Concerns Grow over Milk Supply
Published: Friday, August 23, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Mid-August CME dairy product prices were mostly higher led by cheese topping $2 per pound, all of which drove Class III futures higher.
After jumping almost 11 cents the previous week, the Cheddar blocks closed last Friday at $2.10 per pound, up 14.25 cents on the week, a price not seen since March 27, 2023, and 7.25 cents above a year ago.
The barrels finished at $2.2550, 25 cents higher, highest since June 9, 2022, 44.75 cents above a year ago, and 15.50 cents above the blocks. Sales for the week totaled 21 loads of block and eight of barrel.
The Aug. 13 Daily Dairy Report warned, "New cheese capacity will be coming online later this year in the Southern Plains. Theoretically, cheese production will increase once the new plants are up and running, flipping the market balance back to heavy supplies and pushing prices lower. However, with low heifer and cow inventories, concerns about these plants having enough milk to run have been growing."
Dairy Market News reports that Midwest cheesemakers continue to say milk is tight to tighter week over week. Mid-week reported spot prices were hovering in the same area as the previous week, but cheesemakers say milk availability is scarce for the most part. Some are still getting sufficient quantity but at increasing prices. And, as more schools reopen, a growing percentage of milk will go to Class I and expectations are that prices will be above Class III until Labor Day, at the earliest. Cheese demand is somewhat steady. Barrel producers have shifted their focus onto other varieties which could have been a factor in the recent CME price surge. Block markets are also bullish, but not to the same extent, says DMN. Cheese inventories in the region range from balanced to tight.
Western cheese production remains active. While most cheese makers are finding plenty of milk, supplies remain tight in parts of the West due to high temperatures. A few processors have adjusted their milk production caps to incentivize farms to ship more milk and keep cheese production full. Some contacts say there is plenty of cheese available, others suggest supplies are a little snug but demand is steady to strong. With the start of school terms at hand, a few contacts report an uptick in retail and institutional food service purchases.
Butter jumped 4.25 cents last Monday, gave back 2 cents last Tuesday, and closed last Friday at $3.18 per pound, up 8.25 cents on the week, highest since Oct. 31, 2023, and 48 cents above a year ago.
There were 103 sales on the week, 51 last Thursday alone, highest single day total since Nov. 3, 2004 when butter only traded three days a week. Interestingly, there was 49 loads traded on Aug. 16, 2023. This volume represents hundreds of thousands of pounds worth of butter moving through Chicago last week.
Butter demand in the Central region is "starting to find its seasonal groove," said DMN. In recent weeks, demand has been somewhat hit and miss. Last week, however, butter producers say customers are more actively seeking product and are working on deals for the latter months of the year. Production is beginning to slide, says DMN. There were weeks in July when churning in the region was busier than expected, seasonally, but as cream availability has shifted noticeably downward in recent weeks, so has churning. Butter markets are in a "steadfast position," says DMN, but few see anything below $3 per pound.
Western butter makers report retail butter output continues to churn at a healthy clip, while bulk butter lines are running much slower. Butter demand is strong and steady, with some requests of 10 to 20 loads from buyers who want to assure coverage ahead of the late summer early fall rush. Manufacturers are comfortable with their current inventory levels and production plans, says DMN.
Grade A nonfat dry milk saw its Friday finish at $1.2550 per pound, up 5.50 cents on the week, highest CME price since Feb. 13, 2023, and 15 cents above a year ago, with 19 sales put on the board for the week.
The powder got some support from an Algerian tender announced last Tuesday and higher GDT Pulse prices, according to StoneX. "A large volume was cleared. Ramadan demand will start right about now as the holiday will start earlier next year (Feb. 27-March 29) so those buyers were looking to stock up."
Dry whey closed last Friday at 55 cents per pound, down 1.15 cents on the week but 28 cents above a year ago, with three sales for the week.
It's the age-old question: Is supply driving the market or demand. We got a look at the latest Dairy Product Supply and Utilization data and HighGround Dairy's Betty Berning reported highlights in the Aug. 19 Dairy Radio Now broadcast.
Total cheese usage was up .9% from June 2023, she said, fourth month in a row to top a year ago, and driven primarily by the "other" category, particularly on exports. Export numbers have been strong for cheese throughout 2024, according to Berning, and a lot of Mozzarella and Gouda was exported.
The other side of the story is supply and "the smaller milk supply resulted in smaller cheese output in June and right now its summertime." Milk is very tight and with schools reopening, more milk will go to the bottle instead of the vat.
Berning reported that spot milk prices are running over class, are the highest in a number of years, and have topped three-year averages. The downside, however, is the higher cheese prices will hurt exports as the U.S. will not be as competitive.
Butter utilization was down 1.1%, with domestic use down 2%, while exports were up 33.3%.
Nonfat/skim milk powder was down 15.1%, lowest total for the month since 2014, according to HGD, which stated, "Year-to-date usage finally passed the one-billion-pound mark in June, a month later than in the past five years when this threshold was crossed in May."
Dry whey usage was down 6.5%. However, HGD points out, "Despite waning domestic demand, limited inventories and rising exports helped propel the CME spot dry whey price to 62.50 cents per pound on Aug. 1, the highest price since April 2022."
The Agriculture Department again lowered its 2024 and 2025 milk production forecasts in its latest World Agriculture Supply and Demand Estimates report, and blamed lower cow inventories for both years based on the most recent data in the Milk Production report. Output per-cow was also reduced for both years.
2024 production and marketings were projected at 226.3 and 225.3 billion pounds, respectively, down 600 million on both from last month's estimate. If realized, both would be down 100 million pounds, or .04%, from 2023.
2025 production and marketings were projected at 228.2 and 227.2 billion pounds, respectively, down 900 million pounds on both. If realized, both would be up 1.9 billion pounds, or .8%, from 2024.
Price forecasts for 2024 cheese, nonfat dry milk and whey were raised from last month based on recent price strength. The butter price forecast was lowered.
Cheese is expected to average $1.8250 per pound for 2024, up a half-cent from last month's estimate, and compares to $1.7593 in 2023 and $2.1122 in 2022. The 2025 average was also raised a half cent to $1.86 per pound.
The 2024 butter price average was lowered to $2.99 per pound, down 1.50 cents from last month's projection, and compares to $2.6170 in 2023 and $2.8665 in 2022. The 2025 average was projected at $2.9850, up 2 cents from last month.
Nonfat dry milk is expected to average $1.1950 per pound in 2024, up a penny from a month ago, and compares to $1.1856 in 2023 and $1.6851 in 2022. The 2025 average was projected at $1.22, up 3 cents from a month ago.
Dry whey is expected to average 47 cents per pound in 2024, up 3 cents from last month's estimate, and compares to 36.18 cents in 2023 and 60.57 cents in 2022. The 2025 average is projected at 45 cents, up a quarter-cent.
The Class III milk price forecast was raised, based on higher cheese and whey prices, and projected to average $18.40 per hundredweight in 2024, up 15 cents from last month's estimate. That compares to $17.02 in 2023 and $21.96 in 2022. The 2025 estimate is $18.65, up 20 cents from last month's projection.
The Class IV price was raised higher nonfat dairy milk prices more than offset the reduction in butter prices. The 2024 average was projected at $20.80 per hundredweight, up a nickel from last month and compares to $19.12 in 2023 and $24.47 in 2022. The 2025 estimate was $20.95 per hundredweight, up 35 cents from a month ago.
This month's U.S. corn outlook was for larger supplies, lower domestic use, greater exports and smaller ending stocks. Corn production was forecast at 15.1 billion bushels, down 1% from 2023, which if realized would still be the third highest on record for the U.S. The yield was forecast at a record high 183.1 bushels per acre, up 5.8 bushels from last year's final estimate of 177.3 bushels. Total planted area, at 90.7 million acres, is down 1% from the previous estimate and down 4% from a year ago. Area harvested was forecast at 82.7 million acres, down 1% from the previous forecast and down 4% from a year ago.
The Crop Production report indicates that yields are forecast above a year ago in Illinois, Indiana, Iowa, Missouri, Nebraska and South Dakota and down in Ohio. The season-average corn price was lowered 10 cents to $4.20 per bushel.
The soybean outlook includes higher production, exports, and ending stocks. Production was forecast at a record 4.59 billion bushels, up 10% from 2023. Yields are expected to average a record 53.2 bushels per acre, up 2.6 bushels from 2023. Area harvested was forecast at 86.3 million acres, up 1% from the previous forecast and up 5% from 2023. The season-average soybean price was forecast at $10.80 per bushel, down 30 cents from last month. Soybean meal was forecast at $320 per short ton, down $10.
Dairy cow slaughter continues to lag. The week ending Aug. 3 saw 51,200 head sent to slaughter, same as the week before but 9,300, or 15.4%, below a year ago. Year to date, 1,636,000 have been culled, down 276,700 head, or 14.5%, from 2023.
Tuesday's Global Dairy Trade Pulse saw 4.4 million pounds of product sold, up from 3.86 million in the last Pulse, and the highest since March 12. Prices of skim milk powder and whole milk powder were both up from the July 30 Pulse.
Milk volumes are seasonally trending lower across most regions of the U.S., according to DMN's weekly update. High temperatures and humidity are pressing milk volumes lower over most of the country. Lower volumes stretch from the Northeast and down the Atlantic Coast. Some larger farms in Florida are seeing more steady volumes, while other parts of the state are seeing steep declines.
Most of the West is dealing with lighter milk production with the Pacific Northwest conveying a slight increase. Demand for all classes in the West has not changed and is steadily soaking up any multiples available. The Midwest is not immune to the doldrums of summer. Farm level milk continues to decline as the summer temperatures climb. Spot milk in the Midwest is scarce and becoming more difficult to find, says DMN.
Class I demand is ticking up as regions prepare for schools to restart in the coming weeks. The same can be said for cream and condensed skim milk. All regions of the country are experiencing strong demand and tight availability for cream and condensed skim milk. Some requests for condensed skim milk in the West could not be filled for lack of available stock. Class IV demand for cream is strong with butter makers as they keep busy production schedules.
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