There’s still a mountain of challenges dairy farmers face
First indications are that U.S. milk production saw a pretty good jump in August, thanks to big increases in output per cow and cow numbers. The United States Department of Agriculture’s latest data shows output at 19.02 billion pounds, up 1.6% from August 2021. The 24 state total came in at 18.2 billion pounds, up 1.7%.
It is only the second monthly increase since October 2021 but is measured against last year’s small 0.6% gain from August 2020. USDA has also lowered its estimates in recent world agricultural supply and demand estimates (WASDE). However, revisions raised the 50 state July estimate 53 million pounds to 19.2 billion, up 0.5% from 2021 instead of the 0.2% increase originally reported.
But the 1.6% increase should not be ignored. August cow numbers totaled 9.427 million, highest since August 2021, up 8,000 from July numbers which were revised up 3,000 head. The August herd was only down 11,000 head from July 2021 but is up 60,000 head from January.
Output per cow averaged 2,018 pounds, up 34 pounds or 1.7% from August 2021. July output per cow was revised up 5 pounds, to 2,038 pounds.
California put 3.46 billion pounds of milk in the tank, up 69 million or 2% from a year ago. Cow numbers were up 4,000 and output per cow jumped 35 pounds. Wisconsin produced 2.73 billion pounds, up 31 million or 1.1%. Cow numbers were down 6,000 but output per cow was also up 35 pounds from a year ago.
Idaho was up 2.5% on a 35-pound gain per cow and 6,000 more cows. Michigan was down 1.5% on 15,000 fewer cows though output per cow was up 45 pounds. Minnesota was up 0.6%, thanks to a 45-pound per cow gain offsetting an 8,000 cow drop. New Mexico was down 3.3% on a 24,000 cow drop, but output per cow was up 95 pounds.
New York was up 2%, thanks to a 55-pound gain per cow offsetting a loss of 4,000 cows. Oregon was up 1.4% on 1,000 more cows and a 5-pound gain per cow. Pennsylvania was up 0.5%, on a 35-pound gain per cow but cow numbers were down 7,000 head.
South Dakota was up 14.5%, thanks to 22,000 more cows and a 15-pound gain per cow. Texas was up 8.9% on 30,000 more cows and an 80-pound gain per cow. Vermont was unchanged despite a 50-pound gain per cow. Cow numbers were down 3,000 head. Washington state was down 4.2% on 12,000 fewer cows, though output per cow was up 5 pounds.
StoneX broker Dave Kurzawski, speaking in the September 26 Dairy Radio Now broadcast, said the take away from the report is that “In the midst of the high costs of operating a dairy today, dairy farmers have been fairly resilient.” He said there was a “knee jerk reaction” in the futures market but “Does it really change my world view of milk supply, both in the U.S. and globally, and the answer is no.” “There’s still a mountain of challenges dairy farmers face,” he said. “The milk supply is still under duress and one report showing output above a year ago, while it has a bearish tone, I don’t think it’s much to worry about.”
Demand is still in the driver’s seat he said, and the U.S. is in a good position to take market share from Europe over the next few months. Add that to holiday demand here at home, that should keep market prices strong even if butter comes down from its three dollars high, he concluded.
The latest margin watch from Chicago based Commodity and Ingredient Hedging LLC., says “Dairy margins improved over the first half of September on stronger milk prices while feed input costs were largely steady but remain firm.”
The margin watch detailed the August milk production report, stating “Although the U.S. dairy herd appears to be stabilizing and showing modest growth, tight margins, labor conditions, high input costs, limited processing capacity and increased regulations will deter significant expansion. Strength in dairy product exports is helping to support milk prices, as U.S. prices remain competitive on the world market despite strength in the U.S. dollar. U.S. dairy exports in July rose to 467.4 million pounds, up 4.5% from last year with cheese, butter and whey all increasing export volumes compared to 2021.”
The margin watch cited crop details from the September WASDE which “confirmed lower yield and production forecasts for corn and soybeans. Both harvested area and yield projections were lowered for corn and soybeans, reducing the production forecasts by 415 million and 152 million bushels, respectively, from August. A hot, dry finish to the summer along with an ongoing drop in crop condition ratings is helping to retain risk premium in the market ahead of harvest, particularly for the soy complex,” the margin watch concluded.
Dairy cow culling took a jump in August. An estimated 266,100 head were sent to slaughter under federal inspection, according to the latest livestock slaughter report, up 36,000 head from July and 4,700 or 1.8% above August 2021. Culling in the eight months totaled two million head, down 55,700 or 2.7% from a year ago.
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.
Dairy culling has been tracking below last year’s level, so expansion is likely occurring, according to StoneX. “Producer margins have gotten much tighter in recent months so we will have to see if the increase in production is enough to keep cows in the herd or will they resort to the cull market.”
Meanwhile, the USDA’s latest dairy outlook, issued September 16, stated, “The 2023 forecast for the average number of milk cows was lowered by 20,000 head to 9.415 million, as the rate of growth in cow numbers is expected to slow in 2023. The 2023 forecast for milk per cow remained at 24,300 pounds.
U.S. butter and cheese stocks fell in August as consumers chewed through the inventory. The USDA’s latest cold storage report shows the August 31 butter inventory at 282.6 million pounds, down 32.5 million pounds or 10.3% from July and down a hefty 80.1 million pounds or 22.1% below a year ago, the eleventh consecutive month stocks were below the previous year.
American type cheese stocks fell to 842.4 million pounds, down 17.6 million pounds or 2.1% from July, but were 15.3 million or 1.8% above a year ago.
The “other” cheese category fell to 620.3 million pounds, down 19.1 million or 3% from July, but had 37 million pounds or 6.3% more than a year ago.
The total cheese inventory added up to 1.48 billion pounds, lowest since April but a record high for August, according to the daily dairy report. It was down 38 million pounds or 2.5% from July, but still 51 million or 3.6% above a year ago.
Recovery continued in the September 20 global dairy trade auction which saw the weighted average rise 2%, following the 4.9% jump on September 6, reversing five consecutive declines. Traders brought 57.6 million pounds of product to market, down from 59.8 million on September 6 and the average metric ton price inched up to $4,072 U.S., up from $4,007.00.
Anhydrous milkfat led the way, up 4%, after leading the gains last time with a 13.9% rise. Butter inched 0.2% lower, after a 3.3% rise. Whole milk powder was up 3.7%, following a 5.1% gain, and GDT cheddar was up 2.1%, after rising 1%. Skim milk powder was down 0.7%, following a 1.5% rise in the last event.
StoneX says the GDT 80% butterfat butter price equates to $2.37 per pound U.S., virtually unchanged from the last event and compares to CME butter which closed Friday at a pricey $3.1325. GDT cheddar, at $2.3346, was up 4.6 cents and compares to Friday’s CME block cheddar at a bargain $1.96. GDT skim milk powder averaged $1.6089 per pound, down from $1.6215 and whole milk powder averaged $1.6931 per pound, up from $1.6374. CME Grade A nonfat dry milk closed Friday at $1.58 per pound.
StoneX adds; “Overall concerns about New Zealand milk production likely drove the stronger results. North Asia market share, which includes China, bounced back from abysmal levels at the previous event. North Asia’s share of purchases was down slightly from last year, but volume was up. Southeast Asia lost share compared to the last event but was similar to last year. Middle East share was up, Africa’s was down,” says Nate Donnay director of dairy market insight.
Speaking of China, August dairy imports sadly trailed year ago percentages. Whole milk powder totaled 66 million pounds, down 59.5% from August 2021, though year to date is only down 15.8%. New Zealand felt that the most.
Skim milk powder imports amounted to 72.7 million pounds, down 2.4% and down 24.8% year to date.
Dry whey imports were up 1.2%, totaling 138.5 million pounds and broke a ten-month streak of weakness, according to HighGround Dairy, but whey imports are down 30% year to date. HGD says August was the largest monthly volume from the U.S. of any month since May 2018 with a 53% market share versus 40% a year ago.
Butter imports were also up, showing a 32% rise, but only totaled 15.9 million pounds. Cheese totaled 31.1 million pounds, down 10% from a year ago, with year to date down 19.5%.
Back home, CME block cheddar closed the fourth Friday of September at $1.96 per pound, down a dime on the week, following gains of 14.25 cents the previous week and 15.25 cents the week before that. The blocks were still up 25.25 cents from a year ago but headed lower.
The cheddar barrels climbed to $2.19 per pound Thursday, highest since July 1, but finished Friday at $2.1850, 9.50 cents higher after gaining 15.75 cents the previous week. They were 58.50 cents above a year ago and 22.50 cents above the blocks, as the spread widened. There were 12 cars of each sold on the week.
Milk availability to upper Midwestern cheesemakers has slipped, according to Dairy Market News. Class I demand has drawn more milk as cheese makers seek to increase output due to strong market prices. Spot milk offers have become rare, says Dairy Market News, as some are selling loads at class to just over class III. With the rise in recent demand, cheese producers are cutting back on orders simply to keep up. Barrels especially are tight as holiday demand builds.
Looking westward, retail cheese demand is declining as the higher prices take a toll. Food service demand is steady, with mozzarella makers noting strong purchasing from pizza makers. Internationally, cheese is priced at a premium to U.S. product and contributing to increased global interest. Demand for barrels is outpacing supplies. Milk volumes are tightening but are sufficient to run steady production, though plants in the region say labor shortages and delayed deliveries of supplies continues to prevent them from running at or near capacity.
CME butter fell to $3.1075 per pound Wednesday but closed Friday at $3.1325, unchanged on the week, but $1.4050 above a year ago with 13 sales reported.
Midwest butter producers tell Dairy Market News that cream is unavailable on the spot market, or nearly unattainable. Churning is lighter, as micro fixing continues to trend higher. Butter demand in the upper Midwest is outpacing supplies and “As long as cream availability remains snug at the onset of strengthened fall demand, butter markets are expected to remain in rarefied air,” says DMN.
Cream demand is mixed in the West. Interest from ice cream makers is declining but demand is strong from butter makers. Declining milk production is not helping. Retail and food service demand for butter is steady. Purchasers are wary of current prices and are limiting their orders to near term needs. Inventories are tight and unsalted butter is more difficult to obtain than salted.
The September 20 daily dairy report points out that U.S. exports of butter and milkfat to Canada in the first seven months of this year totaled 40.9 million pounds, more than double those in 2021. The daily dairy report said that Canada has accounted for more than 40% of U.S. butter and milkfat exports so far and explains “While Canada produced a record volume of milk last year of 21.5 billion pounds, up 1.7% from the previous record set in 2020, Canada’s milk output for the first six months of this year fell 1.1%, likely helping to tighten Canada’s butterfat supply.”
Grade A nonfat dry milk closed Friday at $1.58 per pound, up a penny on the week and 22 cents above a year ago, with three sales reported on the week.
Dry whey finished the week at 45 cents per pound, down a penny and 12.25 cents below a year ago on four sales for the week at the CME.
The USDA announced the October Federal order class I base milk price at $22.71 per hundredweight, down 91 cents from September, but $5.63 above October 2021 and the lowest class I since March. It equates to $1.95 per gallon, up from $1.47 a year ago. The ten-month class I average stands at $23.73, up from $16.48 at this time a year ago and $16.50 in 2020.
U.S. corn conditions continue to deteriorate. The latest crop progress report shows 87% of U.S. corn dented, as of the week ending September 18, 5% behind a year ago and 1% behind the five-year average. 40% is rated mature, 14% behind a year ago and 5% behind the average. Harvest is at 7%, 2% behind a year ago. Condition wise, 52% was rated good to excellent and 7% behind a year ago.
The report shows 42% of the soybeans dropping leaves, 13% behind a year ago and 5% behind the five-year average. Harvest is at 3% and 2% behind a year ago. 55% of the beans are rated good to excellent and 3% behind a year ago.
Cooperatives Working Together members accepted seven offers of export assistance this week from Cooperatives Working Together that helped capture sales of 1.7 million pounds of American type cheese. The product is going to customers in Asia, Middle East-North Africa and Oceania and delivered through January 2022.
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.