Fewer Cows, Less Milk Per Cow Causes Drop in 2023 Production
Published: Friday, December 22, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department again lowered its milk production forecasts for 2023 and 2024 in the latest World Agriculture Supply and Demand Estimates report. The 2023 forecast was reduced from last month due to slower expected growth in milk per cow. Production in 2024 was lowered due to lower milk cow numbers and reduced milk per cow.
2023 production and marketings were estimated at 226.9 and 225.9 billion pounds, respectively, down 200 million pounds on both from a month ago. If realized, both would be up 400 million pounds, or .2%, from 2022.
2024 production and marketings were projected at 229 and 228 billion pounds, respectively, down 1 million pounds on production and 1.1 million pounds lower on marketings. If realized, 2024 production would be up 2.1 billion pounds, or .9%, from 2023.
Cheese and butter price forecasts for 2023 were lowered while the nonfat dry milk price was raised. Whey was unchanged.
The Class III and Class IV milk price forecasts were lowered due to lower expected cheese and butter prices. The 2024 cheese price forecast was lowered, while butter, nonfat dry milk (NDM) and whey prices were raised. The Class III price forecast was lowered due lower cheese prices. The Class IV price forecast was raised due to higher butter and NDM price forecasts, according to the WASDE.
The Class III price is expected to average $17.05 per hundredweight in 2023, down a nickel from last month's estimate, and compares to $21.96 in 2022 and $17.08 in 2021. The 2024 average was estimated at $16.85, down 85 cents from last month's estimate.
The 2023 Class IV was projected to average $19.10, down a dime from a month ago, and compares to $24.47 in 2022 and $16.09 in 2021. The 2024 average was projected at $18.90, up a nickel from last month's estimate.
Checking Chicago as traders anticipated last Monday's November Milk Production report, CME block Cheddar closed the third Friday of December at $1.52 per pound, down 6 cents on the week, lowest since Dec. 1, and 45.75 cents below a year ago when it dropped almost 12 cents.
The barrels finished last Friday at $1.45, 10.50 cents lower, 29 cents below a year ago when they plunged 21 cents, and are 7 cents below the blocks. CME sales totaled nine loads of block on the week and 27 of barrel, 11 on Friday alone.
Midwest cheesemakers tell Dairy Market News that milk is available, allowing them to run steady production. Spot milk prices ranged from $4-under to $1-over class. Volumes are not excessive but some sellers are offering milk at below class ahead of the end of year holidays. Demand is seasonally steady for American- and Italian-type cheeses. Softening demand has contributed to a steeper decline in CME prices for barrels than blocks, according to DMN.
Western retail cheese demand remains steady while food service remains steady to moderate. Price competitiveness of domestic cheese has improved but still has not manifested into strengthening moderate export demand.
StoneX said, "Supply remains constrained with milk production running weak. U.S. production was much weaker than forecast in October, down .5%. The biggest surprise was production per cow which is below trend by a record amount," said StoneX. "Milk production, and production per cow, remain well below a year ago in California and there isn't any sign that they are improving quickly, so that will be a drag on total U.S. production even if the rest of the country does improve in coming months." That said, schools are closing for the holidays and thus pushing more milk into manufacturing.
"U.S. cheese inventory in November was up 1.3%, and the market was about 18 cents lower than you would expect with inventories up that much," said StoneX. "Either inventories for November are bigger than expected or the market was really undervalued in November. To fully justify a $1.60 block price for December, inventory would need to be up about 3.3%. It is possible that inventory isn't up that much and the market is still just running weak relative to the fundamentals for other commercial reasons. Whichever way you cut it: at present it seems that U.S. spot cheese prices are undervalued."
CME butter fell to $2.46 per pound last Wednesday, lowest since June 30, but it closed last Friday at $2.49, down 18 cents on the week, ending three weeks of gain, and is 36.50 cents below a year ago. There were eight loads sold on the week.
Central cream is "looser," says DMN, and some butter makers say it's plentiful. Some anticipate heavy Class I milk orders will largely slow down as schools close for the holidays. Churning and micro-fixing will keep pace with much of the past month. Plants report strong to steady production, says DMN.
Western cream volumes have improved along with strengthened average butterfat levels in milk. Butter makers anticipate more milk clearing to Class IV in coming weeks as bottling demand declines with breaks at educational institutions. Although this has strengthened bulk butter production schedules, bulk butter availability is on the tight end, says DMN. Domestic demand remains strong to steady while demand from international buyers remains moderate.
Grade A nonfat dry milk closed last Friday at $1.16 per pound, a half-cent lower on the week and 19 cents below a year ago, on six sales put on the board.
Dry whey saw a last Friday close at 39.50 cents per pound, unchanged on the week but 6 cents below a year ago, with two sales for the week at the CME.
The Federal Reserve announced that it will leave its benchmark interest rate unchanged. Meanwhile, retail dairy prices continue to improve for consumers, particularly for cheese. The U.S. retail price of Cheddar in November was $5.65 per pound, down 20 cents from October and down 4.8% from a year ago. Butter was down 3 cents from October and 2.6% below last year.
Checking the demand side of the equation, the USDA's latest data shows cheese utilization is sputtering. October usage totaled 1.2 billion pounds, up .8% from October 2022, following two months of loss, and year to date was up just .1%.
The increase was led by strong domestic consumption, according to HighGround Dairy economist Betty Berning in the Dec. 18 "Dairy Radio Now" broadcast, up 1.1%, and led by other than American-type cheese.
HGD points out that "cheese started 2023 with nice year-on-year growth in January and February but year-to-date comparisons fell in every month from March to September." Exports totaled 78.7 million pounds, down 4% from 2022.
Butter utilization totaled 199.8 million pounds, down .5% from a year ago, but up 8.8% from September, and up 4.6% YTD. Domestic usage, at 195.5 million pounds, was up 5.6% from a year ago, while exports, at just 4.3 million, were down 72.6%, the lowest since November 2020, according to HGD.
Nonfat dry milk-skim milk powder, at 185.7 million pounds, was down 15.2% from a year ago. HGD said, "October was the third consecutive month of a double-digit year-over-year decrease, as feeble international demand continues to weigh on the commodity." Exports were down 11.2% and domestic disappearance was down 37.5%, "the lowest mark for the month since 2020."
Dry whey utilization was up from the prior year despite big losses in the export market, which Berning blamed on African swine fever in Asian hog herds and overall poor margins overseas in the hog sector.
"Whey protein concentrate maintained its strength, increasing year-over-year for the ninth consecutive month, with disappearance at its highest value since 2018," said HGD, "as domestic and export consumption grew." WPC usage, at 55.5 million pounds, was up 33.7%, according to Berning.
Dairy cow culling continues to slow. The week ending Dec. 2 saw 55,200 cows go to slaughter, down 5,600 or 9.2% from a year ago. Year-to-date, 2,863,100 head have been retired from the dairy business, up 54,000, or 1.9%, from a year ago.
In politics, the House of Representatives by a 330 to 99 vote margin passed the "Whole Milk for Healthy Kids Act of 2023," a bill that would allow for whole and reduced-fat varieties of milk to once again be served in school cafeterias.
Michael Dykes, president and CEO of the International Dairy Foods Assn, praised the measure and called for swift action on the companion bill in the Senate "so that schools can once again provide children with a wide variety of milk options that deliver essential nutrients and meet their individual needs, whether that be whole or 2%, low-fat or lactose-free milk."
National Milk President and CEO Jim Mulhern also gave the measure a thumbs up, stating, "Milk's unique nutritional profile gives it an unparalleled role in providing kids the nutrients they need. Expanding the milk schools can choose to serve to include 2% and whole is a common-sense solution that will help ensure kids have access to the same healthful milk options they drink at home."
U.S. milk production is steady to stronger, according to DMN's weekly update, and starting the upward climb along the seasonal milk production curve. Handlers indicate that component levels in milk output are increasing. Class I demand, along with Classes II, III and IV, was strong to steady as educational institutions were back in session before the Christmas and New Year's holiday breaks arrive.
Those increasing component levels in milk were reported in the Dec. 13 Daily Dairy Report which stated, "For years, high butter prices have encouraged dairy producers to make more butterfat, and they have responded. Producers have filled stalls with more Jerseys and fewer Holsteins, used selective breeding and genomic testing, and tweaked feed rations to boost butterfat tests."
"These changes have improved productivity and lifted other components, albeit at a slower pace," the DDR stated. "U.S. butterfat output in the first 10 months of 2023 was up 7.2% compared to January through October 2020. Over the same period, milk output climbed just 2.2%. Protein output jumped 5.2%, and nonfat solids production grew 4.1%," the DDR stated.
The DDR goes on to point out that the increased component levels help make the case for changes in milk pricing formulas, part of the ongoing hearings to reform the Federal Milk Marketing Order program in this country.
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