Milk production is down and cheese production is still strong
U.S. butter stocks keep heading lower after falling below those a year ago in August for the first time since June 2019.
The Agriculture Department’s latest Cold Storage report shows the September 30 butter inventory at 330.1 million pounds, down 32.6 million pounds or 9% from the August level, which was revised 4.2 million pounds lowered than what was reported a month ago. Stocks were down 13.8 million pounds or 4.0% below September 2020.
American type cheese stocks jumped to 844.1 million pounds, up 17 million pounds or 2.1% from August and were 71.5 million pounds or 9.3% above those a year ago. The August level was revised up 3.5 million pounds.
The “other” cheese category climbed to 592.2 million pounds, up 8.6 million pounds or 1.5% from August, and 31.5 million or 5.6% above a year ago.
The resulting total cheese inventory stood at 1.46 billion pounds, up 25.5 million pounds or 1.8% from August and 104.6 million or 7.7% above a year ago.
Chicago-based StoneX Dairy Group says it expected cheese stocks to come in lower than forecast given how weak milk production was in September, but instead were 45 million pounds heavier than they forecast. Cheese plants were likely getting more than enough milk in September,” explains StoneX. “While the weak milk production does raise the upside risk for cheese prices, the relatively heavy inventories are bearish for prices.”
They add that “With milk production down and cheese production still strong, butter production has likely taken a hit which is allowing inventories to be pulled down.” We’ll find out in the Nov. 4 September Dairy Products report.
Butter stocks were 7 million pounds lower than StoneX forecast but they add the caveat; “Stocks last year were very heavy, so being down 4% still leaves butter stocks at adequate levels. With milk production expected to stay weak and cheese production expected to stay relatively strong we are going to continue to pull butter stocks down and that should be supportive for prices.”
Cash dairy product prices at the Chicago Mercantile Exchange ended October with cheese heading lower and butter, powder, and whey climbing, as traders anticipated the next Global Dairy Trade auction on Nov. 2 and the September Dairy Products report on Nov. 4.
The Cheddar blocks closed the last Friday of October at $1.6750 per pound, down 13.50 cents on the week, lowest since Aug.8, 17.50 cents lower than they were on Oct. 1, and $1.1075 below that week a year ago.
The barrels saw their Friday finish at $1.82 per pound, down 4.25 cents on the week, 7.50 cents above their Oct. 1 perch, 71 cents below a year ago, and an inverted 14.50 cents above the blocks.
There were 4 sales of block on the week and 22 for the month of October, up from 18 in September. The week saw 11 cars of barrel trade places and 49 for the month, down from 69 in September.
Cheesemakers are busy according to Dairy Market News. “Plant managers report existing employees working overtime to fulfill needs is the strategy, and even then there are shifts not being staffed.” Cheese customers have also been very busy. Demand for all varieties is strong. Midweek spot milk prices ranged from Class III to $1 over. Even with plant outages in the region and growing milk output, milk usage kept offers quieter this week, according to DMN.
Looking westward; food service cheese demand remains steady and retail sales are even, year over year. Export interest is healthy, says DMN, but ports are still congested and shipping is not without difficulties. Production at some plants is limited by staffing shortages, but other facilities are able to operate at capacity and work through ample milk supplies. Cheese inventories are plentiful and growing, although block availability was said to be looser than barrels. Some contacts believe tighter barrel supplies may be contributing to the inversion.
CME butter had a good week, closing Friday at $1.94 per pound, up 10.50 cents on the week, highest since Jun. 10, 2020, up 19.25 cents for the month, and 55 cents above a year ago. There were 14 sales on the week and 25 for the month, down from 121 in September.
Butter producers say cream remains tight, if not tighter. Production schedules are reportedly stunted, due primarily to plant employee and driver shortages. There have been recent improvements in hiring, but the timeframe for a more normal production situation is unpredictable, according to plant managers. As manufacturing geared for holiday retail order surges, bulk butter availability has declined and prices have done the opposite. Butter market tones are notably bullish, says DMN. Some believe this shift could be short-lived while others are “viewing 2022 through a different lens.”
Cream has been available and is meeting demand in recent weeks in the West but stakeholders are now trying to find a home for it after the fire at an Idaho plant. Food service butter demand is holding steady, says DMN, but contacts report retail demand has softened. Retailers are looking to stock coolers in anticipation of strong holiday demand.
Fresh inventories of butter are tight, though older stocks are available. Labor shortages are causing producers to run shortened schedules but are running busy schedules when able, to fulfill purchases. CME butter prices increased this week but contacts report that tighter fresh butter availability and limited production are contributing to the higher prices, says DMN.
Cash Grade A nonfat dry milk closed the week at $1.5575 per pound, 2 cents higher on the week, highest since Aug. 7, 2014, 16 cents above their Oct. 1 posting, and 45 cents above a year ago. Sales for the week totaled 13 loads and 17 for the month, down from 69 in September.
CME dry whey closed Friday at 63 cents per pound, up 1.25 cents on the week, highest since May 26, up 5 cents on the month, and 23 cents above a year ago. There were 6 sales on the week and 16 for the month, up from 13 in September. Domestic and international whey demand is good.
Checking the fields, 66% of the U.S. corn crop has been harvested, as of the week ending Oct. 24, according to the latest Crop Progress report. That’s 4% behind that week a year ago, but is 13% ahead of the five year average.
The soybean crop is at 73% harvested, down 9% from a year ago but 3% ahead of the five year average.
In the week ending Oct. 16, 60,700 dairy cows were sent to slaughter, up 1,300 from the previous week and 2,900 head or 5.0% above that week a year ago.
Cull prices have been supportive even with the increase in cattle moving through the supply chain, says StoneX. And, slaughter rates are stronger than the rate of replacement heifers entering the herd.
Meanwhile; on farm milk output is increasing in most areas of the country, according to the USDA’s weekly update, though there are reports that it’s slightly tight in areas of the Northeast. Milk output is up in parts of the West, although Pacific Northwest contacts relay that milk supplies are somewhat lighter.
Bottling demand is mostly steady. Seasonal retail products, like eggnog and aerated cream, have increased production for customer demands. Cream markets are stable. Internal cream supplies are meeting the needs of end users. Cream prices have increased in the Central and Eastern region, says DMN.
StoneX reports that New Zealand milk solids production was down 4% in September, which was weaker than the minus 1.3% that they expected.
“Season to date milk production was down 3.5% (down 3.1% on a milk solids basis).” “New Zealand has experienced plenty of rain recently which could have had an aﬀect on production as well as calving issues which was something that was a concern in August.”
HighGround Dairy reports that New Zealand’s third quarter whole milk powder (WMP) shipments were down from a year ago, “but gains continued into China as New Zealand prioritizes their demand needs.”
“Milk production has been lower and continues to limit availability and boost prices,” says HGD, “resulting in weaker movement to price sensitive regions such as Sri Lanka. Sri Lanka is traditionally another top destination for WMP.”
It was a record third quarter for total dairy exports heading to China, says HGD, “due to WMP, fluid milk & cream, SMP and butter gains. Shipments to the Middle East were the strongest in three years in the quarter, driven by WMP and cheese.”
Cheese eked out slight gains, says HGD, with volume to Southeast Asia up 52% from a year ago and led by the Philippines, Indonesia and Malaysia. Volume to China eased however, after the country built up inventories throughout the first half of the year.
New Zealand is the Number 1 dairy exporter so the U.S. keeps a sharp eye on conditions “down under.” They and the European Union are our biggest competitors in the international marketplace, and this at a time when dairy exports contribute more to U.S. dairy farm bottom lines than ever before.
Australian milk production in September was weaker than expected, according to StoneX’s Dustin Winston, down 2.9% YoY. Fat and protein content were both down which left component adjusted production down 3.2%. Milk output for the ‘21/22 season is currently lagging 3.3%, says Winston.
Mexico is the U.S. biggest customer while Southeast Asia is a growing market. South Korea is a particularly large buyer of U.S. cheese. The Oct. 26 Daily Dairy Report stated; “South Korea remains in a dairy deficit and will continue to be a key cheese market for U.S. exporters going forward, according to a new USDA Global Agricultural Information Network (GAIN) report.”
“Korea’s per-capita cheese consumption has more than doubled in the past 10 years,” says the DDR, “with total cheese consumption poised to hit a record 192,000 metric tons (MT) next year and imports forecast to grow to 152,000 MT.”
The DDR adds; “Because South Korea has free trade agreements with all major exporters, cheese imports will continue to grow due to tariff reductions, tariff rate quota (TRQ) increases, growing consumption, and limited domestic production.”
Last year, the United States accounted for 41% of the value of all cheese imported by Korea, followed by the European Union with 36%; New Zealand, 16%; and Australia, 6%. The U.S.-Korea Free Trade Agreement helped boost U.S. cheese exports to Korea to 61,821 MT in 2020,” according to the DDR.
Like the U.S., Korea’s fluid milk consumption continues to fall. The DDR cites rapidly declining birthrates as partly responsible. “In 2018, Korea’s fertility rate fell below one child per woman and it decreased to 0.84 child per woman last year.” That, warns the DDR, means more domestically-produced milk will be available for its own cheese production.
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 email@example.com.