Tight Worldwide Milk Production Bodes Well for U.S. Dairy Farmers
Published: Friday, April 1, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Milk production in the U.S. was below a year ago for the fourth month in a row in February. That was expected, but no need to worry about a milk shortage-like consumers were over toilet paper not so long ago.
The Agriculture Department's preliminary data shows output at 17.5 billion pounds, down 1 percent from February 2021, and follows the 1.7 percent drop in January. Output in the top 24 producing states totaled 16.7 billion pounds, down .7 percent. Revisions lowered the original 50-state January estimate by 20 million pounds to 19 billion, 1.7 percent below that of a year ago.
February cow numbers totaled 9.37 million, up 3,000 from January, first increase in eight months but were down 96,000 from a year ago. The January count was revised 1,000 head lower.
Output per cow averaged 1,869 pounds, up 1 pound from 2021. January output per cow was revised down 2 pounds to 2,032 pounds.
Hopefully, the milk supply remains in check and supports prices. Rising feed and fuel prices will likely act as a governor to milk output. However, rising fuel and food prices for families could threaten dairy product demand.
Global milk output is not rising either. StoneX March 21 Early Morning Update pointed out that February New Zealand milk output was down 7.2 percent from last year. The forecast for the full season is down 4.4 percent, "but there's still room for it to come in lower than forecast," according to StoneX.
Meanwhile, China's latest import data from January and February showed that "combined volumes were down against the record start to 2021," says HighGround Dairy, "as weaker demand needs for whey, lower availability of skim milk powder and other finished goods counterbalance the strong import volumes for whole milk powder."
Whole milk powder imports were up in both January and February, according to HGD's Lucas Fuess in the March 28 Dairy Radio Now broadcast. They totaled 157.1 million pounds in February, up 40.3 percent from February 2021, as the country looked anywhere it could around the globe for product, while skim milk powder totaled just 62.4 million pounds, up only 5.2 percent. Fuess blamed the lack of product availability rather than a downturn in Chinese demand for skim milk powder.
The largest drop was in the whey category, according to HGD, with extensive losses to the U.S. and Europe. February imports were the weakest since June 2019, but Fuess said the recovery in China's hog herd from African swine fever likely led to the decrease in whey needs.
Milk availability is tight in New Zealand, Fuess concluded, a major supplier of dairy to China, which had caused them to look to other sources such as Australia, the EU and the U.S.
Fat imports were solid with the bulk of the volume from New Zealand, says HGD. "Demand for butter and anhydrous milkfat in recent months has been observed on Global Dairy Trade events as the North Asia region increased fat purchases in 2022. The countries seeing the largest drops were Poland and the U.S."
China, for the past few years, has released its January and February data together in March as retaliation of President Trump's tariffs.
Faced with balancing what would normally be considered profitable milk prices against profit robbing feed and fuel prices, U.S. dairy farmers keep weeding out their less profitable cows. Culling was up slightly from January and a tad above a year ago.
USDA's latest Livestock Slaughter report shows an estimated 266,500 head were sent to slaughter under federal inspection in February, up 5,700 from January, and 1,300 head, or .5 percent, above February 2021. Culling in the first two months of 2022 totaled 527,400 head, down 15,100, or 2.8 percent, from the same period a year ago.
Culling in the first two months of 2022 totaled 527,400 head, down 15,100, or 2.8 percent, from the same period a year ago.
In the week ending March 12, 65,000 dairy cows were sent to slaughter, down 2,500 from the previous week, and 3,800 head, or 5.5 percent, below a year ago.
Checking the cupboard, U.S. butter stocks continued to build in February but remained well below a year ago. The Agriculture Department's latest Cold Storage report shows the Feb. 28 inventory at 263 million pounds, up a hefty 43.6 million pounds, or 19.9 percent, from the January level which was revised down 1.9 million pounds. Stocks were a whopping 91.6 million pounds, or 25.8 percent, below a year ago however, the fifth consecutive month to fall short of the previous year.
American-type cheese totaled 833.5 million pounds, down 4.1 million pounds, or .5 percent, from the January level, which was revised down 1.2 million pounds but topped those of a year ago by 16.3 million pounds, or 2 percent.
The "other" cheese category climbed to 610.7 million pounds, up 26.7 million, or 4.6 percent, from January, and 13.3 million pounds, or 2.2 percent, above a year ago.
The total cheese inventory stood at 1.469 billion pounds, up 24.2 million, or 1.7 percent, from January, setting another all-time high for total stocks, and were 33.1 million pounds, or 2.3 percent, above a year ago. The report is viewed as slightly bearish.
The Agriculture Department announced the April federal order Class I base milk price at $24.38 per hundredweight, up $1.50 from March and $8.87 above April 2021. It is the highest Class I price ever, topping the previous high of $24.47 in May 2014, and equates to $2.10 per gallon, up from $1.33 a year ago. The four-month average stands at $22.15, up from $15.35 in 2021, and $17.67 in 2020.
After falling 6 cents the previous week, Cheddar block cheese shot up to $2.2750 per pound last Friday, up 14.50 cents on the week, highest since Nov. 10, 2020 and 55.50 cents above a year ago. The barrels closed at $2.25, up 22 cents, highest since Nov. 6, 2020, and 78.75 cents above a year ago. There were eight sales of block on the week at the CME and 27 of barrel.
StoneX warns that worries about high labor, feed and energy costs posed more of an impact on market participants than the stall in milk production decline or the stall in international demand for products that have been driving export volume.
The March 23 Early Morning Update said, "The grain complex continues to rip higher as the war continues to rage unchecked in Ukraine. Private analysts UKRAgroConsult just released new estimates and expect Ukrainian corn plantings to drop 29 percent year-over-year. They also expect all of their other crops to drop significantly as well. Informa released U.S. estimates last Tuesday and dropped corn plantings to 91.4 millimeter acres, down from 93.4 last year."
Cheddar interests are reportedly very strong right now, according to Dairy Market News. Contacts say buyers were hesitant about market price increases as they hovered around $2, but "that hesitancy may have morphed into urgency as customers' pipelines ran short and market prices continued northbound." Spot milk is available for most needs with some reports of an early flush.
Looking westward, cheese export demand remains strong with continuing notable demand from Asian buyers. Domestic demand remains steady to higher as warmer weather and loosening COVID restrictions result in higher food service purchasing. Cheese inventories are tightening. Deliveries continue to face delays due to port congestion and a shortage of truck drivers. Western cheesemakers are busy working through available milk supplies, but labor shortages and delayed deliveries of supplies continue to prevent full capacity.
The butter marched to $2.8025 per pound last Wednesday, highest since Feb. 15, but was offered lower Friday, slipping to $2.7950, 7 cents higher on the week and $1.02 above a year ago. There were seven carloads that exchanged hands.
Butter producers able to source cream from the West are still finding relative pricing deals, says DMN, while more who take on locally sourced cream are seeing upticks on multiples. Churning is somewhat busy as spring holidays approach, though some producers say demand is a little lighter than expected this close to the onset of spring and the upcoming holidays. Bullish market prices based on limited supplies, both now and down the line, have created hesitancy among retail buyers. Food service demand, though, is mostly steady, says DMN.
Demand for cream continues to pick up in the West as ice cream makers increase output. Cream is available but tightening as some butter makers use their cream internally rather than sell on the spot market. Butter makers are running busy schedules, though labor shortages continue to prevent full capacity. Food service butter demand is steady to higher and retail is strengthening as customers prepare for the spring holidays. Export demand for butter is steady. Butter makers are working to build inventories in the region, limiting availability.
Grade A nonfat dry milk climbed to $1.88 last Thursday, highest since Feb. 16, but closed Friday at $1.8525, down .75 cents on the week, though 68.25 cents above a year ago. There were 24 sales reported on the week.
Dry whey finished at 72 cents per pound, down 4 cents on the week and the lowest since Dec. 16, 2021, but 9.25 cents above a year ago. Three cars were sold.
Foodservice Demand
Checking the demand side of things, the March 18 "Dairy and Food Market Analyst" reports "Total sales at foodservice and drinking places were up 24 percent year over year in January and up an estimated 33 percent in February. Compared to before the pandemic (2020), sales grew by 7 percent in February. Limited-service sales (cheese-friendly) continue to out-perform relative to before the pandemic and were up 15 percent versus the 2020 level, according to Census Bureau data."
By the way, the DFMA also pointed out that the numbers of ships waiting to be unloaded at West Coast ports is near the lowest level in several months. The average wait time for ships to berth has shrunk to just 11 days after peaking at more than two weeks during December.
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