January Cheese Production Dips, While Butter Production Climbs
Published: Friday, March 15, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
You'll recall January milk production was down 1.1% from a year ago and the January Dairy Products report shows that milk was directed away from the vat to the churn. StoneX points out however that higher solids and continued declines in fluid milk sales meant about 1.1% more solids were available for processors.
Cheese production totaled 1.19 billion pounds, down .5% from December and 1.2% below January 2023, second month in a row to be below a year ago, and the December total was revised 12 million pounds lower.
The Daily Dairy Report says the cheese decline was unexpected in light of the nation's growing cheese production capacity.
Wisconsin, still the No. 1 cheese manufacturer, produced 297.8 million pounds of the January total, up .2% from December and .5% above a year ago. California provided 213 million pounds, down .6% from December, but 4.4% more than a year ago. Idaho, with just under 87 million pounds, was down 1.3% from December and 2.8% below a year ago. New Mexico, at just under 82 million pounds, was down 1.5% from December and 1.5% below a year ago.
Italian cheese production totaled 503.4 million pounds, down 1.1% from December, but .7% above a year ago.
American output fell to 471.2 million pounds, down 1.9% from December and 5.5% below a year ago.
Mozzarella totaled 393.3 million pounds, unchanged from a year ago.
Cheddar output fell to 326.1 million pounds, down 4.9 million pounds, or 1.5%, from the December level, which was revised down 5.5 million pounds and was down 27.8 million pounds, or 7.9%, from a year ago.
Butter production shot up to 214.2 million pounds, up 20.4 million or 10.5% from December's total which was revised 2.5 million pounds lower, and was up 12.9 million pounds or 6.4% from a year ago. The record for butter output is 215.7 million pounds in April 2020.
Yogurt production totaled 391 million pounds, down .2% from a year ago. Hard ice cream, at 49.6 million pounds, was down 6.3% from 2022.
Dry whey production climbed to 78 million pounds, up 5.4 million pounds, or 7.6%, from December, and 1.3 million pounds, or 1.7%, above a year ago. Stocks slipped to 67.5 million pounds, down 1.8 million, or 2.6%, from December and 900,000 pounds, or 1.4%, below a year ago.
The Daily Dairy Report says whey processors continued to funnel large volumes of whey into high-protein concentrates and isolates.
Nonfat dry milk output fell to 139.2 million pounds, down 8.5 million, or 5.8%, from December and down 35.8 million, or 20.4%, from a year ago. Stocks climbed to 212.3 million pounds, up 9.1 million pounds, or 4.5%, from December but were down 58.2 million pounds, or 21.5%, from a year ago.
Skim milk powder production inched up to 56.9 million pounds, up 2.5 million pounds, or 4.6%, from December, and 12.3 million, or 27.7%, above a year ago.
Analyzing the report in the March 11 "Dairy Radio Now" broadcast, StoneX broker Dave Kurzawski said the weak Cheddar production was a big surprise and hard to believe that prices were where they were at in January. The last time Cheddar output was down that much, he said, was December 2009, down 8%.
The weak cheese production moved some fat and protein to butter and powder production, he said, which was higher than expected. The Cheddar data tells him that cheese demand was "worse than we thought." "Exports may have helped a little," he surmised, "but domestic demand must have been awful."
If demand returns, he warned, we won't have an overhang in the market and it could mean tremendous volatility. "U.S. cheese manufacturers are doing a great job of not over producing, with demand being lackluster the past few months." That may have kept prices higher than were they otherwise would have been, he said, and "If demand returns this market is going to rock," he concluded.
The Agriculture Department lowered its 2024 milk production estimate for the fifth consecutive month in its latest World Agricultural Supply and Demand Estimates report issued last Friday morning, citing a smaller dairy cow inventory and slower growth in output per cow.
Class III milk prices were projected higher based on higher cheese prices, while Class IV prices were lowered, as the lower expected nonfat dry milk price more than offset the higher butter price. I'll have complete details next week.
The week ending Feb. 24 saw 60,200 dairy cows go to slaughter, up 900 from the previous week, but 5,100, or 7.6%, below a year ago. Year to date, 456,900 head have been culled, down 82,300, or 15.3%, from a year ago.
Cash dairy prices were lower the first full week of March except for butter. The Cheddar blocks fell to a Friday close at $1.46 per pound, lowest since Jan. 19, losing 9 cents on the week and 32 cents below a year ago.
The barrels finished at $1.4875, 16.25 cents lower, lowest since Jan. 26, and 28.25 cents below a year ago, but still 2.75 cents above the blocks. Sales totaled 18 loads of block on the week at the CME and 13 of barrel.
Cheese demand has been quiet for a number of cheesemakers through most of February, according to Dairy Market News. Barrel makers have been the exception, but even that has cooled in recent weeks. Demand is slowly picking back up ahead of the spring holidays. Some expect strong sales by the end of March. Production has been somewhat busy, but more cheese plants were down this week for scheduled maintenance. This created a growth in milk availability. Spot prices as low as $3.50-under Class III were reported. By comparison, last year's range was $12- to $4-under class.
Western cheese sales are steady. Retail demand is flat and food service demand is steady to moderate. International purchasers are booking second quarter buys. The availability of Class III spot milk ranges from tighter to looser in the region. Demand for milk by cheese makers is strong to steady. Manufacturers relay strong to steady schedules. Plenty of cheese is available for buyers, says DMN.
CME butter recovered some of the previous week's 9.25 cent loss, climbing to $2.85 per pound last Wednesday, then gave back 8.25 cents last Thursday, only to regain 3.50 cents last Friday and close at $2.8025, up 4.50 cents on the week and 47 cents above a year ago. There were 13 CME sales on the week.
Some butter makers shifted gears last week, slowing their churns, though they "have not lost their cream appetite. Spot cream bids at a 1.15 multiple or thereabouts will provide all they need," said DMN. Butter remains available but at steady/higher pricing. Retail demand is seasonally moderate, despite bullish price directions. Butter makers generally have somewhat bullish near-term expectations, says DMN, despite ample cream and active churning schedules.
Cream is readily available throughout most of the West, but some say it has started to be tighter than in recent weeks. Butter makers continue to run busy schedules to ensure supplies for later in the year and during summer maintenance projects. Retail demand is strong to steady. Some manufacturers say private label sales are more active than branded sales. Food service demand is steady to lighter. Canadian demand is reported to be steady, while demand from most other international purchasers is moderate, according to DMN.
Grade A nonfat dry milk, thanks in large part to the week's GDT, fell to $1.1475 last Thursday, lowest since Sept. 20 but was bid up last Friday to $1.17, down 2.75 cents on the week and a half-cent below a year ago on seven sales for the week.
Dry whey, after dropping almost a dime the previous week, suffered an additional 1.50 cent loss this week, closing at 41 cents per pound, lowest since Jan. 18, and 3.25 cents below a year ago. There were no sales reported on the week.
Class III futures are under pressure and dairy margins were relatively flat over the last half of February as projected feed costs continued to decline to new lows while milk prices were steady to slightly weaker, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
"CME Class IV milk futures are trading at elevated levels due to less milk going to driers," said the MW, "as new cheese plants absorb an increasing share of the nation's milk supply, Class III prices are barely covering producers' overhead even with shrinking feed bills. Whey prices climbed 8.5 cents in January which added about 51 cents to the Class III milk price, with the rally continuing in February as whey added another 6 cents although that trend reversed over the second half of the month as whey declined 10 cents. Whey powder production has been lower than the prior year in every month since September as poor demand from Asia and strength in the U.S. dollar has hurt exports."
The MW detailed the January Milk Production report and highlights from 2023 milk output, stating that "2023 output was down .04% from 2022, the first year since 2009 that U.S. milk production shrunk on an annual basis. The dairy herd contracted almost 50,000 head in 2023 and dropped another 23,000 head from December to January, with January's milking cow herd estimated at 9.325 million head, down 76,000 from 2023 and the smallest milking herd since August 2019."
Meanwhile, January's U.S. dairy exports had the proverbial good news and bad. Milk equivalent exports were down 4.8% from a year ago. The good news was that cheese sailings topped those a year ago for the third month in a row, and with a double-digit percentage growth, first time since January 2023, according to HighGround Dairy.
January also set a new record for the month at 84.4 million pounds, breaking the previous by 9.4 million, and up 12.6%. Cheddar exports however, were down 41.2%, the 12th consecutive month to be below a year ago. Cheese shipments to Mexico were up 39%. Cheese imports were up 1.6%.
Nonfat and skim milk powder exports, at 129.3 million pounds, were down 14%, as international demand is poor. HGD says the biggest losses were due to reduced demand from Mexico, down 21.7%, followed by smaller purchases from the Philippines, Indonesia, Thailand, Colombia and China.
Butter exports totaled just 5 million pounds, down 33.1% from a year ago, no surprise there considering the high U.S. price. Sales to Canada were up 8.2%, however, and made up almost 70% of the U.S.' butter exports. Butter imports were up 30.9%, as the high U.S. price was a strong attraction.
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