South Korea’s truck driver strike has brought ports to a halt
As reported last week, the USDA lowered its milk production estimates for 2022 and 2023 the World Agricultural Supply and Demand Estimates report (WASDE). Price forecasts for cheese, butter, and nonfat dry milk (NDM) were raised from last month, based on recent price strength and stronger anticipated demand. The whey price forecast was lowered on observed prices.
Cheese is expected to average $2.1950 per pound in 2022, up two cents from last month’s estimate and compares to $1.6755 in 2021. The 2023 average was put at $2.05, up a penny from a month ago.
The 2022 butter average was estimated at $2.7650, up 11.50 cents from last month’s estimate and compares to $1.7325 in 2021. The 2023 average was placed at $2.3850, up 3.50 cents from a month ago.
Nonfat dry milk was projected to average $1.7550 in 2022, up from $1.2693 in 2021, and will average $1.62 in 2023, up 4 cents from last month’s estimate.
Whey will average 64 cents per pound in 2022, down 1.50 cents from last month’s estimate, and compares to 57.44 cents in 2021. The 2023 average will be 52 cents per pound, unchanged from last month’s projection.
The stronger product prices result in higher forecast Class III and IV milk prices, reported here last week. Continued strengthened demand and modest growth in production, is expected to support 2023 cheese, butter, and NDM prices.
This month’s corn outlook is for larger beginning stocks, slightly higher use, and increased ending stocks. Corn area and yield forecasts were unchanged as the June 30 Acreage report will provide survey based data. Beginning stocks are up 45 million bushels mostly reflecting a forecast decline in exports. Exports were lowered 50 million bushels, based on reported U.S. Census Bureau shipments through April and May export data. Ending stocks were raised 40 million bushels. The season-average farm price was unchanged at $6.75 per bushel.
Soybean projections included lower beginning and ending stocks and higher prices. Lower beginning stocks reflects increased exports. Soybean exports were raised 30 million bushels to 2.17 billion reflecting strong sales and a reduced export forecast for Brazil. With reduced supplies and no use changes, soybean ending stocks were projected at 280 million bushels, down 30 million. The soybean price forecast, at $14.70 per bushel, was up 30 cents from last month.
Meanwhile; this year’s corn crop was 97% planted, as of the week ending June 12, 3% behind a year ago but mirrors the five year average, according to USDA’s latest Crop Progress report. The crop is 88% emerged, up from 78% the previous week, 7% behind a year ago, and 1% behind the five year average. The report shows 72% is rated good to excellent, up from 68% a year ago.
Soybean plantings were at 88%, up from 78% the previous week, 5% behind a year ago, and dead even with the five year average. 70% has emerged, up from 56% the previous week, 15% behind a year ago, and 4% behind the average.
In the week ending June 4, 48,800 dairy cows were sent to slaughter, down 1,100 head from the previous week, but 2,300 or 4.9% above a year ago.
StoneX predicted in its June 14 Early Morning Update that slaughter levels over the last four weeks should point to growth in cow numbers in the next Milk Production report, “the one caveat being if replacement levels are lower than year-ago levels as well.”
This week was shy of new information for the market to feed on with respect to USDA reports. Traders were anticipating the May Milk Production report on June 21 along with that morning’s Global Dairy Trade for fresh news. In an effort to put a patch on a gaping and growing hole called inflation, the Fed announced a 75 basis point interest rate hike this week, biggest increase since 1994. CME cheese prices plummeted the next day, though fresh cheese is more available.
Speaking in the June 20 Dairy Radio Now broadcast, StoneX broker Dave Kurzawski said the immediate effect is the increased cost to building and holding inventories, “as if anyone wants to hold $3 per pound butter and $2.20 cheese.” The big question is what it means for dairy demand, he reasoned. “Every 10% change in household income, historically, results in a 4.5% change in retail dairy demand. There is going to be an impact on dairy demand,” he concluded, “We just don’t know exactly when that is going to arrive.”
The June 10 Dairy and Food Market Analyst reported “The high cost to produce milk will keep western supplies in check for the foreseeable future. For example, California feed costs remain extremely high, and based on our calculations, breakeven milk prices will be $25.00 there next month. Local contacts are blaming drought, a rail backlog, and of course the war in Ukraine for the extraordinary feed costs.”
The Analyst also warned; “The domestic demand environment looks like it is weakening. If you believe USDA figures, commercial usage of butter was down 3.7% in the three months ending April, while usage of cheese was up 2.8%. Certainly, domestic demand conditions have worsened since then. Data from technology firm OpenTable shows foodservice sales are again trending lower. The company says the number of sit-down visitors was down 4.7% from 2019 levels during the latest week,” but on the bright side, the Analyst says “International sales are still rocking.”
Looking specifically at April commercial dairy product disappearance; total cheese slipped to 1.17 billion pounds, down 2.7% from April 2021. HighGround Dairy points out this was the first year over year decline since September. Domestic use was down 3.1% from a year ago while exports were up 2.4%.
Butter disappearance totaled 172.3 million pounds, up 8.8%, though year to date (YTD) was still down 2.4%. Domestic disappearance was the driver, says HGD, up 10.2%, while exports were down 10.1% from a robust year ago total.
Nonfat-skim milk powder, at 221.0 million pounds, was down 10.4%. HGD points out that domestic disappearance was the lowest for the month on record, with data going back to 2011, and down 19.9% from a year ago, with YTD down 27%. Exports were down 6.4% from a year ago and down 7.8% YTD.
Dry whey disappearance amounted to 79 million pounds, down 2.1%, with domestic use up 20.3%, while exports were down 18.8%.
April sales of U.S. packaged fluid milk products totaled 3.6 billion pounds, down 2.1% from April 2021. Conventional product sales totaled 3.4 billion, down 2% from a year ago. Organic products, at 240 million pounds, were down 3.4%, and represented 6.6% of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 3.0% from a year ago, up 0.8% year to date, and represented 33.3% of total milk sales in the four months.
Skim milk sales, at 195 million pounds, were down 8.4% from a year ago and down 8.1% YTD.
Total packaged fluid sales for the first four months of 2022 amounted to 14.7 billion pounds, down 2.5% from 2021. Conventional product sales totaled 13.8 billion pounds, down 2.4%. Organic products, at 964 million, were down 4.3%, and represented 6.6% of total milk sales for the period.
In other global news; the June 14 Daily Dairy Report warned “The global supply chain was hit with more challenges last week when port workers in Germany and truck drivers in South Korea walked out over wages.”
The DDR says “These new global supply chain challenges have unfortunately collided with the return of shipping in and out of Shanghai as it emerges from lockdown.”
“South Korea’s truck driver strike has brought ports to a halt and could slow shipments of U.S. dairy products into that country,” the DDR stated, even as U.S. port workers are currently negotiating new labor contracts.
Meanwhile, the House passed the Ocean Shipping Reform Act this week, and the President signed it, prompting praise from the National Milk Producers Federation, the U.S. Dairy Export Council, and the International Dairy Foods Association. The act sets in motion a series of new rules and regulations regarding ocean carrier practices that the Federal Maritime Commission (FMC) must implement over the course of the next year, according NMPF and USDEC.
IDFA’s Michael Dykes says the legislation should provide important tools to address supply chain bottlenecks plaguing U.S. dairy and food exports and provides real, long-term solutions for the many issues congesting U.S. ports and slowing exports” by placing disciplines on ocean carriers’ ability to decline export cargo, meaning more of those empty containers will soon be filled with high-quality, sustainable U.S. dairy foods for consumers around the world.”
The IDFA also submitted comments regarding the U.S. Securities and Exchange Commission’s (SEC’s) proposed climate disclosure rule, stating; “IDFA suspects that the proposed rule will act as a barrier to entry for some businesses, especially smaller companies, and the SEC does not account for the financial and market burdens it places on businesses of all sizes with the compressed timeline and additional climate reporting scheme it layers on existing standards.”
CME Cheddar blocks plunged to $2.08 per pound Thursday, lowest price since March 17, but recovered 6.50 cents Friday to close at $2.1450, 11 cents lower on the week, fourth consecutive week of loss, but 65.25 cents above a year ago.
The barrels fell to $2.1350 Thursday, lowest since March 21, then recovered 2.25 cents Friday to finish at $2.1575, down 8.50 cents on the week, fifth week of loss, but 61.50 cents above a year ago, and 1.25 cents above the blocks. There were 11 sales of block this week at the CME and 26 of barrel.
Midwestern cheese producers reported a surge of milk availability this week, according to Dairy Market News, mainly due to a number of plants down for a variety of reasons. Spot milk prices were as low as $5 under Class III at mid-week. Cheese orders are meeting seasonal expectations, with Cheddar and Italian style orders seasonally quieter. Curd producers are busy, says DMN.
Cheese sales are trending lower in the western retail sector and food service orders are faltering. Amid high input costs, ongoing labor issues, and consumer resistance to higher prices, some eateries are offering streamlined menu options and/or abbreviated hours of operation. Cheese exports remain robust. Western cheese production is busy and at maximum capacity for some plants. Regional cheese inventories are generally stable to growing, according to DMN.
Cash butter closed Friday at $2.94 per pound, down 3.50 cents on the week, but $1.1550 above a year ago, on 36 sales for the week.
Central butter producers say cream is somewhat tight but still available from the West. The issue is finding haulers to transport it and pay their fuel bills. Continued reports of short plant staffing is keeping production restrained.
Cream is getting a little tighter in the west but still available for butter making which is steady. Some plants are working to grow inventories for fall demand. As prices head higher and lose the competitive edge on global markets, export demand appears softer. Retail sales are down and some grocery chains are featuring butter promotions to encourage purchases. Food service orders continue to slide as some eateries reduce hours or days of the week, due to high input costs, lower consumer demand, and staffing shortages, says DMN.
Grade A nonfat dry milk fell to a Friday finish at $1.80 per pound, down 5.50 cents but 53.50 cents above a year ago. There were 8 sales reported this week.
Dry whey fell to 49.25 cents per pound Thursday but closed Friday at 50.75 cents, still 3.50 cents lower on the week and 10.25 cents below a year ago. There were 16 sales reported for the week at the CME.
New Zealand milk output “continues a downward course along the seasonal trend,” says DMN. “Unfavorable warm dry conditions had an immense impact on output in some of the key milking regions. Sources note that the amount of feed used to get through poor pasture conditions has been expensive and diminished farmers' feed supplies. As a result, some producers are employing actions to compensate for the depletion by limiting daily milking to sustain available feed and drying off half their herds earlier than normal.” “The upcoming milk production season will likely involve poor pasture conditions in the winter and early spring, which will impact milk production volumes,” according to DMN.
“Australia's monthly production continues to decline around smaller herd sizes, hikes in packaging cost, along with feed and other input costs,” says DMN, “all driving lower milk output. Milk collections were down 2.0% from April 2021. Milk prices are expected to track higher as bullish tones become evident in the market. Sources suggest that commodity prices will follow suit, as milk supplies tighten both in Australia and the global market. Australia dairy exports reportedly increased 26.5% in March, with whole milk powder, skim milk powder, and cheese sparking strong interest,” according to DMN.
Closing on a happy note, NMPF reports that plant-based beverage sales are declining. “Plant-based marketers and their media allies who have long touted that fake milks would lead to the death of dairy aren’t telling you that the novelty appears gone and that predictions of Almond Ascendance have come to naught.” Read more at the NMPF website.
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.