Skip to main content

The war in Ukraine and rising inflation are clouds on the horizon


Dairy trade got a little jolt this week following five consecutive sessions of gain in the Global Dairy Trade auction. This week’s weighted average slipped 0.9%. Traders brought 51.5 million pounds of product to the market, down from 55.6 million on March 1. The average metric ton price slipped to $5,039 U.S., down from the record high $5,065 of the last event.

Whole milk powder (WMP) led the descent, down 2.1%, after jumping 5.7% on March 1.Butter was down 1.8%, following a 5.9% increase, while anhydrous milkfat inched up 0.4%, following a 2.1% rise. Lactose was off 0.6%.

Skim milk powder led the gains, up 1.6%, after a 4.7% increase, and Cheddar was up 0.3% after leading the gains last time, with a 10.9% surge. 

StoneX Dairy Group says the GDT 80% butterfat butter price equates to $3.0791 per pound U.S., down 5.7 cents, after jumping 17.7 cents on March 1, and compares to CME butter which closed Friday at $2.7250. GDT Cheddar, at $2.9083, was up slightly after jumping 23.3 cents on March 1, and compares to Friday’s CME block Cheddar at $2.13. GDT skim milk powder averaged $2.0615 per pound, up from $2.0328. Whole milk powder averaged $2.0849 per pound, down from $2.1578. CME Grade A nonfat dry milk closed Friday at $1.86.

The biggest surprise was in WMP prices, according to Chicago-based StoneX Dairy Group, which was expecting a 7% increase. “Buyers could very well be reacting to higher prices and the news about shutdown’s in China are bringing up concerns about demand in the near term.” A new COVID outbreak has appeared.

CME cheese headed south as well but recovered some as the industry awaited the February Milk Production report on Mar. 21. The Cheddar blocks fell to $2.05 per pound Wednesday, but closed Friday at $2.13, still down 6 cents on the week while 34 cents above a year ago. 

The barrels finished the week at $2.03, up 2 cents, 57.75 cents above a year ago, and 10 cents below the blocks. CME sales totaled 10 loads of block and 18 of barrel.

Cheese demand is steady to higher in Midwest retail and food service markets, according to Dairy Market News, but outlooks are mixed. Some traders remain bearish as U.S. cheese prices remain competitive on the global market, while others believe recent price increases will slow consumer purchasing. Spot cheese availability was unchanged this week. Contacts report that milk availability varies throughout the Midwest. Down time, at some plants in the region, has caused some milk to be available to purchasers nearby. 

Others are experiencing some tightness as production facilities are making use of milk supplies internally. Cheese production is steady.

Food service customers in the west have been more active recently as warmer weather and loosening COVID restrictions are having a positive impact on cheese demand. Retail is steady and export demand is strengthening, driven largely by lower U.S. prices however port congestion and truck driver shortages continues to be an issue. Cheesemakers are pulling heavily on milk supplies in the region, running busy schedules but labor shortages and delayed deliveries of production supplies continues to prevent running at capacity.

Butter climbed to $2.7350 per pound on Monday, fell to $2.70 Thursday but closed Friday at $2.7250, up 1.50 cents on the week and $1.06 above a year ago, with 17 sales on the week.

Demand for cream in the Central region is trending higher, according to DMN. Ice cream makers are pulling more cream as they ramp up production for the spring holidays and warmer weather. Butter makers are running busy schedules, utilizing available loads of cream. Some plants are running below capacity due to labor shortages. Butter demand is steady to higher in food service and unchanged in retail. Inventories are mixed. Some have sufficient stocks for the coming months, while others are working to increase their inventories.

Demand for cream is picking up in the West, with customers also reporting more interest from ice cream makers. Cream inventories are available but continue to tighten. Some regional butter makers are working to rebuild inventories and utilizing their cream internally, rather than selling any on the spot market. Butter makers are running busy schedules though some report the ongoing shortage of tankers and truck drivers is causing them to discard a few loads of liquid buttermilk. Retailers are increasing orders of butter in preparation for the spring holidays and food service demand is strengthening as warmer weather and loosening COVID restrictions draw more customers. Butter inventories are tight.

Grade A nonfat dry milk closed Friday at $1.86 per pound, up 2 cents on the week and 70.75 cents above a year ago, with 14 sales reported for the week.

Dry whey, which stalled at 75.75 cents per pound for seven consecutive sessions, closed Friday at 76 cents, up 0.25 cents on the week and 14.75 cents above a year ago. There was only 1 sale reported for the week at the CME.

There are plenty of clouds on the horizon; the war in Ukraine and rising inflation to name a couple. The Fed approved a 0.25% percentage point rate hike this week, first increase since December 2018, meanwhile dairy margins strengthened the first half of March, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC., as a “continued advance in milk prices more than offset the impact from higher projected feed costs.” 

“Milk prices continue to be supported by strong export demand for U.S. dairy products which are competitive as global milk production remains constrained,” the MW explained. “Supply shortfalls in Oceania have fueled the global decline in milk production. January milk collections in Australia dropped 6.3% from last year to 714 million liters as hot, humid weather lowered milk yields resulting in the lowest January output in decades. For the season which began in July, Australia’s milk collections have lagged the prior season by 2.6% for the first seven months of the year.”

“The U.S. exported 64.9 million pounds of cheese in January, up 16.7% from last year and the largest January volume since 2014. Strong sales to Mexico which were up 74% from last year fueled the increase, and U.S. cheese remains a value relative to supplies from both the EU and Oceania which should help to support export demand for the near term. January’s butter and milkfat exports were 53.1% higher than last year although nonfat dry milk and whey powder exports were lower than last year in January by 5.5% and 34%, respectively.”

“Plunging feed demand from China has weighed heavily on whey exports to that country which declined 41% in January following a 52% year-over-year drop in December,” according to the MW. “Feed prices meanwhile continued their advance as the USDA lowered Ukrainian corn exports by 6 MMT in the March WASDE, while soybean production in South America dropped by a cumulative 9.5 MMT from the February forecast,” the MW concluded.

In the week ending Mar. 5, 67,500 dairy cows were sent to slaughter, up 2,300 from the previous week, but 3,000 head or 4.3% below a year ago.

The March 11 Dairy and Food Market Analyst says new data from the National Association of Animal Breeders (NAAB) suggests there’s a lack of herd replacements in the U.S. Sales of beef semen surged by 21% last year, according to the NAAB, as the beef-on-dairy trend took off. In 2021, beef semen sales represented more than one-third of all semen sales, up from 28% in 2020 and 10% in 2017. “Furthermore, total dairy semen sales decreased by 6.7% last year, reaching the lowest level in 17 years,” the DFMA stated.

The Agriculture Department’s latest Livestock, Dairy, and Poultry Outlook, issued March 15, mirrored milk price and production projections in the March 9 World Agricultural Supply and Demand Estimates report.

The Outlook reported that milk cows numbered 9.368 million in January, 5,000 below December and 82,000 lower than January 2021. Average milk per cow in January was 2,034 pounds per head, 15 pounds lower than January 2021. 

“Relatively high costs of feed and other inputs probably dampened milk yields in January 2022,” according to the Outlook, “and corn-silage quality issues in the Midwestern and Eastern areas of the country may have also played a role. Milk per cow in January 2021 was quite strong, up 1.7% from January 2020.”

The corn price projection was $5.65 per bushel, up 20 cents from last month’s projection. Soybean meal was projected at $420 per short ton, $10 higher than last month’s forecast.

The alfalfa hay price in January was $211 per short ton, $2 lower than December 2021 and $43 higher than January 2021. The 5-State weighted-average price for premium alfalfa hay in January was $262 per short ton, $9 higher than December 2021 and $56 higher than January 2021,” the Outlook stated.

 “The Russian invasion of Ukraine has added uncertainty to the global dairy outlook,” however “the effects for the U.S. dairy industry are mostly indirect,” the Outlook says. “U.S. dairy trade with both countries has been very small. Neither Russia nor Ukraine are major global dairy exporters. Russia imports substantial quantities of dairy products, mostly from Belarus. In 2021, Argentina and New Zealand were distant second and third suppliers of dairy products to Russia. Fonterra, the leading dairy supplier from New Zealand, has suspended shipments of dairy products (mostly butter) to Russia.” 

Ukraine is a major exporter of corn and wheat. Russia is a major exporter of oil, natural gas, wheat, and fertilizer. Disruptions in exports from these countries could contribute to higher costs of these commodities, with both supply and demand implications for the U.S. dairy industry,” the Outlook warned.

“On the supply side, higher feed, fuel, energy, and fertilizer prices obviously increase costs of dairy production. Other input costs could also rise since virtually all sectors supplying the industry are affected by costs of fuel and energy. On the demand side (both domestic and foreign), to the extent that costs of dairy production are passed on to consumers in the form of higher dairy product prices, smaller quantities of dairy products may be consumed. Also, demand for dairy products could be reduced as inflation reduces consumer purchasing power. The gravity of these effects will depend upon the severity and duration of the crisis, global response to it, and many other factors that impact global dairy markets,” the Outlook concluded.

The February CPI for all food is 292.8, up 7.9% from 2021, according to DMN. The dairy products index is 242.4, up 5.2%, with fresh whole milk up 12.4%; cheese, up 1.9%; and butter, up 5.5%. 

The March 11 Dairy and Food Market Analyst says “Retailers have been slow to raise dairy product prices, and the Bureau of Labor Statistics data shows prices were up just 1.2% versus two years ago. Broader grocery store prices were up 8.6%, according to the DFMA.

Fluid milk sales started 2022 with continued slippage. The USDA’s latest data shows January sales of packaged fluid products at 3.8 billion pounds, down 1.7% from January 2021.

Conventional product sales totaled 3.6 billion pounds, down 1.5% from a year ago. Organic products, at 246 million pounds, were down 3.3%, and represented 6.5% of total sales for the month.

Whole milk sales totaled 1.3 billion pounds, off 0.9% from a year ago and represented 33.6% of total milk sales for the month.

Skim milk sales, at 206 million pounds were down 8.5% from a year ago.

The figures represent consumption in Federal milk marketing order areas, which account for approximately 92% of total fluid milk sales in the U.S. 

With school’s summer break not too far away, there’ll be additional milk moving into manufacturing. Farm level milk output is generally trending higher, according to DMN, although reports vary somewhat. 

“Some educational institutions are cycling through spring recesses, but retail orders are keeping bottlers active. Some dairy processors are unable to handle additional milk loads at this time as labor pool issues and delivery delays continue to curtail operating capacity at some plants.”

In politics; The National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC) joined the U.S. House of Representatives’ bipartisan “Problem Solvers Caucus” in a roundtable this week to “discuss additional steps Congress could take to address the ongoing export supply chain crisis facing American exports, including dairy,” according to a joint press release.

Jaime Castaneda, executive vice president for policy development and strategy for USDEC and NMPF, spoke during a panel discussion moderated by Reps. Jim Costa (D-CA) and Dusty Johnson (R-SD) to “identify the challenges exporters are facing in securing container and vessel space, unprecedented congestion, and record fees to ship products to international customers.” 

“A conservative estimate of the supply chain challenges for dairy exporters in 2021 is over $1.5 billion in higher direct costs, reduced value, and lost sales,” Castaneda noted. “If this continues, we risk losing ground to our competitors in highly competitive foreign markets, which has ripple effects on the paychecks of American dairy farmers and the thousands of workers who support the export supply chain.” 

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 lkmielke@juno.com.