USDA Raises Forecasts for Milk Production, Butter, Cheese Prices
Published: Friday, October 21, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. milk production forecasts for 2022 and 2023 were raised from last month in the Oct. 12 World Agricultural Supply and Demand Estimates (WASDE). Cow numbers were raised, "reflecting a more rapid pace of expansion in late 2022 and the first half of 2023," said the WASDE. Output-per-cow was also raised for the remainder of 2022 and into the first part of 2023.
2022 production and marketings were estimated at 226.9 and 225.8 billion pounds, respectively, up 400 million pounds on both from last month's estimates. If realized, 2022 production and marketings would still only be up 600 million pounds, or .27%, from 2021.
2023 production and marketings were estimated at 229.2 and 228.2 billion pounds, respectively, up 400 million pounds on production and 500 million on marketings. If realized, 2023 production would be up 2.3 billion pounds, or 1%, from 2022, and marketings would be up 2.4 billion pounds, or 1.1%.
Fat and skim-solids imports for 2022 were raised, largely driven by recent trade data and higher expected imports of cheese and other products. The skim imports increase also reflects strong milk protein concentrate and casein imports. Forecasts for 2023 imports for both were raised largely on stronger imports of butter. Exports for both years were raised on expectations of stronger whey, lactose and butterfat exports. However, export growth in skim milk powder is expected to be slower in 2022, according to the WASDE.
Forecasts for 2022 butter and cheese prices were raised on current strength, but nonfat dry milk (NDM) and whey were lowered. Class III and Class IV milk price forecasts were raised, reflecting the higher butter and cheese prices.
Forecasts for 2023 butter and cheese were raised, while the NDM price was lowered. The Class III price was raised on higher cheese and Class IV was raised as the higher butter price more than offsets lower expected NDM prices.
The 2022 Class III average was projected at $21.90 per hundredweight, up 25 cents from last month's estimate, and compares to $17.08 in 2021 and $18.16 in 2020. The 2023 projection was raised a dime to $19.80.
The 2022 Class IV average was estimated at $24.60, up 15 cents from a month ago, and compares to $16.09 in 2021 and $13.49 in 2020. The 2023 average was estimated at $21, up 15 cents from last month's estimate.
Cheese was projected to average $2.1050 per pound in 2022, up from $2.0750 expected a month ago, and compares to $1.6755 in 2021 and $1.9236 in 2020. The 2023 average is projected at $1.9850, up 1.50 cents from a month ago.
The 2022 butter average was estimated at $2.88 per pound, up 3 cents from a month ago, and compares to $1.7325 in 2021 and $1.5808 in 2020. The 2023 average was projected at $2.44, up 5.50 cents last month's estimate.
Nonfat dry milk will average $1.69 per pound in 2022, unchanged from last month's estimate, and compares to $1.2693 in 2021. The 2023 average was estimated at $1.4950, down a penny from a month ago.
The dry whey average for 2022 was lowered a half-cent to 60.50 cents per pound, up from 57.44 cents in 2021, and the 2023 average will drop to 48.50 cents, unchanged from what was expected a month ago.
HighGround Dairy's Lucas Fuess said in the Oct. 17 Dairy Radio Now broadcast that the consensus is that U.S. milk output might be a little stronger than normal this fall and into 2023. Milk prices have been "decent" the past few months, he said, though he admitted input costs have also been high, stressing farm margins but "slight profitability has been achieved in most areas."
Cow numbers will likely top year-ago levels in September, he said, that plus yield gains, spell more milk ahead and we'll see some of that in the September report, which is issued Oct. 20.
StoneX Oct. 11 Early Morning Update reported that Ukrainian forces destroyed the only bridge connecting previously-annexed Crimea with the Russian mainland, angering Russian President Putin and renewing concerns that the war is only escalating." "That puts Black Sea exports (which are continuing to ramp up) in jeopardy as a key UKR chess piece."
Checking the herd, culling in the week ending Oct. 1, totaled 61,100 dairy cows, down 200 from the previous week but 400 head, or .66%, above a year ago.
The Global Dairy Trade held its sixth Pulse Auction on Oct. 11, with 2.2 million pounds of Fonterra whole milk powder being sold, unchanged from the last Pulse, but at $3,425 per metric ton. That's down $185, or 5.1%, from the Sept. 27 Pulse and down $90, or 2.6%, from the Oct. 4 GDT. There were 19 winning bidders on the day, up seven from the last Pulse, out of 28 participants.
Inflation Hanging On
Back on the home front, StoneX reported, "The Consumer Price Index reportedly increased .4% for the month, more than the .3% estimated. On a 12-month basis, headline inflation was up 8.2%, of its peak around 9% in June but still hovering near the highest levels since the early '80s."
The Cheddar blocks closed the second Friday of October at $2.05 per pound, up 2.75 cents on the week and 27 cents above a year ago. The barrels finished at $2.1250, down 10 cents, 33.50 cents above a year ago, and the spread fell to 7.50 cents. There were five sales of block at the CME and 11 of barrel.
Discounts on spot milk for Midwestern cheesemakers were not as strong last week, according to Dairy Market News. Some were at $1 under class but more were at or just over. Demand is "well rounded," says DMN, and producers are busy though some plants continue to refuse new orders, just making enough for existing orders. There has been some "production plant issues" but customer needs are being met and, if there's any extra inventory it's quickly spoken for. Some remain concerned about the prolonged inversion of the barrel-over-block price. However, "market tones have not been negatively affected, in general."
Western cheese demand is steady from food service, while retail demand is softening due to the higher prices. Strong demand remains for export, thanks to U.S. competitive prices. The Foreign Agricultural Service reported that August cheese exports were up 5% from 2021, and
year-to-date are up 13%. Milk output is improving in the West, says DMN, but labor shortages and delayed deliveries of supplies continue to prevent full schedules in some plants.
Butter closed last Friday at $3.1750 per pound, down 4.25 cents on the week but $1.40 above a year ago. The price has stayed above $3 for 36 consecutive sessions. Only eight loads exchanged hands on the week at the CME. The Daily Dairy Report's Sarina Sharp warned on the Oct. 7 Milk Producers Council newsletter, however, that "In just a few weeks grocers will be done stocking up for the holiday baking season, and prices are expected to plummet."
Cream availability continues to grow for churning in the Midwest. Cream orders have been refilled in the hurricane effected areas, and locally sourced cream is becoming easier to get. Butter demand is strong, despite record prices. Retail customers are getting ahead of holiday demand. Churning rates have increased and concern remains that stocks could be short by the end of fourth quarter.
Western cream volumes are also becoming more available. Demand is lighter from ice cream makers, but other Class II makers have increased purchases in recent weeks. Butter makers in the region are utilizing available cream to run active schedules, though some churns did not operate last week due to scheduled maintenance. Spot butter inventories remain tight, says DMN.
Grade A nonfat dry milk closed last Friday at $1.49 per pound, down a nickel on the week, lowest since Aug. 10, and 4.25 cents below a year ago, on five sales.
CME dry whey finished the week at 44.25 cents per pound, 2 cents higher, but 16 cents below a year ago. There were two sales reported for the week.
Meanwhile, the Dairy and Food Market Analyst warns that the third-largest railroad union voted down the proposed contract and asks: "What if railroads strike? Will that disrupt trucking, too? Will we be able to get our products through West Coast ports? Our view: There's nothing bullish about log-jammed logistics, but duration does matter. A one-day strike is certainly different from a weeks-long strike that would gum up the ports," the analyst stated.
As I have sadly reported monthly for some time, U.S. fluid milk consumption continues to decline and it is doubtful that can be reversed, although Coke's lactose-free, ultra-filtered FairLife milk is making a gallant attempt.
Contrary to what the plant-based fluid and food producers would have you believe, the popularity of dairy is as high as ever, if not more so. The International Dairy Foods Assn., citing new data from the USDA's Economic Research Service, said "2021 per capita consumption of dairy grew by 12.4 pounds per person over the previous year, continuing a near 50-year growth trend that started in 1975 when USDA began tracking annual consumption of milk, cheese, butter and everything else in the dairy case."
"The average American consumed 667 pounds of dairy on a milkfat basis in 2021 versus 539 pounds in 1975 when data was first established. Among the products showing strong growth are American-type cheese, up .5 pounds; butter up .2 pounds; and yogurt, adding .7 pounds. Yogurt consumption grew at its strongest rate in a decade and American-type cheese consumption was the second biggest increase over the past 20 years," according to the IDFA.
Pizza and cheese snacks drive cheese popularity. Annual per capita cheese consumption has jumped 16% over the past decade, according to the DDR, with butter consumption up 20%, "more than making up for changing tastes elsewhere in the dairy case."
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