Midwest cheesemakers. Curd and barrel producers, particularly, told Dairy Market News that demand is strong, supplies are limited, and do not foresee a change in upcoming weeks. Spot milk pricing mirrored the previous week, at Class III to slightly over. That said, some plants are already getting offered milk for the upcoming holiday weeks at slight discounts. Cheese market tones remain on similar ground to the past few weeks. It's not a necessarily bearish sentiment, says DMN, but the block-over-barrel price gap "keeps the bulls corralled."
Cheese demand is steady in the west in retail, food service and internationally. Port congestion continues to cause delays as does the continuing shortage of truck drivers. Block inventories have been tight in recent weeks and, reportedly, tightening. Spot availability of barrels was unchanged. Cheese producers are running busy schedules in the region, as milk continues to be available.
Butter, after jumping 12 cents the previous week, suffered a meltdown last Monday, dropping 6.25 cents, but rallied to close last Friday at $2.0925 per pound, down 3 cents on the week but 63.75 cents above a year ago, on 42 sales on the week.
Bulk butter remains notably tight in the Midwest, according to DMN, and producers say customer interest is very active. Cream is available, at least from Western suppliers, however freight costs and general limitations are tribulations for plant management. Cream, regionally, was not as available as the previous week but demand is expected to trend lower Christmas Week and the final week of 2021. Butter market tones continued to shift bullishly on tight quantities and demand health, according to DMN.
Cream is available in the west and some contacts report sending loads to other regions. Demand is seasonally strong, though some contacts believe demand will decline in the coming weeks. Demand for butter is steady across retail and food service markets. International demand is strong though some contacts say export sales are being limited by increased delivery times due to port congestion. Spot butter inventories are limited and unsalted butter is especially tight, and that is what is exported. A shortage of truck drivers continues to cause delays to deliveries of cream and production supplies and labor shortages have caused some butter producers to reduce output, according to DMN.
Grade A nonfat dry milk saw daily gains and finished last Friday at $1.6775 per pound, up 5.25 cents on the week, highest since July 18, 2014, and 52.75 cents above a year ago. There were eight carloads that found new homes on the week. In case you're wondering, the CME record was $2.16 per pound on Dec. 5, 2007.
CME dry whey held at its record high 71.25 cents per pound for five consecutive sessions, but jumped 1.75 cents last Friday on a sale to set a new record 73 cents per pound, 27.50 cents above a year ago.
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