Overall butter production is steady

Lee Mielke

U.S. butter stocks still remain well below a year ago, according to the United States Department of Agriculture’s latest cold storage report. September 30 butter dipped to 267.3 million pounds, down 11 million pounds or just under 4% from the August total, which was revised down 4.3 million pounds and down 57.1 million or 17.6% below a year ago, the fourteenth consecutive month stocks were below the previous year. It’s also the lowest inventory since 2017, according to the Daily Dairy Report.

American type cheese stocks inched up to 843 million pounds, up 1.5 million pounds or 0.2% from August, but down 1.1 million or 0.1% from a year ago.

The “other” cheese category fell to 603.5 million pounds, down 15.3 million or 2.5% from the August level, which was revised 1.5 million pounds lower, but was up 11.6 million pounds or 2% above a year ago.

The total cheese inventory slipped to 1.47 billion pounds, lowest since March, down 11.9 million pounds or 0.8% from August, but only 11.7 million or 0.8% above a year ago, still a new September record, according to the DDR. StoneX called the report neutral to slightly bullish for cheese and bearish on butter.

The Global Dairy Trade held its seventh Pulse auction Tuesday, with another 2.2 million pounds of Fonterra whole milk powder being sold, unchanged from the last Pulse, but at $3,280 per metric ton. That’s down $145 or 4.2% from the October 11 Pulse and down $75 or 2.2% from the October 18 Global Dairy Trade. 

HighGround Dairy says this is the lowest since Event 275 on January 5, 2021, “indicating further weakness into next week's main Global Dairy Trade event.”

Meanwhile, StoneX Dustin Winston reports “New Zealand milk solids production was weaker than expected once again, down 3.8% from year ago levels in September. With the first third of the season completed, season to date production is down 4% from last year.” He says the decline wasn’t unexpected as weather hasn’t been good. Fat and protein levels were also weaker.”

On the other hand, New Zealand September and third quarter exports were the strongest on record, according to HighGround Dairy, thanks to volumes moving to China and Indonesia. “Notable growth was also observed to Cuba, Saudi Arabia and Japan,” says HGD, “as prices have consolidated on Global Dairy Trade auctions the last five months. However, gains to China were not in the form of milk powders. Larger exports to the region were led by fluid milk and cream, says HighGround Dairy.

China’s dairy imports in September were up 0.7% from September 2021, first time in six months they managed to be above year ago. Unfortunately, skim milk powder imports only totaled 55.3 million pounds, down 17.9% from a year ago, seventh month in a row to be below the previous year, according to HighGround Dairy. Australia was the largest source country at 21%, with New Zealand right behind.

Whole milk powder imports, at 66.3 million, were down 16.2%, though whey imports, at 138 million pounds, were up 11.3%, up for the second month in a row. The U.S. remained the top whey supplier, at 38%, according to HighGround Dairy.

Cheese imports amounted to 22.8 million pounds, up 6.5%, following three months of weakness. Year to date imports however are down 17.6%. New Zealand was the primary supplier.

Butter totaled 13.8 million pounds, up 46.9%, though year to date are down 0.2%

In other trade news, the October 26 daily dairy report says another dairy deficit country, “Algeria, has become the world’s second largest importer of milk powders. A recent USDA global agricultural information network (GAIN) report shows Algeria’s milk equivalent consumption is estimated at about 4.5 million metric tons (MMT) per year, while production is just 2.5 MMT.”

The daily dairy report says “Algeria imported 358,507 metric tons of milk powders last year. Whole milk powder accounted for 61.5% of those imports, with the vast majority sourced from South America. New Zealand also contributed to the total.”

“Skim milk powder was sourced mostly from the European Union, while Turkey and the U.S. also sent meaningful volumes to the north African country,” according to the daily dairy report.

U.S exports continue via the Cooperatives Working Together program. Member cooperatives accepted three offers of export assistance this week that helped capture sales contracts for 952,000 pounds of American type cheese. The product is going to customers in Central America, Europe and Oceania, and will be delivered through January 2023. 

Year to date Cooperatives Working Together sales total 86.1 million pounds of American type cheeses, 657,000 pounds of butter, 30.3 million pounds of whole milk powder and 7.6 million pounds of cream cheese. The products are going to 19 countries and are the equivalent of 1.09 billion pounds of milk on a milkfat basis, according to Cooperatives Working Together.

Most cash dairy prices in Chicago were weaker the last week of October. The cheddar blocks closed October 28 at $1.96 per pound, down 9.75 cents on the week, lowest CME price since September12. Wednesday was the first time in four weeks they were below $2 per pound but are still 28.50 cents above a year ago.

Cheese market tones are under   pressure, according to Dairy Market News. Midwestern retail cheddar and Italian style cheesemakers report continued strong demand and some are not even accepting new orders or new customers because any available cheese they have is spoken for through the rest of the year. Processed cheesemakers, however, report that buyers are stepping back to avoid any extra inventory in the final quarter of the year. Milk is not as long regionally and spot milk prices are still slightly under to slightly over class III. Cheesemakers and customers are working through 2023 contracting, says Dairy Market News, and “increases in costs, particularly of freight and payrolls, have become an added stress for both buyers and sellers.”

Retail cheese demand in the west is declining and below some expectations. The decline is, reportedly, due to higher grocery prices which are causing customers to modify purchases. Food service demand was unchanged this week. Export demand remains strong with continued interest from Asian buyers securing loads for second quarter. Cheese production is steady, though some plants report labor shortages and continued delayed deliveries of production supplies are preventing them from running full schedules. Block prices topped the barrels on October 25, first time since early August. Contacts say recent increases in barrel production and spot availability contributed to the barrel price decline, says Dairy Market News.

Spot butter saw its Friday finish at $3.14 per pound, down six cents on the week, lowest since September 26 but still $1.20 above a year ago, with 11 sales on the week.

Butter plants report that demand has remained seasonally strong despite the near record prices. Some expect it to continue, but as cream availability and churning rates increase, producers are aware of the potential for butter inventory growth near-term. Cream prices were holding a steady pattern and handlers expect cream to remain readily available for the rest of the year. Cream and butter contract negotiations for next year are also underway. Butter market tones remain in “rarefied air,” says Dairy Market News, but there is some market pressure as cream, churning rates and butter inventories are all in a growth trend.

Western cream demand is strong from class II producers and regional butter makers. As milk production trends higher in the region, cream is becoming more available. Some butter makers say labor shortages are still preventing them from increasing their churning, so they are limiting cream purchases. Overall butter production is steady. Strong demand is present from both retail and food service customers. Butter inventories are tight, confirmed by the latest cold storage report, but contacts say the drawdown was smaller expected for this time of year and that could put some bearish pressure on prices, warns Dairy Market News.

Grade A nonfat dry milk held at $1.42 per pound for four sessions, lowest since October 5, 2021, then gained a penny Friday to close at $1.43, 12.75 cents below a year ago. There were four sales reported on the week.

Dry whey closed Friday at 43 cents per pound, down a penny on the week and 20 cents below a year ago, with only one sale reported on the week at the CME.

StoneX October 25 early morning update stated, “The milk supply is still relatively constrained compared to where we have been in normal years. The cost to add cows, rather than cull them and the cost to add onto or build new dairies is prohibitively high. It’s likely to be an issue down the road. Our take is broadly, when demand is slow, milk production matters less, generally speaking.

When demand is strong, it magnifies any milk production problems. The dairy herd in Oceania and the U.S. is still looking tight which will pose some bullish sentiment if it continues. Long-term there are plenty of headwinds to impact supply across the globe, as dairy prices fade so will milk prices which will impact farmer margins. Feed costs are still higher than they have been historically and environmental restrictions will continue to impact European Union and New Zealand farmer’s ability to add supply at a quick pace.”

Broker Dave Kurzawski, speaking in the October 31 Dairy Radio Now broadcast, underscored the Update’s take on the milk supply and regarding the weakening markets, said holiday demand has either been “sorted out or taking a breather.”

When I ask about “China, the elephant in the room that is not in the room,” Kurzawski blamed the coronavirus lockdowns for China’s lack of market participation but says they will be back, though whey imports currently are “a bright spot.”

“We’re not awash in milk,” he exclaimed. “We’re not putting powder away in intervention stocks in Europe. We don’t have this massive overhang of supply so any change in the demand side will be felt quite quickly by the markets.”

He expects more volatility ahead but says “It’s still possible for a rally on cheese, powder or dry whey. You can’t rule out a 20 or 30 cent pop up on cheese anytime in the next three or four months,” he concluded.

Culling in the week ending October 15, totaled 59,400 dairy cows, down 600 from the previous week and 1,300 head or 2.1% below a year ago.

The U.S. corn harvest is at 61%, according to USDA’s latest crop progress report, as of the week ending October 23. That’s up from 45% the previous week, 3% behind a year ago and 9% ahead of the five-year average. The soybean harvest is at 80%, up from 63% the previous week, 9% ahead of a year ago and 13% ahead of the five-year average.

Speaking of corn, StoneX says, “Disappointing exports and a very strong dollar continue to weigh on the grain market. For the week ending October 20th, 10.4 million bushels of corn were sold versus 38.5 million last year.” Mexico’s and China’s purchases were down 18% and 70% respectively, according to Matt Zeller’s afternoon grain market snapshot.

In politics, the National Milk Producers Federation endorsed a proposal to modernize the federal milk marketing order milk pricing system at its annual meeting this week in Denver.

The proposal returns to the “higher of” class I mover, discontinues including barrel cheese in the protein component price formula and extends the current 30 days reporting limit to 45 days on forward priced sales on nonfat dry milk and dry whey to capture more exports sales in the USDA product price reporting.

The proposal updates milk component factors for protein, other solids and nonfat solids in the class III and class IV skim milk price formulas and develops a process to ensure make allowances are reviewed more frequently through legislation directing USDA to conduct mandatory plant cost studies every two years and updates dairy product manufacturing allowances contained in the USDA milk price formulas.

National Milk Producers Federation also urges its farmer members to sign up for maximum 2023 coverage under USDA’s dairy margin coverage risk management program, citing rising costs eroding dairy margins despite high farm milk prices. Signup deadline is December 7.

“The current combination of high prices with costs that can be even higher illustrates the basic value of dairy margin coverage for producers who can benefit from the program,” said Jim Mulhern, National Milk Producers Federation president and CEO. “By calculating assistance via a margin rather than a target price, dairy margin coverage offers a measure of protection against current cost volatility that’s challenging many milk producers.”

A warning was sounded in the October 21 Dairy and Food Market Analyst. Editor Matt Gould writes “The city council of Los Angeles, a city with 10% of California’s population, has adopted the plant-based treaty. The treaty calls for governments to freeze the expansion of animal agriculture, in addition to halting deforestation and promoting a shift to plant-based diets. This is a trend to watch and may forebode coming milk production limits in the Golden State.”

Lastly, a correction from last week. August fluid milk sales were up 0.8%, not down as I stated. Conventional milk sales were up 0.7% and organic sales were up by 2.1%, although year to date fluid sales were down 2.2%, as reported.

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