Butter inventories are tight and there’s concern about end of year stocks for holiday ordering
Milk production forecasts for 2022 and 2023 were lowered from last month in the latest world agricultural supply and demand estimates report (WASDE).
Milk cow numbers were reduced, reflecting the July numbers in the recent milk production report. Slower growth in cow numbers is expected through late 2022 and into 2023, says USDA. Output per cow was forecast to increase at a slightly more rapid pace in 2022 but the forecast for 2023 was unchanged.
2022 production and marketings were estimated at 226.5 and 225.4 billion pounds respectively, down 300 million pounds on both from last month’s estimates. If realized, 2022 production and marketings would only be up 200 million pounds or just 0.1% from 2021.
2023 production and marketings were estimated at 228.8 and 227.7 billion pounds respectively, down 400 million pounds on both from a month ago. If realized, 2023 production and marketings would be up 2.3 billion pounds or 1% from 2022.
Forecasts for 2022 butter prices and nonfat dry milk (NDM) were raised slightly on current price strength, but cheese and whey were unchanged. Butter was projected to average $2.85 per pound in 2022, up 6.5 cents from a month ago and compares to $1.7325 in 2021. The 2023 average was estimated at $2.3850, up a penny from last month’s estimate.
Cheese was still projected to average $2.0750 per pound in 2022, up from $1.6755 in 2021 and the 2023 average was estimated at $1.97, down 50 cents from last month’s estimate.
Nonfat dry milk will average $1.69 in 2022, up 2.50 cents from last month’s estimate and compares to $1.2693 in 2021. The 2023 average was put at $1.505, up 5.5 cents from a month ago.
The dry whey average was left at 61 cents per pound, up from 57.44 cents in 2021 and the 2023 average is expected to drop to 48.5 cents per pound, unchanged from what was expected a month ago.
Class III and class IV milk prices were raised. The 2022 class III should average $21.65 per hundredweight, up a nickel from last month’s estimate and compares to $17.08 in 2021. The 2023 average was left at $19.70.
The 2022 class IV will average $24.45, up 50 cents from a month ago and compares to $16.09 in 2021. The 2023 average was raised 50 cents to $20.85.
The WASDE’s news in feed grains wasn’t encouraging. The corn outlook is for lower supplies, smaller feed and residual use, reduced exports and corn used for ethanol, and tighter ending stocks. Projected beginning stocks were five million bushels lower based on essentially offsetting export and corn used for ethanol.
Corn production was forecast at 13.9 billion bushels, down 415 million or 3% from last month’s estimate and down 8% from 2021 based on reductions to harvested area and yield. The national yield is forecast at 172.5 bushels per acre, down 2.9 bushels from a month ago and down 4.5 bushels from last year. Total planted area, at 88.6 million acres, is down 1% from the previous estimate and down 5% from the previous year. Area harvested for grain is forecast at 80.8 million acres, down 1% from the previous forecast and down 5% from a year ago.
Exports were cut 100 million bushels to 2.3 billion, while corn used for ethanol was lowered 50 million to 5.3 billion. With supply falling more than use, ending stocks are down 169 million bushels to 1.2 billion. The season average corn price was raised 10 cents to $6.75 per bushel.
The soybean story is for higher beginning stocks and lower production, crush, exports and ending stocks. Higher beginning stocks reflect a lower export forecast for 2021 and 2022 says the WASDE.
Soybean production was projected at 4.38 billion bushels, down 152 million or 3% from a month ago with lower harvested area and yield. Yields are expected to average 50.5 bushels per acre, down 1.4 bushels from the previous forecast and down 0.9 bushel from 2021. Total planted area, at 87.5 million acres is down 1% from the previous estimate but up less than 1% from the previous year. Area harvested was forecast at 86.6 million acres, down 1% from the previous forecast, but up less than 1% from 2021.
The season average soybean price was forecast at $14.35 per bushel, unchanged from last month. Soybean meal and oil prices were also unchanged at $390 per short ton and 69 cents per pound, respectively, says the USDA.
The latest crop progress report shows 77% of U.S. corn dented, as of the week ending September 11, 8% behind a year ago and 2% behind the five-year average. 25% is rated mature, 10% behind a year ago and 5% behind the average. Harvest is at 5%. Condition wise, 53% is rated good to excellent and 5% behind a year ago.
The report also shows 97% of the soybeans setting pods with 22% dropping leaves, 13% behind a year ago and 6% behind the five-year average. 56% of the beans are rated good to excellent and 1% behind a year ago.
The Global Dairy Trade’s fourth Pulse auction was held on September 13 with 2.1 million pounds of Fonterra whole milk powder sold out of 2.2 million offered. The price averaged $3,565 per metric ton, up $25 from last week’s main Global Dairy Trade and up $150 from the August 30 Pulse. There were 35 participating bidders with nine winning.
Back home, mid-September dairy prices strengthened as the nation was relieved to hear that a national rail strike was averted sparing additional woes to an inflation troubled economy. Even as the industry awaited Monday’s August milk production report, most attention this week was on butter which soared seven cents Tuesday to an all-time high $3.24 per pound with one sale hitting $3.25.
It was short lived and fell the next day but bested the previous record by 10.50 cents. It ultimately fell to a Friday close at $3.1325, down 3.75 cents on the week but $1.3425 above a year ago. There was a total of 14 cars sold on the week.
Dairy Market News reports “Cream availability for butter production has yo-yoed quite a bit the past month, but this week it is tighter. Very few spot loads were offered at prices enticing enough for butter makers to act on.”
Butter inventories are tight and there’s growing concern about end of year stocks as retailers prepare for holiday ordering. Butter production is trending toward micro fixing exclusively, according to Dairy Market News and all of these factors pushed the price to record highs.
Demand for cream is strong in the West and cream volumes are tight amid high temperatures and declining milk output. Butter production was steady to lower this week, somewhat limited by the cream supply. Demand for butter is unchanged in food service markets and strengthening in retail as grocers prepare for the baking season. Demand for bulk butter is strong but inventories are tight. Some traders expect high prices to persist in the coming months, warns Dairy Market News.
Cheddar block cheese topped $2 per pound Wednesday, first time since mid-July and closed the third Friday of the month at $2.06, up 14.25 cents on the week after gaining 15.25 cents the previous week and 26.75 cents above a year ago.
The barrels finished at $2.09, 15.75 cents higher, 58 cents above a year ago and three cents above the blocks. Sales totaled three cars of block and nine of barrel.
A growing number of cheesemakers tell Dairy Market News that inventories are tightening in the Midwest. Barrel producers say retailers are starting to plan end of year holiday orders and are concerned regarding their production capacity and whether it will meet those needs. Adding to the concern is milk availability. Cheese manufacturers say milk is down by a noticeable amount the past few weeks. Spot milk discounts were not reported the previous week and mid-week prices this week were at class or slightly over. CME cheese prices are “mirroring the current supply/demand tones,” says Dairy Market News.
Demand for cheese is strengthening in both retail and food service markets in the West. Sales of mozzarella are increasing to pizza makers. Export demand is also trending higher as U.S. prices are below cheese produced in other countries. Inventories of barrels and blocks are tightening. Cheesemakers are running steady schedules despite seasonally declining milk output. Labor shortages and continued delayed deliveries of supplies continues limit output in some plants.
Grade A nonfat dry milk climbed to $1.5875 per pound Monday, highest since August 3, but finished Friday at $1.57, down 0.5 cents on the week but 22 cents above a year ago, with 25 sales reported on the week.
Whey got to 49.75 cents per pound Tuesday, highest since July 5, but fell to 46 cents close, up 0.25 cent on the week but 0.75 cent below a year ago on three sales.
Prices need to strengthen more to shore up milk prices. The September 9 Dairy and Food Market Analyst reports farms are calling it quits, particularly in the West where farm level margins are translating into more sales at the auction block.
“A&M Livestock lists three dairy dispersals in California in the next three weeks,” says the Dairy and Food Market Analyst, “and we are told auction houses are booked out. Farm exits are happening faster than expected. But also, August was the first month that many California milk producers experienced below cost of production milk prices.” Break evens in the golden state are now about $24 per hundredweight, according to the Dairy and Food Market Analyst, nearly $4 more than the announced August class III milk price.
Dairy culling in the week ending September 3, totaled 55,600 dairy cows, down 4,400 head from the previous week and 3,200 head or 5.4% below a year ago.
On a brighter note, dairy product demand was “mostly positive” in July according to HighGround Dairy’s Lucas Fuess in the September 19 Dairy Radio Now broadcast. Fuess said there were “red flags” this summer as to how consumers would react to inflation and affect their dairy purchases.
The USDA’s latest data answered that question. Cheese utilization totaled 1.165 billion pounds, down 5.1% from June but 0.5% above July 2021 with year to date up 1.9%. Domestic utilization was up 0.4% from a year ago and exports were up 1.6%, with year-to-date exports up 14.6%.
Cheese demand was above a year ago for the third consecutive month, but Fuess said the increase came from the “other” category, as American utilization was down for the fourth consecutive month, hurt by weak domestic demand.
Butter utilization totaled 180.6 million pounds, up 10.3% from June and 4.2% above a year ago, with domestic use up 0.8% from a year ago. Exports were up 78.7%, he said, however year-to-date utilization remained below the first seven months of 2021 hurt especially by weakness in February and March. Butter exports were close to record highs, says HighGround Dairy but represent a small share of total utilization.
Nonfat dry milk utilization, at 197.3 million pounds, was down 17.4% from a year ago, down for the second consecutive month and the sixth time this year as exports “struggle” Fuess said. Domestic usage was also down and “that’s been the trend for the past several years.” “It’s likely that export demand will continue to underperform last year’s impressive sum in the coming months, with weaker shipments negatively impacting utilization into third and fourth quarter.”
Dry whey totaled 86 million pounds, up 13.9% from 2021, as commercial utilization posted its third consecutive monthly gain, climbing to the highest volume of any month since October 2020, says HighGround Dairy. Exports performed poorly the first several months, but July saw the second consecutive year over year gain.
Demand continues to falter in fluid milk. The United State Department of Agriculture’s latest data shows sales of U.S. packaged fluid products totaled 3.3 billion pounds in July, down 5% from July 2021. Conventional product sales totaled 3.1 billion pounds, down 5.4% from a year ago. Organic products, at 228 million pounds, were off 0.3% and represented 6.9% of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, down 1.3% from a year ago, but 0.9% higher year to date and represented 34.1% of total milk sales year-to-date.
Skim milk sales, at 176 million pounds, were down 12.2% from a year ago and down 8.3% year-to-date.
Total packaged fluid sales for the seven-month period amounted to 24.9 billion pounds, down 2.6% from 2021. Conventional product sales totaled 23.3 billion pounds, down 2.7%. Organic products, at 1.7 billion, were down 2% and represented 6.7% of total milk sales for the period.
The figures represent consumption in federal milk marketing order areas, which account for approximately 92% of total fluid milk sales in the U.S.
Cooperatives Working Together members accepted five offers of export assistance this week to help capture sales of 3.7 million pounds of American type cheese and 42,000 pounds of whole milk powder. The product is going to customers in Asia, Middle East-North Africa, Oceania and South America through February.
Cooperatives Working Together’s 2022 sales total 73.8 million pounds of American type cheeses, 459,000 pounds of butter, 29.8 million pounds of whole milk powder and 7.1 million pounds of cream cheese. The products are going to 18 countries and are the equivalent of 965 million pounds of milk on a milkfat basis.
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.