Cheese, Butter Prices for 2023 Reflect Stronger Demand for Milk
Published: Friday, June 24, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
As reported last week, the USDA lowered its milk production estimates for 2022 and 2023 in the World Agricultural Supply and Demand Estimates report. Price forecasts for cheese, butter and nonfat dry milk (NDM) were raised from last month, based on recent price strength and stronger anticipated demand. The whey price forecast was lowered on observed prices.
Cheese is expected to average $2.1950 per pound in 2022, up 2 cents from last month's estimate and compares to $1.6755 in 2021. The 2023 average was put at $2.05, up a penny from a month ago.
The 2022 butter average was estimated at $2.7650, up 11.50 cents from last month's estimate and compares to $1.7325 in 2021. The 2023 average was placed at $2.3850, up 3.50 cents from a month ago.
Nonfat dry milk was projected to average $1.7550 in 2022, up from $1.2693 in 2021, and will average $1.62 in 2023, up 4 cents from last month's estimate.
Whey will average 64 cents per pound in 2022, down 1.50 cents from last month's estimate, and compares to 57.44 cents in 2021. The 2023 average will be 52 cents per pound, unchanged from last month's projection.
The stronger product prices result in higher forecast Class III and IV milk prices, reported here last week. Continued strengthened demand and modest growth in production are expected to support 2023 cheese, butter and NDM prices.
This month's corn outlook is for larger beginning stocks, slightly higher use, and increased ending stocks. Corn area and yield forecasts were unchanged as the June 30 Acreage report will provide survey based data. Beginning stocks are up 45 million bushels mostly reflecting a forecast decline in exports. Exports were lowered 50 million bushels, based on reported U.S. Census Bureau shipments through April and May export data. Ending stocks were raised 40 million bushels. The season-average farm price was unchanged at $6.75 per bushel.
Soybean projections included lower beginning and ending stocks and higher prices. Lower beginning stocks reflects increased exports. Soybean exports were raised 30 million bushels to 2.17 billion reflecting strong sales and a reduced export forecast for Brazil. With reduced supplies and no use changes, soybean ending stocks were projected at 280 million bushels, down 30 million. The soybean price forecast, at $14.70 per bushel, was up 30 cents from last month.
In the week ending June 4, 48,800 dairy cows were sent to slaughter, down 1,100 head from the previous week, but 2,300, or 4.9 percent, above a year ago.
StoneX predicted in its June 14 "Early Morning Update" that slaughter levels over the last four weeks should point to growth in cow numbers in the next Milk Production report, "the one caveat being if replacement levels are lower than year-ago levels as well."
Last week was shy of new information for the market to feed on with respect to USDA reports. Traders were anticipating the May Milk Production report on June 21 along with that morning's Global Dairy Trade for fresh news. In an effort to put a patch on a gaping and growing hole called inflation, the Fed announced a 75-basis-point interest rate hike the biggest increase since 1994. CME cheese prices plummeted the next day, though fresh cheese is more available.
Speaking in the June 20 Dairy Radio Now broadcast, StoneX broker Dave Kurzawski said the immediate effect is the increased cost to building and holding inventories, "as if anyone wants to hold $3 per pound butter and $2.20 cheese." The big question is what it means for dairy demand, he reasoned. "Every 10 percent change in household income, historically, results in a 4.5 percent change in retail dairy demand. There is going to be an impact on dairy demand," he concluded. "We just don't know exactly when that is going to arrive."
The June 10 Dairy and Food Market Analyst reported, "The high cost to produce milk will keep western supplies in check for the foreseeable future. For example, California feed costs remain extremely high, and based on our calculations, breakeven milk prices will be $25 there next month. Local contacts are blaming drought, a rail backlog, and, of course, the war in Ukraine for the extraordinary feed costs."
The analyst also warned, "The domestic demand environment looks like it is weakening. If you believe USDA figures, commercial usage of butter was down 3.7 percent in the three months ending April, while usage of cheese was up 2.8 percent. Certainly, domestic demand conditions have worsened since then. Data from technology firm OpenTable shows foodservice sales are again trending lower. The company says the number of sit-down visitors was down 4.7 percent from 2019 levels during the latest week," but on the bright side, the analyst said "International sales are still rocking."
Looking specifically at April commercial dairy product disappearance, total cheese slipped to 1.17 billion pounds, down 2.7 percent from April 2021. HighGround Dairy points out this was the first year-over-year decline since September. Domestic use was down 3.1 percent from a year ago while exports were up 2.4 percent.
Butter disappearance totaled 172.3 million pounds, up 8.8 percent, though year to date (YTD) was still down 2.4 percent. Domestic disappearance was the driver, says HGD, up 10.2 percent, while exports were down 10.1 percent from a robust year-ago total.
Nonfat-skim milk powder, at 221 million pounds, was down 10.4 percent. HGD points out that domestic disappearance was the lowest for the month on record, with data going back to 2011, and down 19.9 percent from a year ago, with YTD down 27 percent. Exports were down 6.4 percent from a year ago and down 7.8 percent YTD.
Dry whey disappearance amounted to 79 million pounds, down 2.1 percent, with domestic use up 20.3 percent, while exports were down 18.8 percent.
April sales of U.S. packaged fluid milk products totaled 3.6 billion pounds, down 2.1 percent from April 2021. Conventional product sales totaled 3.4 billion, down 2 percent from a year ago. Organic products, at 240 million pounds, were down 3.4 percent, and represented 6.6 percent of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 3 percent from a year ago, up .8 percent year to date, and represented 33.3 percent of total milk sales in the four months.
Skim milk sales, at 195 million pounds, were down 8.4 percent from a year ago and down 8.1 percent YTD.
Total packaged fluid sales for the first four months of 2022 amounted to 14.7 billion pounds, down 2.5 percent from 2021. Conventional product sales totaled 13.8 billion pounds, down 2.4 percent. Organic products, at 964 million, were down 4.3 percent, and represented 6.6 percent of total milk sales for the period.
In other global news, the June 14 Daily Dairy Report warned, "The global supply chain was hit with more challenges last week when port workers in Germany and truck drivers in South Korea walked out over wages."
The DDR said, "These new global supply chain challenges have unfortunately collided with the return of shipping in and out of Shanghai as it emerges from lockdown."
"South Korea's truck driver strike has brought ports to a halt and could slow shipments of U.S. dairy products into that country," the DDR stated, even as U.S. port workers are currently negotiating new labor contracts.
Meanwhile, the House passed the Ocean Shipping Reform Act, and the president signed it, prompting praise from the National Milk Producers Federation, the U.S. Dairy Export Council and the International Dairy Foods Assn. The act sets in motion a series of new rules and regulations regarding ocean carrier practices that the Federal Maritime Commission must implement over the course of the next year, according NMPF and USDEC.
IDFA's Michael Dykes says the legislation should provide important tools to address supply chain bottlenecks plaguing U.S. dairy and food exports and provides real, long-term solutions for the many issues congesting U.S. ports and slowing exports "by placing disciplines on ocean carriers' ability to decline export cargo, meaning more of those empty containers will soon be filled with high-quality, sustainable U.S. dairy foods for consumers around the world."
The IDFA also submitted comments regarding the U.S. Securities and Exchange Commission's proposed climate disclosure rule, stating, "IDFA suspects that the proposed rule will act as a barrier to entry for some businesses, especially smaller companies, and the SEC does not account for the financial and market burdens it places on businesses of all sizes with the compressed timeline and additional climate reporting scheme it layers on existing standards."
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