Dairy margins strengthened over the first half of May
U.S. milk production grew for the 11th consecutive month in April and saw the biggest spike since November, thanks to increased cow numbers and increased milk per cow. The Agriculture Department’s preliminary data shows output at a bearish 19.3 billion pounds, up 3.3% from April 2020. Output in the top 24 states, at 18.4 billion, was up 3.5%.
Revisions added 30 million pounds to the March 50-State estimate, now put at 19.78 billion pounds, up 1.9% from a year ago. Keep in mind, a year ago some regions had coop mandated supply management programs in place.
April cow numbers were up for the 15th consecutive month, totaling 9.49 million head in the 50 states, up 16,000 head from the March count, which was revised up 6,000 head, and is up a whopping 113,000 head from April 2020.
April output per cow averaged 2,033 pounds, up 40 or 2% from a year ago.
California milk was up a hefty 144 million pounds or 4.1% from a year ago, thanks to an 85 pound gain per cow, but 1,000 fewer cows. Wisconsin was up 117 million pounds, or 4.6%, on a 70 pound gain per cow and 14,000 more cows.
Idaho was up 1.0% on 5,000 more cows and 5 pounds more per cow. Michigan was up 4.5%, on 15,000 more cows and a 20 pound gain per cow. Minnesota was up 6.9%, on a 55 pound gain per cow and 17,000 more cows. New Mexico was up 2.9%, thanks to a 40 pound gain per cow and 3,000 more cows.
New York saw a 2.2% rise on a 45 pound gain per cow but cow numbers were unchanged. Oregon inched 0.9% higher on 1,000 more cows but output per cow was unchanged. Pennsylvania was down 1.0%, on a drop of 10,000 cows, though output per cow was up 20 pounds.
South Dakota showed the biggest gain again, up 13.4%, on 18,000 more cows outweighing a 5 pound drop per cow. Indiana was up 11.4%, thanks to 19,000 more cows milked and a 10 pound per cow gain.
Texas output was up 7.7%, on 29,000 more cows and a 55 pound gain per cow. Vermont was down 2.7% on 5,000 fewer cows but output per cow was up 25 pounds. Washington State was down 1.4% on 3,000 fewer cows, and a 10 pound drop per cow.
Rising milk prices spurred April milk output but also resulted in a drop in dairy cow culling from the previous month and year. The USDA’s latest Livestock Slaughter report shows an estimated 257,500 head were sent to slaughter under federal inspection, down 44,700 head from March and 21,900 or 7.8% below April 2020. Culling in the first four months of 2021 totaled 1.1 million head, down 29,700 or 2.6% from the same period a year ago.
In the week ending May 8, 56,800 dairy cows were sent to slaughter, up 1,100 from the previous week and, pardon the pun, dead even with a year ago.
The May 18 Livestock, Dairy, and Poultry Outlook mirrored milk price and production projections in the May 12 World Agricultural Supply and Demand Estimates report but it projected the U.S. milking herd will average 9.47 million head in 2021, 10,000 head higher than last month’s forecast. “The number of milk cows is expected to trend upward through third quarter and then decline in fourth quarter due to relatively high feed prices,” the Outlook stated, and the milk per cow forecast was 24,070 pounds, unchanged from last month’s estimate.
The 2022 herd is projected to average 9.465 million head, 5,000 less than the 2021 projection, as “Some contraction is expected due to relatively high feed prices and weaker milk prices,” explained the USDA. Milk per cow was projected to average 24,335 per head, a year-over-year increase of 1.1%.
The USDA’s latest Crop Progress report shows 80% of the U.S. corn crop is planted, as of the week ending May 16, up from 67% the previous week, 2% ahead of a year ago, and 12% ahead of the five year average. 41% is emerged, 1% ahead of a year ago, and 6% ahead of the five year average.
Soybean plantings are at 61%, up from 42% the week before, 10% ahead of a year ago, and 24% ahead of the five year average. 20% are emerged, 4% ahead of a year ago and 8% ahead of the five year average. 38% of the cotton crop is planted, 4% behind a year ago, and 2% below the five year average.
Cheese prices are under close scrutiny. Uncle Sam’s Food Box program ends May 31 and cheese production is increasing from spring flush abundant milk supplies and increased cheese processing capacities. Food service cheese demand from restaurants is very strong but offsetting drops in retail sales.
Last year we shorted the cheese market some, according to StoneX Dairy’s Dave Kurzawski in the May 24 Dairy Radio Now broadcast. That was due to the wild price swings we saw and manufacturers didn’t want to produce any more than they had to at $2 per pound, he said. “We’ve had this Goldilocks cheese price for the last several months of $1.70-$1.80 and now we’re in the $1.60s.” He said there’s plenty of milk now and plenty of incentive to make cheese so there’s excess out there but the lower prices should open more export potential.
The May 14 Dairy and Food Market Analyst warns; “It is looking increasingly likely that government will not favor cheese in its remaining interventions.
USDA released its first post-Food Box program solicitation, which totaled just 1.7 million pounds of cheese for delivery July thru September. For perspective: at its peak, the government was buying more than 30 million pounds of cheese per month thru the Food Box program. Instead, USDA is moving to favor butter and released a solicitation to buy 13 million pounds for delivery July thru September,” the DFMA stated.
Thankfully, third quarter U.S. dairy demand was solid, based on USDA’s latest data. Cheese disappearance topped that of a year ago for the third consecutive month and set a new first quarter record high, according to HighGround Dairy, “as demand remained firm to kick off the year opposite record production.”
Butter disappearance bested that of a year ago for the fifth consecutive month and marked the strongest March disappearance on record, according to HGD.
Total nonfat dry milk disappearance “surged into March and marked a new record high for the month,” says HGD, and “In a similar trend seen in other dairy products, both domestic and export disappearance were up versus prior year.”
Down on the farm; “Dairy margins strengthened over the first half of May as there was a sharp selloff in the feed markets that more than offset slightly weaker milk prices,” according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. The MW says “The milk market remains supported by very strong dairy product exports that are boosting their prices.”
“Feed expenses however remain a headwind to dairy operations,” the MW warned, “particularly those who are more exposed to variable cost increases in the spot market as well as those who are more exposed to Class IV pricing and negative PPD’s in their milk checks. This may begin to slow down or even reverse the ongoing growth in the dairy herd as high prices are expected to increase through the upcoming marketing year according to USDA.”
The MW reported that corn prices have moderated significantly, down over $1.00 per bushel in nearby futures while soybean meal prices likewise declined about $40 per ton recently.”
The June Federal order Class I base milk price was announced at $18.29 per hundredweight, up $1.19 from May, $6.87 above June 2020, and the highest Class I price since December 2020. The six month average stands at $16.13, up from $15.84 at this time a year ago and $15.94 in 2019. It equates to $1.57 per gallon, up from 98 cents per gallon a year ago.
The bearish Milk Production data and plenty of product coming to the CME added pressure on prices. Block Cheddar closed the third Friday of May at $1.57 per pound, down 15.50 cents on the week, third week in a row of decline, and 36.75 cents below a year ago when it jumped almost 16 cents to $1.9375.
The barrels saw their Friday close at $1.6075, down 12.25 cents on the week and 28.25 cents below a year ago when they gained 17 cents. 33 sales of block were reported on the week at the CME and 46 of barrel.
Dairy Market News says milk remains available for Central cheese production but some contacts expect potential tightness as spring flush milk yields recede. Cheese producers are taking advantage of discounts, though they are smaller than a few weeks ago. Cheese demand varies, depending on the variety but pizza cheesemakers continue to report steady sales.
Retail cheese demand held steady in the West this week but food service demand slowed slightly. Cheese producers continue to run full schedules, with the available milk in the region. CME prices have weakened however some contacts are optimistic that recent changes to CDC recommendations regarding COVID-19 and vaccinated individuals may contribute to higher food service sales in the coming weeks as people resume pre-pandemic activities, says DMN.
Butter closed at $1.87 per pound, down a half-cent on the week, after gaining 10.5 cents the previous week, but 27.75 cents above a year ago, on 15 sales.
Central butter producers say cream is available if they look West or South. Churning for fall demand is ongoing. Food service demand reports are still improved from last year when markets were in a chaotic situation, but were fluctuating in the downward direction this week, according to some. Retail sales are meeting expectations, but the bar is set seasonally low. Contacts say there is market uncertainty as to the potentiality of future governmental bids.
Cream is steady in the West with much of it going to ice cream and other Class II manufacturing, but butter makers are receiving adequate volumes. Butter inventories are stable. Retail orders are flat to lower. Depending on the locale, restaurant dine-in restrictions vary from unrestricted, full capacity, to a 25% cap.
Grade A nonfat dry milk marched to $1.3125 per pound Tuesday but closed Friday at $1.2975, a quarter-cent lower on the week but 28.50 cents above a year ago when the powder jumped 7.75 cents. 13 cars were sold on the week.
CME dry whey finished Friday at 64.50 cents per pound, up 0.50 cents on the week and 28.25 cents above a year ago, with 5 sales reported on the week.
Dairy fat, particularly butter, again weighed down this week’s Global Dairy Trade. The weighted average was down for the third session in a row, slipping 0.2%, following a 0.7% decline on May 4 and 0.1% on April 20.
Butter dropped 2.2%, after plunging 12.1% on May 4. Anhydrous milkfat was down 0.1%, following a 4.2% drop. Whole milk powder was off 0.2%, after inching up 0.7% last time, but skim milk powder was up 0.7%, after gaining 2.0%. The gains were led by lactose, up 1.6%, after a 2.0% drop last time, and GDT Cheddar was up 1.0%, after dropping 4.5% last time.
StoneX Group says the GDT 80% butterfat butter price equates to $2.1814 per pound U.S., down 4.7 cents, and compares to CME butter which closed Friday at a bargain $1.87. GDT Cheddar, at $1.96, was up 2.1 cents, and compares to Friday’s CME block Cheddar at $1.57. GDT skim milk powder averaged $1.5634 per pound, up from $1.5572, and whole milk powder averaged $1.87 per pound. CME Grade A nonfat dry milk closed Friday at $1.2975 per pound.
Buying by China is supporting prices on powder especially, according to HighGround Dairy, and the latest import data shows that. April whole milk powder imports totaled 144.8 million pounds, up 3.2% from April 2020, highest for the month since 2014, says HGD, with 89% coming from New Zealand.
Skim milk powder imports totaled 78.8 million pounds, up 43.1%, a record high for the month, says HGD, and market share shifted as China sought new suppliers after excess Fonterra product was limited. New Zealand remained the top supplier but the EU, Australia, U.S. and Belarus helped fill the gap.
Whey imports remain strong as China maintains its rebuilt hog herd. Imports totaled 146.5 million pounds, up 69.7% from a year ago and the highest April volume on record. The U.S. was their top supplier, followed by the EU, Belarus, Turkey, and Argentina.
Cooperatives Working Together (CWT) member cooperatives accepted 15 offers of export assistance this week on sales of 507,063 pounds of cheese, 476,199 pounds of whole milk powder, and 440,925 pounds of cream cheese. The product is going to customers in Asia and South America through September.
Leaders of the American Farm Bureau Federation, National Cattlemen’s Beef Association, National Farmers Union, R-CALF USA, and the U.S. Cattlemen’s Association met May 10 in Phoenix at the invitation of the Livestock Marketing Association to discuss challenges involved in the marketing of finished cattle “with the ultimate goal of bringing about a more financially sustainable situation for cattle feeders and cow-calf producers.”
Topics included packer concentration, price transparency and discovery, packer oversight, packers and Stockyards Act enforcement, the level of captive supply, and packer capacity, according to a joint press release.
Good to see these organizations discuss issues together but they need to proactively address the increasing claims made by some regarding climate change caused by the cattle and dairy industries and develop a science based answer to the plant-based product competition they will increasing see ahead.
Lee Mielke is a graduate of Brown Institute in Minneapolis, MN. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at firstname.lastname@example.org.