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High milk prices continues to keep cows milking

U.S. milk production continues below that of a year ago, with May being the seventh consecutive month. Preliminary data shows output at 19.7 billion pounds, down 0.7% from May 2021, and follows a 1% drop in April. Output in the top 24 states totaled 18.8 billion pounds, down 0.6%. Revisions lowered the 50-State April estimate three million pounds to 19.1 billion, still 1.0% below a year ago. 

While dairy farmers have added 38,000 cows to the milking string since the first of the year, they only added 2,000 in May, putting the herd at 9.41 million head, 102,000 less than a year ago. The April tally was revised up 1,000 head.

May output per cow averaged 2,096 pounds, up eight pounds from May 2021.  

California output totaled 3.7 billion pounds, down 63 million pounds or 1.7% from a year ago. The Golden State added 3,000 cows but output per cow dropped 40 pounds. Wisconsin, at 2.8 billion pounds, was up 23 million or 0.8%. Cow numbers were down 1,000 but output per cow was up 20 pounds from a year ago

Idaho was off 0.3% on 1,000 fewer cows and a 5 pound drop per cow. Michigan was down 1.7% on 18,000 fewer cows, but output per cow was up 55 pounds. Minnesota was down 1.0% on a 9,000 cow loss, while output per cow was up 20 pounds. New Mexico was down 10.5% on 38,000 fewer cows although output per cow was up 25 pounds. The biggest losses were in Florida and Georgia, down 11.9% and 11.6% respectively.

New York was unchanged despite a 10,000 cow loss, offset by output per cow being up 35 pounds. Oregon was up 1.3% on 2,000 more cows. Output per cow was unchanged. Pennsylvania was down 1.1%, on 8,000 fewer cows, though output per cow was up 10 pounds. 

South Dakota posted the biggest increase, up 15.2%, milking 23,000 more cows and got 5 extra pounds per cow than a year ago. 

Texas was up 5.8% thanks to 21,000 more cows and a 50 pound gain per cow. Vermont was off 0.9% on 1,000 fewer cows. Output per cow was up five pounds. Washington State was down 6.4% on 14,000 fewer cows and a 30 pound drop per cow. 

Speaking in the June 27 Dairy Radio Now broadcast, Matt Gould, editor and analyst with the Dairy and Food Market Analyst newsletter, called the Milk Production report “a big deal.”

The industry is watching the monthly reports, wondering when dairy farmers will “turn it on or ramp it up,” he said, referring to milk output, and this report did not give any indication that is happening. He said it’s a global occurrence, citing lower output in New Zealand and Europe, calling it; “good news for American dairy farmers as that will keep support in the market for the foreseeable future.”

He doesn’t see a milk shortage, like we did on toilet paper, but says the pandemic resulted in “long effects.” Expansions, both at the farm and processor level, were delayed. “Farmers are now getting the economic signal to expand but how long will that take? Normally it takes six months of profitability to trigger a meaningful increase in cow numbers and milk output.” If that holds true, Gould said we should see that indication this summer. “The longer it takes for the supply response, the longer prices are going to stay high,” he concluded.

Meanwhile, the June 21 Daily Dairy Report says “Low slaughter rates and high milk prices suggest that dairy producers could continue to add cows. However, amid high feed costs, supply management programs, and low heifer inventories, growth in the dairy herd will likely remain incremental.”

High milk prices continues to keep cows milking. Culling fell in May but was slightly above a year ago, according to the latest Livestock Slaughter report. An estimated 225,200 head were sent to slaughter under federal inspection, down 12,600 from April but 1,800 head above May 2021. Culling in the five month period totaled 1.29 million head, down 38,000 or 2.9% from a year ago.

In the week ending June 11, 50,400 dairy cows were sent to slaughter, up 1,600 head from the previous week, but 2,200 or 4.2% below a year ago.

The Agriculture Department’s latest Crop Progress report shows 95% of the U.S. corn crop emerged, as of the week ending June 19, up 7% from the previous week, 4% behind a year ago, and dead even with the five year average. The report shows 70% is rated good to excellent, up from 65% a year ago.

Soybean plantings are 94% complete, up from 88% the previous week, 3% behind a year ago, and 1% ahead of the average. 83% have emerged, up from 70% the previous week, 7% behind a year ago, and 1% behind average. Ratings show 68% as good to excellent, 2% behind the previous week, but 8% ahead of the five year average.

Corn futures plummeted Thursday, as much as 48 cents intraday “on improved weather conditions into pollination and a burgeoning ‘risk off’ trade in commodities,” says StoneX Dairy Group. “Grain markets have a big week next week: both the July contract expiration and the Quarterly Stocks report is released June 30 and we have ever-changing weather. “

U.S. butter stocks climbed higher in May but remained well below a year ago. The Agriculture Department’s latest Cold Storage report shows the May 31 inventory at 321.6 million pounds, up 23.3 million pounds or 7.8% from April but 92.3 million or 22.3% below a year ago, the eighth consecutive month stocks were below the previous year. The April tally was revised down 1.3 million.

American type cheese stocks hit 857.9 million pounds, up 22.2 million pounds or 2.6% from April, and up 29.9 million or 3.6% above those a year ago. The “other” cheese category crept up to 628.3 million pounds, up 7.1 million or 1.1% from April, and 19.8 million pounds or 3.3% above a year ago.

The total cheese inventory hit a bearish record high 1.512 billion pounds, up 31.1 million pounds or 2.1% from April, and 53.6 million or 3.7% above a year ago. 

The “recovery” in the Global Dairy Trade auction suffered a relapse this week as the weighted average fell 1.3%, after inching up 1.5% on June 7 ending five consecutive declines prior to that. 

Cheddar led the declines, dropping 9.0%, after falling 3.6% in the previous event. Anhydrous milkfat was down 4.7%, after gaining 2.7%, and whole milk powder was off 0.6%, following a 0.3% slip.

Butter was up 2.4%, which follows a 5.6% advance, and skim milk powder was up 1.0%, after a 3.0% rise last time.

StoneX says the GDT 80% butterfat butter price equates to $2.7496 per pound U.S., up 6.5 cents after gaining 14.1 cents in the previous event, and compares to CME butter which closed Friday at $2.9150.  GDT Cheddar, at $2.2114, was down 22.2 cents after losing 12.3 cents last time, and compares to Friday’s CME block Cheddar at $2.09. GDT skim milk powder averaged $2.0573 per pound, up from $1.9231. Whole milk powder averaged $1.8713 per pound, down from $1.8861. CME Grade A nonfat dry milk closed Friday at $1.79 per pound.

Indications are “the elephant in the room” is still not in the room, meaning lack of China’s purchases plays a big role in the GDT. May dairy imports likely reflect that much of China’s population was in lockdown. Whole milk and skim milk powder imports totaled just 162.9 million pounds, down 36.9% from May 2021.

Whey products totaled 98.3 million pounds, down 39.3%, although HighGround Dairy points out that China increased whey and nonfat dry milk imports from the U.S., thanks to our competitive prices.

Butter imports amounted to 16.8 million pounds, down 26.5%, however HGD says China continues to lock in product at the GDT “indicating supplies are tight.”

Cheese totaled 37 million pounds, up 2.6%. HGD says the pairing with larger purchases of fat on GDT, hint toward an inventory rebuild for foodservice, especially with May cheese imports moving counter-seasonally to the upside.

HGD adds that New Zealand's exports to China nearly halved from a year ago, down 46%. Whole milk powder saw the steepest losses, down 66%, skim milk powder fell 51%, fluid milk down 20%, and butter was down 44% from 2021.

Back home; the July Federal order Class I base milk price was announced by the USDA at $25.87 per hundredweight, unchanged from the record high June price, but $8.45 above July 2021. The seven month average sits at $23.69, up from $16.31 a year ago, $15.94 in 2020, and $16.12 in 2019.

Block cheese fell for the fifth week in a row at the CME, closing the Juneteenth holiday-shortened Week at $2.09 per pound, down 5.50 cents on the week, 30.25 cents below its recent peak, but still 60 cents above a year ago.

The barrels finished at $2.1475, down a penny, sixth week of loss, 29.25 cents below its peak, but 65.75 cents above a year ago, and 5.75 cents above the blocks. There were three sales of block on the week at the CME and only 1 of barrel.

While cheese producers continue to face labor and supply chain shortages, milk availability is moving in the other direction, according to Dairy Market News. Spot milk prices fell as low as $5 under Class, with no expectation of change before the July 4th holiday. Plants continue to work through widely available milk while having lighter employee numbers. 

Demand for cheese is trending lower across both retail and food service markets, in the West. Restaurants are reducing operating hours due to high food costs, reduced consumer spending, and labor shortages. Export demand remains strong. Cheesemakers are running busy schedules, as Class III milk remains available, though some remain below capacity due to labor shortages and delayed deliveries of production supplies, according to DMN.

Cash butter oscillated some but closed the last Friday of June at $2.9150 per pound, 2.50 cents lower but $1.1975 above a year ago on 17 sales for the week.

Central butter makers say cream is still “reachable,” despite stronger ice cream production but some loads are easier to pull from the Rocky Mountain region. Butter prices near $3 prompted a push of production, but week after week, regular reports of employee shortages continues to depress full output. Butter demand is quiet, as expected in the early days of the summer but there remains a concern that late summer/early fall demand will outweigh availability. Inventories are balanced now, says DMN, “but expectations are unclear moving into a hot summer with clear expectations of lower milkfat output at the farm.”

Western butter makers say cream remains available but declining milk output due to warmer weather is contributing to tighter inventories. Cream demand is steady as butter makers try to build inventory. Higher retail butter prices are contributing to a decline in sales and food service demand is softening as restaurants reduce hours. Market sentiments remain bullish and prices expected to rise in the coming months, says DMN.

Grade A nonfat dry milk closed Friday at $1.79 per pound, down a penny on the week but 52.50 cents above a year ago, with 7 cars finding new homes.

Dry whey fell to a Friday finish at 47.50 cents per pound, 3.25 cents lower and 10.25 cents below a year ago, with 14 sales reported on the week at the CME.

The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. says “Dairy margins were steady to slightly weaker the first half of June as projected feed costs increased while milk prices retreated, although not before advancing to new contract highs at the beginning of the month.”

“Class III Milk futures prices have been supported by strong cheese demand, with Class IV prices receiving support from butter that recently eclipsed $3.00 per pound. Strong cheese demand drove dairy product exports higher in April.”

“Dairy product manufacturers prioritized the production of Class III products in April,” the MW stated, citing data from the latest Dairy Products report. “Lighter production of Class IV products will support butter and powder,” the MW said, “although historically the butter market does not remain above $3.00 for very long before dropping sharply. The last time butter was above $3.00 in both 2014 and 2015, prices finished the year significantly lower. High prices are already showing signs of demand destruction with domestic butter use during the first four months of the year down 3.6% from the record levels of 2021,” according to the MW.

Cooperatives Working Together (CWT) member cooperatives accepted 17 offers of export assistance this week to help capture sales contracts for 2.0 million pounds of American-type cheese and 254,000 pounds of butter. The product is going to customers in Asia and Middle East-North Africa through December.

In politics, Pennsylvania dairy farmer Lolly Lesher testified to the importance of the farm bill safety net program and called for milk pricing improvements during a House Agriculture Committee hearing this week. Lesher, a member-owner of Dairy Farmers of America, spoke on behalf of DMN and NMPF during a congressional review of dairy provisions in the Farm Bill. 

Closing on a sweet note; the International Dairy Foods Association hosted its 38th Annual Capitol Hill Ice Cream Party on the National Mall on June 22. The event has been “an essential summertime event for members of Congress, their families, Capitol Hill staff, and many other special guests since it began in 1983," says the IDFA, although it was not held in 2020 or 2021 due to the pandemic.

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