Milk Production Forecast Raised
Published: Friday, August 19, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Milk production forecasts for 2022 and 2023 were raised from last month in last Friday morning's World Agricultural Supply and Demand Estimates report (WASDE). The cow inventory was raised in both years based on the July 1 dairy cow inventory provided in the recent cattle report. Output-per-cow was forecast to increase at a slightly more rapid pace in 2022 and the 2023 forecast was raised as well.
2022 production and marketings were estimated at 226.8 and 225.7 billion pounds, respectively, up 800 million pounds on both from last month's estimates. If realized, 2022 production and marketings would both be up 500 million pounds, or just .2 percent, from 2021.
2023 production and marketings were estimated at 229.2 and 228.1 billion pounds, respectively, up 900 million pounds on production and up 800 million on marketings. If realized, 2023 production would be up 2.4 billion pounds, or 1.1 percent, from 2022 and marketings would be up 2.4 billion pounds, or 1.1 percent.
Forecasts for 2022 butter prices were raised slightly from last month on current price strength but the 2022 cheese price was forecast lower with expectations of larger supplies and continued large stocks. Forecasts for nonfat dry milk (NDM) and whey prices were also lower on observed prices and expected supplies.
The Class III milk price average was lowered, based on both lower cheese and whey prices, and the Class IV price was lowered as the higher butter price is more than offset by the lower NDM price.
Look for the 2022 Class III to average $21.60 per hundredweight, according to the WASDE, down $1.20 from last month's estimate, and compares to $17.08 in 2021 and $18.16 in 2020. The 2023 average was projected to average $19.70, down $1.15 from what was expected a month ago.
The 2022 Class IV average was projected at $23.95, down 75 cents from last month's estimate, and compares to the 16.09 average in 2021 and $13.49 in 2020. The 2023 Class IV average is now projected at $20.35, $1.95 from last month's estimate.
Forecasts for 2023 cheese, butter, NDM and whey prices were all lowered on expectations of greater supplies and strong competition in international markets. With lower product prices, the Class III and IV price forecasts were lowered.
The Global Dairy Trade auction held its first GDT "Pulse" on Aug. 9 with 2.1 million pounds of Fonterra whole milk powder being offered. The resulting price averaged $3,425 U.S. per metric ton after 5 minutes of trading. There were 33 participating bidders and 15 winning bidders, compared to the regular event which draws well over 100. The price was down $95 per metric ton or 2.7 percent from the Aug. 2 main event, according to HighGround Dairy.
Meanwhile, the expectation for the Aug. 16 GDT is for another decline of around 3.3 percent, according to StoneX Dairy group. Fonterra made no change to their offer on quantities for this event, and looking at the results of the Pulse, prices could be a bit more supportive in the Aug. 16 event.
"China demand still remains a big question," said StoneX. "Their demand has been poor recently and we expect that will continue for at least a few more months. Whole milk powder in particular has been an area of weakness and this has carried through to declining prices across the GDT." Other regions have stepped up to purchase some of the difference, StoneX concludes, "but the volume lost is hard to fully cover so prices likely won't see a change in trend until we see China demand revive."
Cash dairy product prices at the Chicago Mercantile Exchange strengthened the second week of August from the week before, with the exception of butter. The week was a little lean on USDA fodder for the dairy markets to feed on.
The 40-pound Cheddar block cheese closed last Friday at $1.8450 per pound, up 6 cents on the week, ending five consecutive weeks of loss, and was 3.25 cents above a year ago when the blocks gained almost 18 cents on the week.
The 500-pound Cheddar barrels climbed to $1.9275 last Thursday, highest since July 27, but gave back 4 cents last Friday to finish at $1.8875, still up 9.50 cents on the week, 43.75 cents above a year ago, and an inverted 4.25 cents atop the blocks. CME sales totaled four carloads of block and 14 of barrel on the week.
StoneX cautioned in its Aug. 8 Early Morning Update, "Domestic cheese production came in higher than expected for June, with stocks up nearly 5 percent, which reflects a mid-$1.70s cheese price if we look at our stocks-to-use charts."
Speaking in the Aug. 15 Dairy Radio Now broadcast, broker Dave Kurzawski said the best possible job right now could be an export sales manager for a major cheese company because "the job will do itself." "We have really attractive prices," he reasoned, "and European cheese manufacturers who would normally be highly competitive against the U.S. in certain markets, are just not going to be there like they have been in the past, due to weather issues, energy issues or shipping issues. The U.S. manufacturer has a real good shot at getting extra business as we go forward the next few months," he concluded, so he doesn't see much downside for cheese ahead.
Midwest cheese demand has been more variant in recent weeks, according to Dairy Market News. Curd and barrel sales have been a little more consistent. Block Cheddar and Italian-style cheesemakers have had some slower weeks, but prices dropping below $2 has prompted buying. Some producers say orders remain seasonally slower. Spot milk availability is somewhat mixed. Location and timing are playing a part. Some cheesemakers are still seeing similar discounts to previous weeks, but there were some slight overages reported last week. Cheese stocks are available, particularly on the block market, according to DMN.
Cheesemakers in the West are finding the milk they need to keep production busy despite high temperatures reducing milk output on the farm. That said, they continue to have to balance their schedules with labor shortages and delayed deliveries of production supplies. Inventories of cheese barrels and blocks are available. Retail cheese demand is softening as customers shy away from the higher prices, according to DMN. Food service demand is also declining but international demand remains unchanged.
Cash butter closed at $2.9350 per pound last Friday, down 7.50 cents on the week, but $1.2650 above a year ago, though the $3 mark seems to have some magnetic qualities at play. There were 34 sales reported.
Dave Kurzawski points out that butter has been trading over $2.90 per pound the last eight weeks and the CME has become the best place for manufacturers to sell it. He theorizes that "COVID busted a lot of hedge programs and buying patterns and, although we may see some price weakness as we head toward the holidays, it really depends on how many people have what they need." Butter buyers and end users have less coverage than they would like, he concluded.
Central butter producers are starting to see tighter cream supplies, according to DMN, and with prices hovering around $3, they are willing to bid a little higher on multiples. There has also been an increase in micro-fixing, a procedure of cutting one pound blocks or sticks from larger frozen blocks. However, that requires additional employees and staffing concerns remain a concern for plants. Butter sales are seasonally fair. Some producers say they are seeing slight upticks in recent weeks, as customers begin fall inventory preparations.
Cream volumes continue to decline in the West, says DMN, as high seasonal temperatures negatively affect milk output. Strong demand for cream is present. Seasonally climbing cream multiples and labor shortages have contributed to some butter makers selling loads of cream. Butter output is steady to lower as labor shortages and high temperatures cause plants to run reduced schedules. Demand for butter in retail and food service continues to soften.
Sales of butter are down compared to this time last year, but "some are optimistic that they will increase in the coming weeks as customers prepare for increased fall baking demand," said DMN.
Grade A nonfat dry milk sunk to $1.46 per pound last Tuesday, lowest CME price since Oct. 12, 2021, but rallied last Wednesday, seeing its first gain since July 26, and closed last Friday at $1.5175, up 1.50 cents on the week and 24.75 cents above a year ago. There 25 sales reported.
Dry whey closed the week at 44.50 cents per pound, a penny higher on the week, but 7.25 cents below a year ago, with two sales reported at the CME.
In the week ending July 30, 56,000 dairy cows were sent to slaughter, down 1,500 head from the previous week, and 2,500 head, or 4.3 percent, below a year ago.
In politics, the National Milk Producers Federation (NMPF) commended the inclusion of $20 billion in new funding for USDA conservation programs in the "Inflation Reduction Act" which passed the Senate.
An NMPF press release stated, "The funding, spearheaded by Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) will help dairy farmers advance their proactive sustainability leadership by enhancing farm bill conservation programs with an emphasis on key dairy areas of opportunity, including feed management. The new investments will provide important voluntary technical assistance to dairy farmers who undertake such stewardship practices, including targeted new funding that emphasizes critical farm practices that yield significant environmental benefits for dairy."
"Dairy farmers seize environmental sustainability opportunities whenever possible," said Jim Mulhern, NMPF president and CEO. "The funding increases in this package will better position dairy farmers to effectively implement the dairy sector's Net Zero Initiative and fulfill its 2050 environmental stewardship goals. We are very grateful to chairwoman Stabenow for her success and leadership in securing this meaningful new conservation investment, which will be a game-changer for dairy."
Cheese Exports Increase
Cooperatives Working Together (CWT) member cooperatives accepted 38 offers of export assistance from CWT last week that helped them capture sales contracts for 3.6 million pounds of American-type cheese and 40,000 pounds of cream cheese. The product is going to customers in Asia and Middle East-North Africa, and will be delivered through February 2023.
CWT-assisted member cooperative year-to-date export sales now total 60.8 million pounds of American-type cheeses, 459,000 pounds of butter (82 percent milkfat), 28.6 million pounds of whole milk powder, and 6.5 million pounds of cream cheese. The products are going to 18 countries in six regions and are the equivalent of 831 million pounds of milk on a milkfat basis, according to the CWT.
Milk flows are seasonally trending lower across most of the U.S., according to DMN's weekly update. Aside from a few pockets, combinations of high temperatures, high humidity, and drought are pressing milk volumes lower. Class I sales are picking up as schools restarting has school districts placing orders. The upswing of milk bottling has caused some milk to bypass manufacturing.
New Zealand Dairy Farms Dwindling
Looking internationally, the global market is having an impact on the Australian wheat price, according to DMN. Local prices are reportedly up, on average. This, with other factors, such as elevated grain and fertilizer prices, along with natural gas prices, have created an upward shift in the Australian farmgate milk price. Nonetheless, labor shortages continue to be a problem as farmers compete for workers. The result of the shortages has been elevated industry exoduses by dairy farmers and reductions in herd sizes, says DMN.
More than 1,500 dairy farms have reportedly exited the industry since 2016, diminishing Australian milk production from 9.5 billion liters in 2015-16 to 8.8 billion liters in 2020-21. Meanwhile, the risk to margins is ongoing and are projected to offset the strong milk prices and projected promising seasonal conditions. Sources anticipate a flat milk pool for the new season as major retailers now propose to increase the retail store milk price.
While it is early in the season, DMN warns that the impact of weather conditions in New Zealand must be considered there. Soil moisture level is currently being supported by a stream of warm temperatures, following heavy rainfall in much of the country, as market sources expect milk solids for the season to rise 4 percent over last season. New Zealand's latest milk solids numbers rose above the previously projected output level. The June forecast ended the month up 1.1 percent year-over-year, although initially projecting a .4 percent decline, says DMN.
Recently released export data shows a drop in New Zealand whole milk powder exports, 33 percent year-over-year. Exports to China were down 64 percent. Meanwhile, exports to North Africa and Sub-Saharan Africa increased, as China drives these changes, according to DMN.
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