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Milk Production Forecasts Show Slower Growth in Cow Numbers

by Lee Mielke

Published: Friday, September 23, 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 lowered from last month in the latest World Agricultural Supply and Demand Estimates report (WASDE). Milk cow numbers were reduced, reflecting the July numbers in the recent Milk Production report. Slower growth in cow numbers is expected through late 2022 and into 2023, says USDA. Output-per-cow was forecast to increase at a slightly more rapid pace in 2022 but the forecast for 2023 was unchanged.

2022 production and marketings were estimated at 226.5 and 225.4 billion pounds, respectively, down 300 million pounds on both from last month's estimates. If realized, 2022 production and marketings would only be up 200 million pounds, or just .1 percent, from 2021.

2023 production and marketings were estimated at 228.8 and 227.7 billion pounds, respectively, down 400 million pounds on both from a month ago. If realized, 2023 production and marketings would be up 2.3 billion pounds, or 1 percent, from 2022.

Forecasts for 2022 butter prices and nonfat dry milk (NDM) were raised slightly on current price strength, but cheese and whey were unchanged. Butter was projected to average $2.85 per pound in 2022, up 6.50 cents from a month ago, and compares to $1.7325 in 2021. The 2023 average was estimated at $2.3850, up a penny from last month's estimate.

Cheese was still projected to average $2.0750 per pound in 2022, up from $1.6755 in 2021, and the 2023 average was estimated at $1.97, down 50 cents from last month's estimate.

Nonfat dry milk will average $1.69 in 2022, up 2.50 cents from last month's estimate, and compares to $1.2693 in 2021. The 2023 average was put at $1.5050, up 5.50 cents from a month ago.

The dry whey average was left at 61 cents per pound, up from 57.44 cents in 2021, and the 2023 average is expected to drop to 48.50 cents per pound, unchanged from what was expected a month ago.

Class III and Class IV milk prices were raised. The 2022 Class III should average $21.65 per hundredweight, up a nickel from last month's estimate, and compares to $17.08 in 2021. The 2023 average was left at $19.70.

The 2022 Class IV will average $24.45, up 50 cents from a month ago, and compares to $16.09 in 2021. The 2023 average was raised 50 cents to $20.85.

The WASDE's news in feed grains wasn't encouraging. The corn outlook is for lower supplies, smaller feed and residual use, reduced exports and corn used for ethanol, and tighter ending stocks. Projected beginning stocks were 5 million bushels lower based on essentially offsetting export and corn used for ethanol. The season-average corn price was raised 10 cents to $6.75 per bushel.

The soybean story is for higher beginning stocks and lower production, crush, exports and ending stocks. Higher beginning stocks reflect a lower export forecast for 2021-22, says the WASDE.

The season-average soybean price was forecast at $14.35 per bushel, unchanged from last month. Soybean meal and oil prices were also unchanged at $390 per short ton and 69 cents per pound, respectively, says the USDA.

The Global Dairy Trade's fourth "Pulse" auction was held Sept. 13 with 2.1 million pounds of Fonterra whole milk powder sold out of 2.2 million offered. The price averaged $3,565 per metric ton, up $25 from the previous GDT and up $150 from the Aug. 30 Pulse. There were 35 participating bidders with nine winning.

Back home, mid-September dairy prices strengthened as the nation was relieved to hear that a national rail strike was averted sparing additional woes to an inflation-troubled economy. Even as the industry awaited Monday's August Milk Production report, most attention this week was on butter which soared 7 cents last Tuesday to an all-time high $3.24 per pound, with one sale hitting $3.25.

It was short-lived and fell the next day, but bested the previous record by 10.50 cents. It ultimately fell to a Friday close at $3.1325, down 3.75 cents on the week but $1.3425 above a year ago. There was a total of 14 cars sold on the week.

Dairy Market News reports, "Cream availability for butter production has yo-yoed quite a bit the past month, but this week it is tighter. Very few spot loads were offered at prices enticing enough for butter makers to act on."

Butter inventories are tight and there's growing concern about end-of-year stocks, as retailers prepare for holiday ordering. Butter production is trending toward micro-fixing, exclusively, according to DMN, and all of these factors pushed the price to record highs.

Demand for cream is strong in the West and cream volumes are tight amid high temperatures and declining milk output. Butter production was steady to lower this week, somewhat limited by the cream supply. Demand for butter is unchanged in food service markets and strengthening in retail as grocers prepare for the baking season. Demand for bulk butter is strong, but inventories are tight. Some traders expect high prices to persist in the coming months, warns DMN.

Cheddar block cheese topped $2 per pound last Wednesday, first time since mid-July and closed the third Friday of the month at $2.06, up 14.25 cents on the week, after gaining 15.25 cents the previous week, and 26.75 cents above a year ago.

The barrels finished at $2.09, 15.75 cents higher, 58 cents above a year ago, and 3 cents above the blocks. Sales totaled three cars of block and nine of barrel.

A growing number of cheesemakers tell DMN that inventories are tightening in the Midwest. Barrel producers say retailers are starting to plan end-of-year holiday orders and are concerned regarding their production capacity and whether it will meet those needs. Adding to the concern is milk availability. Cheese manufacturers say milk is down by a noticeable amount the past few weeks. Spot milk discounts were not reported the previous week, and mid-week prices last week were at class or slightly over. CME cheese prices are "mirroring the current supply/demand tones," said DMN.

Demand for cheese is strengthening in both retail and food service markets in the West. Sales of Mozzarella are increasing to pizza makers. Export demand is also trending higher, as U.S. prices are below cheese produced in other countries. Inventories of barrels and blocks are tightening. Cheesemakers are running steady schedules, despite seasonally declining milk output. Labor shortages and continued delayed deliveries of supplies continues limit output in some plants.

Grade A nonfat dry milk climbed to $1.5875 per pound last Monday, highest since Aug. 3, but finished last Friday at $1.57, down .50 cents on the week but 22 cents above a year ago, with 25 sales reported on the week.

Whey got to 49.75 cents per pound last Tuesday, highest since July 5, but fell to a 46 cent close, up .25 cent on the week but .75 cent below a year ago on three sales.

Prices need to strengthen more to shore up milk prices. The Sept. 9 Dairy and Food Market Analyst reports farms are calling it quits, particularly in the West where farm-level margins are translating into more sales at the auction block.

"A&M Livestock lists three dairy dispersals in California in the next three weeks," said the analyst, "and we are told auction houses are booked out. Farm exits are happening faster than expected. But also, August was the first month that many California milk producers experienced below cost of production milk prices." Breakevens in the Golden State are now about $24 per hundredweight, according to the analyst, nearly $4 more than the announced August Class III milk price.

Dairy culling in the week ending Sept. 3, totaled 55,600 dairy cows, down 4,400 head from the previous week, and 3,200 head, or 5.4 percent, below a year ago.

On a brighter note, dairy product demand was "mostly positive" in July, according to HighGround Dairy's Lucas Fuess in the Sept. 19 Dairy Radio Now broadcast. Fuess said there were "red flags" this summer as to how consumers would react to inflation and affect their dairy purchases.

The USDA's latest data answered that question. Cheese utilization totaled 1.165 billion pounds, down 5.1 percent from June but .5 percent above July 2021, with year to date up 1.9 percent. Domestic utilization was up .4 percent from a year ago and exports were up 1.6 percent, with YTD exports up 14.6 percent.

Cheese demand was above a year ago for the third consecutive month, but Fuess said the increase came from the "other" category, as American utilization was down for the fourth consecutive month, hurt by weak domestic demand.

Butter utilization totaled 180.6 million pounds, up 10.3 percent from June and 4.2 percent above a year ago, with domestic use up .8 percent from a year ago. Exports were up 78.7 percent, he said, however year-to-date utilization remained below the first seven months of 2021, hurt especially by weakness in February and March. Butter exports were close to record highs, says HGD, but represent a small share of total utilization.

Nonfat dry milk utilization, at 197.3 million pounds, was down 17.4 percent from a year ago, down for the second consecutive month, and the sixth time this year, as exports "struggle," Fuess said. Domestic usage was also down and "that's been the trend for the past several years." "It's likely that export demand will continue to underperform last year's impressive sum in the coming months, with weaker shipments negatively impacting utilization into third and fourth quarter."

Dry whey totaled 86 million pounds, up 13.9 percent from 2021, as commercial utilization posted its third consecutive monthly gain, climbing to the highest volume of any month since October 2020, says HGD. Exports performed poorly the first several months but July saw the second consecutive year over year gain.

Demand continues to falter in fluid milk. The Agriculture Department's latest data shows sales of U.S. packaged fluid products totaled 3.3 billion pounds in July, down 5 percent from July 2021. Conventional product sales totaled 3.1 billion pounds, down 5.4 percent from a year ago. Organic products, at 228 million pounds, were off .3 percent, and represented 6.9 percent of total sales for the month.

Whole milk sales totaled 1.2 billion pounds, down 1.3 percent from a year ago, but .9 percent higher year to date, and represented 34.1 percent of total milk sales YTD.

Skim milk sales, at 176 million pounds, were down 12.2 percent from a year ago and down 8.3 percent YTD.

Total packaged fluid sales for the seven month period amounted to 24.9 billion pounds, down 2.6 percent from 2021. Conventional product sales totaled 23.3 billion pounds, down 2.7 percent. Organic products, at 1.7 billion, were down 2 percent, and represented 6.7 percent of total milk sales for the period.

The figures represent consumption in federal milk marketing order areas, which account for approximately 92 percent of total fluid milk sales in the U.S.

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