World dairy prices show little sign of weakening
World dairy prices show little sign of weakening. The February 15 weighted average at the Global Dairy Trade auction jumped 4.2%, following the 4.1% gain on February 1, and 4.6% on January 18. Traders brought 61.1 million pounds of product to the market, down from 62.7 million on February 1, and the average metric ton price climbed to $4,840 U.S., up from $4,630.
All products offered remained in the black led this time by skim milk powder, up 6.0%, following the 2.1% advance on February 1. Whole milk powder was up 4.2%, after advancing 5.8%. GDT butter was up 5.1%, after a 3.3% rise, and anhydrous milkfat was up 1.2%, following a 1.4% advance. Cheddar was up 3.5%, after a 2.4% jump last time, and lactose rounded out the gains, up 3.4%.
StoneX Dairy Group says the GDT 80% butterfat butter price equates to $2.9588 per pound U.S., up 14.5 cents, after jumping 8.9 cents on February 1, and compares to CME butter which closed Friday at $2.69. GDT Cheddar, at $2.6674, was up 8.9 cents, after gaining 6.3 cents on February 1, and compares to Friday’s CME block Cheddar at $1.9875. GDT skim milk powder averaged $1.9482 per pound, up from $1.8375. Whole milk powder averaged $2.0424 per pound, up from $1.9614. CME Grade A nonfat dry milk closed Friday at $1.85 per pound.
Back on the home front, CME cheese headed higher early in the week but then slowed. The 40-pound Cheddar blocks climbed to $1.99 per pound on Tuesday, highest since Jan. 13, but closed the third Friday of February at $1.9875, up 8 cents on the week and 45 cents above a year ago.
The 500-pound barrels jumped to $1.95 per pound Monday but saw their Friday finish at $1.9350, up 2.50 cents on the week, 52.25 cents above a year ago, and a more normal 5.25 cents below the blocks. There were 7 sales of block reported on the week at the CME and 14 of barrel.
Cheese production remains irregular in the Midwest, according to Dairy Market News. Some plants made it a time for updates or deep cleans and that's been the case for a few weeks. Accessible spot milk remains somewhat mixed. The price range is not large but similar to previous weeks, slightly under to around Class III. Contacts suggest that the irregularity of cheese production is the reason some of those discounted offers are still around, as milk availability is somewhat balanced. Cheese sales have begun to steady, after fluctuations throughout the early part of 2022. Producers say sales are similar to February figures in pre-COVID years.
Food service cheese demand is picking up in the West as areas begin to loosen COVID restrictions. Retail demand is steady and export demand is strengthening due to increased interest from Mexico and Asian markets. Port congestion and a shortage of truck drivers continues to cause delays. Cheese producers in the West are running busy schedules but labor shortages prevent some of them from running full schedules, according to DMN.
StoneX warned in its February 17 ‘Early Morning Update’ that demand remains mostly good for available fresh cheese and it doesn’t appear anyone has a problem ﬁnding a home for it. “But without a signiﬁcant pull from the export market that we’d expect with the U.S. versus global pricing skew, the prospect of going over and staying over $2.00 for any great length of time doesn’t appear very likely.”
Word is that more cheese is becoming available domestically while the world market remains tight, according to StoneX. “When you add in a discounted U.S. cheese price to those international prices it can create more questions than answers as to where this market can go next.”
After gaining 25.50 cents the previous week, the butter shot up to $2.86 per pound Tuesday, but reversed direction Wednesday and Thursday, and closed Friday at $2.69, down 6.50 cents on the week but still $1.14 above a year ago. There were 28 carloads that exchanged hands on the week.
Butter demand reports are steady to slower week to week, says DMN. Contacts say the slower weeks are allowing them to build inventory, though spring holiday preparations are mostly wrapped up. They are now turning attention to fall demand. Current bulk butter stocks are tight. Cream is readily available and contacts say locally sourced cream is changing hands at multiples in the low-to mid-1.20s. Western cream remains accessible but hauling remains a major concern and at growing costs, according to DMN.
Demand for cream is steady in the West, as inventories continue to be available. Cream deliveries continue to face delays due to the shortage of truck drivers. Retail demand for butter is steady to lower and food service is strengthening as COVID restrictions are loosening in parts of the region. Export demand is unchanged. Spot purchasers say butter inventories are tight, but loads of unsalted butter were harder to find than salted. Churns are active in the region, but plant managers say labor shortages and delayed deliveries of production supplies continue to prevent them from running full schedules.
Grade A nonfat dry milk inched up to $1.90 per pound Monday, highest since April 15, 2014, but closed Friday at $1.85, down 4.75 cents on the week and 75.75 cents above a year ago, with 11 sales reported for the week.
U.S. nonfat prices are on par with international prices which makes U.S. product less competitive on the export market. StoneX warns that, unless global prices rise, or supply side issues persist, it could be tough for powder to push higher.
CME dry whey gained 2 cents Monday but headed south from there, ending with a Friday finish at 81 cents per pound, down 1.25 cents but 26.25 cents above a year ago. There were 9 sales on the week at the CME.
StoneX warns that dry whey looks primed for some sort of downward correction and “If this happens, it could be a heavy weight on Class III prices.”
A much delayed study on updating Federal Market Order make allowances has been released and shows that the cost of processing most products has gone up since 2005-2006.
If these costs were adopted into current market order formulas they would knock about 83 cents per hundredweight oﬀ the Class III milk price and 95 cents off the Class IV, according to StoneX, which adds that “The costs are from late 2017 to December 2020, so they don’t include the inﬂation that we saw in 2021. Farmers won’t be happy about their milk price dropping by 80 plus cents, so there will be some ﬁghts over this.”
Broker Dave Kurzawski, speaking in the February 21 ‘Dairy Radio Now’ broadcast, said the last time make allowances were update was 2008, following a study in 2005-2006. He said “It behooves producers to look at this from the standpoint of a partnership with the processors that they’re selling their milk to.”
This is not a done deal, according to Kurzawski. There has to be a preliminary investigation, a public hearing has to be held, USDA has to issue a recommended decision, followed by a final decision, and then be voted on by Federal order farmers who can “take it or leave it.”
Such was the case in 2004 when the Utah, Southern Idaho, Eastern Oregon order, Order 135, voted to leave the Federal order program, he said.
Congress could also change it, according to Kurzawski, although Agriculture Secretary Vilsack has said he will not make the rules but would support whatever National Milk and the International Dairy Foods Association agree to. One thing is sure, there will be a lot of discussion on this ahead, Kurzawski concluded.
While planted-based beverage manufacturers love to point out how fluid milk consumption has fallen over the years, even though they have had little to do with it, they fail to recognize the continuing popularity of real dairy products overall.
Starting with cheese; December commercial disappearance totaled 1.16 billion pounds, up 2.1% from December 2020, third month in a row to top year ago levels, according to HighGround Dairy, and consumption for the year was up 3.6%. That’s a lot of cheese and it’s not the concoction made in a test tube.
Butter disappearance hit 201.4 million pounds, up 6.8% from a year ago, strongest year over year gain since August, with demand for the year up 5.0%. Domestic consumption was up 2.7% from 2020 and exports were up 110.6%.
Nonfat dry milk/skim milk powder totaled 189.6 million pounds, down 13.9% from a year ago and off 0.9% for the year. Domestic disappearance was down 24.4%, but exports were up 10.7% for all of 2021.
Total dry whey disappearance amounted to 80.8 million pounds, down 3.3% from a year ago, and down 2.1% for the year. Domestic consumption was down 9.7% but exports were up 5.6%.
Admittedly, December fluid milk sales were down. The USDA’s latest data shows sales of packaged fluid products at 3.9 billion pounds, down 2.6% from 2020.
Conventional product sales totaled 3.7 billion pounds, down 2.5% from a year ago. Organic products, at 242 million pounds, were down 4.1%, and represented 6.2% of total sales for the month.
Whole milk sales totaled 1.3 billion pounds, off 0.7% from a year ago, with consumption for all of 2021 down 5.3%. Whole milk represented 33.2% of total milk sales for the year.
Skim milk sales, at 208 million pounds in December, were down 11.0% from a year ago and down 12.6% for the year.
Total packaged fluid milk sales in 2021 amounted to 44.3 billion pounds, down 4.1% from 2020. Conventional product sales totaled 41.5 billion pounds, down 4.2%. Organic products, at 2.8 billion, were down 2.6%, and represented 6.3% of total milk sales for the year.
The figures represent consumption in Federal milk marketing order areas, which account for approximately 92% of total fluid milk sales in the U.S.
Speaking of fluid milk, the Agriculture Department announced the March Federal order Class I base milk price at $22.88 per hundredweight, up $1.24 from February, $7.68 above March 2021, and the highest Class I since Dec. 2014. It equates to about $1.97 per gallon, up from $1.31 a year ago.
The three month Class I average stands at $21.41, up from $15.29 at this time a year ago and compares to $18.01 in 2019.
Meanwhile, the International Dairy Foods Association reports that “Americans are facing the fastest inflation growth in 40 years. At the same time, consumer sentiment has dipped to 61.7, down from 76.8 a year ago. A third of Americans participating in the sentiment survey said rising prices are clouding their economic outlooks.”
The government reported that the consumer price index (CPI) rose 7.5% in January from a year ago, according to the IDFA, “marking the largest increase since February 1982, when inflation hit 7.6%.”
“However, prices for dairy foods, including milk, cheese, butter, yogurt, and ice cream, gained the least among several food categories between January 2021 and January 2022. Compared to many other goods and services, dairy products are a best buy,” the IDFA concludes.
The Agriculture Department’s latest Livestock, Dairy, and Poultry Outlook, issued February 15, mirrored milk price and production projections in the February 9 World Agricultural Supply and Demand Estimates report.
The Outlook stated that “Due to declines in milk cows in recent months, higher projected feed prices, a low inventory of replacement heifers, and higher expected cull-cow prices, milk cows are projected to average 9.360 million head in 2022, 25,000 lower than last month’s forecast. Milk per cow is projected to average 24,265 pounds per head in 2022, unchanged from the previous forecast.
Dairy product prices and milk price estimates were raised however, and U.S. dairy prices are expected to be less competitive in international markets, according to the Outlook. The 2022 export projections were adjusted downward accordingly. Lower exports are expected for whey products, dry skim milk products, butter, and cheese.
Dairy import projections were raised to 6.9 billion pounds on a milk-fat basis and 5.7 billion pounds on a skim-solids basis. Higher imports are expected for butter, milk protein products, and several other miscellaneous dairy products.
In the week ending February 5, 62,900 dairy cows were sent to slaughter, down 1,100 from the previous week, and 4,600 head or 6.8% below a year ago.
Farm level milk production is trending steady to higher throughout the country, says the USDA’s weekly update, as warmer temperatures start to return. Some Midwestern contacts report tightening milk availability. Some southwest handlers are sending milk to other regions where demand surpasses local milk supply.
Since school pipelines were refilled in January, Class I orders have remained stable in many areas but have increased in others, particularly where retail bottling sales have grown, according to the USDA.
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.