Global markets are increasingly important to U.S. dairy farmers

Preliminary September data showed milk output up 1.5% from 2021. The September dairy products report indicates the extra milk went primarily to cheese, mainly Italian and mozzarella.

Cheese output totaled 1.139 billion pounds, down 1% from August but was only up 0.4% from September 2021. Output year to date hit 10.4 billion pounds, up 1.7% from a year ago.

Wisconsin produced 287.2 million pounds of that total, up 0.4% from August but 0.2% above a year ago. California produced 192.9 million pounds, down 6.7% from August and 1.6% less than a year ago. New Mexico output totaled 77.4 million pounds, down 4.1% from August but 2.2% above a year ago. Idaho vats added 86.3 million pounds, up 17% from August and 3.5% above a year ago.

Italian cheese totaled 498.1 million pounds, up 0.5% from August and 3.2% above a year ago. American cheese totaled 422.7 million pounds, down 2.3% from August and 2.6% below a year ago. Mozzarella output amounted to 384.7 million pounds, up 4% from a year ago indicating strong pizza consumption.

Cheddar production fell to 304.7 million pounds, down 9.7 million pounds or 3.1% from August, and 5.2 million pounds or 1.7% below September 2021. Year to date cheddar is at 2.9 billion, down 1.7% from a year ago.

Butter output slipped to 141.6 million pounds, down 1.8 million pounds or 1.3% from August, and down two million pounds or 1.4% below a year ago. Year to date butter output stands at 1.54 billion pounds, down 2.2% from a year ago.

Yogurt totaled 391.5 million pounds, down 4.5% from a year ago.

Dry whey production climbed to 79 million pounds, up 700,000 pounds or 0.9% from August and 3.8 million or 5.1% above a year ago. Year to date is at 724 million pounds, up 2.4%.

Stocks slipped to 63.8 million pounds, down 500,000 pounds or 0.8% from August and 800,000 pounds or 1.3% above those a year ago.

Nonfat dry milk output fell to 123.7 million pounds, down 10.4 million pounds or 7.8% from August and was down 15.7 million or 11.3% below a year ago. Year to date powder was at 1.5 billion pounds, down 3.9%.

Stocks seasonally fell to 273.1 million pounds, down a whopping 37.6 million pounds or 12.1% from August but up 14.3 million or 5.5% above a year ago.

Skim milk powder output climbed to 58.5 million pounds, up 2.5 million or 4.4% from August, but down 13.6 million or 18.9% from a year ago. Year to date skim milk powder was at 390.7 million pounds, down 23.7% from 2021.

Cheese, butter, nonfat and skim milk powder production was weaker than forecast, according to StoneX. “With milk production coming in higher than expected, the thought was that dairy product production would also come in higher but that wasn’t the case.” They add that “Missing fat is up 24.1% from last year while missing protein is up 63%.” Where did it go?

The U.S. Department of Agriculture’s (USDA) milk production forecast for 2022 was raised in the November 9 world agricultural supply and demand estimates report (WASDE), while the 2023 estimate was unchanged. The dairy cow inventory for both years was lowered on recent published data but forecast output per cow was raised.

2022 production and marketings were estimated at 227 and 225.9 billion pounds respectively, up 100 million pounds on both from last month’s estimates. If realized, 2022 production and marketings would still only be up 700 million pounds or 0.31% from 2021.

2023 production and marketings were estimated at 229.2 and 228.1 billion pounds respectively, unchanged on production from a month ago but down 100 million on marketings. If realized, 2023 production would be up 2.2 billion pounds or 1.0% from 2022 and marketings would be up 2.2 billion or 1%.

Cheese was projected to average $2.10 per pound in 2022, down a half cent from a month ago and compares to $1.6755 in 2021 and $1.9236 in 2020.

The 2023 average was projected at $1.97, down 1.50 cents from a month ago.

The 2022 butter price average was estimated at $2.845 per pound, down 3.5 cents from a month ago and compares to $1.7325 in 2021 and $1.5808 in 2020. The 2023 average was projected at $2.4550, up 1.5 cents from a month ago.

Nonfat dry milk will average $1.68 in 2022, down a penny from last month’s estimate and compares to $1.2693 in 2021 and $1.0417 in 2020. The 2023 average was estimated at $1.4050, down nine cents from a month ago.

Dry whey for 2022 was unchanged at 60.5 cents per pound and the 2023 average was left unchanged at 48.5 cents per pound.

The 2022 class III milk price was projected to average $21.80, down a dime from last month’s estimate and compares to $17.08 in 2021 and $18.16 in 2020. The 2023 projection was lowered 15 cents to $19.65 per hundredweight.

The 2022 class IV average was estimated at $24.3, down 30 cents from a month ago and compares to $16.09 in 2021 and $13.49 in 2020. The 2023 average is estimated at $20.35, down 65 cents from last month’s estimate.

Corn and soybean yields were raised in the WASDE and crop production reports. Corn production was forecast at 13.93 billion bushels, up 35 million from last month on a 0.4 bushel increase in yield. Yield was projected at 172.3 bushels per acre, down 8% from 2021. Area harvested was forecast at 80.8 million acres, unchanged from the previous forecast, but down 5% from a year ago. Ending stocks were raised 10 million bushels and the season average corn price was unchanged at $6.8 per bushel.

Soybean production was forecast at 4.35 billion bushels, up 33 million on higher yields and up 1% from the previous forecast, but down 3% from last year. Yields are expected to average 50.2 bushels per acre, up 0.4 bushel from the previous forecast, but down 1.5 bushels from 2021. Area harvested was forecast at 86.6 million acres, unchanged from the previous forecast, but up less than 1% from 2021. Soybean crush was raised 10 million bushels on an increased domestic soybean meal disappearance forecast. With exports unchanged, ending stocks were raised 20 million bushels to 220 million. The season average soybean price was forecast at $14 per bushel, unchanged from last month and the soybean meal price was forecast at $400 per short ton, up $10.

The U.S. corn harvest is 87% completed, according to USDA’s latest crop progress report, as of the week ending November 6, up from 76% the previous week, 4% ahead of a year ago and 11% ahead of the five-year average. The soybean harvest is 94% completed, up from 88% the previous week, 8% ahead of a year ago and 8% ahead of the five-year average.

Culling in the week ending October 29, totaled 59,400 dairy cows, down 1,500 from the previous week and 200 head or 0.3% below a year ago.

The USDA issued a pre-solicitation announcement Tuesday to purchase a variety of protein items to “support activities feeding kids and families.” Potential materials may include dairy, meat and poultry items. Nearly $1 billion will purchase food for emergency food providers like food banks.

Solicitations will be issued soon, according to USDA. StoneX speculates USDA will purchase three to four million pounds of cheese per month, “a drop in the bucket.” 

The Global Dairy Trade’s Pulse auction on Tuesday saw 2.2 million pounds of Fonterra whole milk powder sold, same as the last Pulse and at $3,225 per metric ton. That’s down $25 or 0.8% from last week’s Fonterra C2 whole milk price at the main Global Dairy Trade, according to HighGround Dairy and the lowest whole milk powder settlement since the December 15, 2020, event. Word Friday was that China may be pulling back from its zero COVID policy. That could add strength to the Global Dairy Trade.

Global markets are increasingly important to U.S. dairy farmers and global markets “have never been more interdependent than they are currently,” says Ron O’Brien, President of New Zealand based Nui Markets North America, in the November 14 Dairy Radio Now broadcast. He said they’re not only dependent on dairy supply and demand in Europe and Asia or what’s happening on the Global Dairy Trade, NZX or European indexes for dairy, but says they’re also dependent on market forces such as interest rates, currency rates, energy availability and water availability.

O’Brien said he previously traded for one of the world’s largest dairy trading firms the last decade and “we arbitraged those markets.” “Trading firms will take advantage of the ebbs and flows,” he said, “but what if you’re not an international trading firm but a U.S. producer or end user? Knowing volatility is a certainty and margins are tight, if not nonexistent, what can be done to minimize risk?”

O’Brien says he is digitalizing the physical dairy trading market because end users and processors need transparency and better data. He cited a few examples of such platforms so farmers, end users and processors can have “better information and with better information, will have the ability to make better decisions and with better decisions make better results.”

“The geo-political risks in Europe aren’t going anywhere,” he concluded. “Knowing drought risk isn’t going anywhere, knowing that China in and out of the market is going to be commonplace, we have to prepare ourselves and protect our margins from these forces off our shores.”

Meanwhile, Cooperatives Working Together members accepted six offers of export assistance this week that helped capture sales of 51,000 pounds of American type cheese, 216,000 pounds of whole milk powder and 406,000 pounds of cream cheese. The product is going to customers in Asia and South America and will be delivered through February.

The CME cheddar blocks finished Friday at $2.20 per pound, up 19 cents on the week, highest since June 15 and 45 cents above a year ago.

The barrels closed 8.75 cents higher at $2.0625, highest since October 21 and 56.50 cents above a year ago. Sales totaled five cars of block on the week at the CME and 12 of barrel.

Retailers came closer to fulfilling holiday demand pipelines this week, says Dairy Market News, so more cheesemakers reported a slowdown in orders. Spot milk availability was relatively steady and prices mid-week were as low as $1 under class but the slight premiums of recent weeks were also being noted.

Western contacts report steady demand for cheese from food service and retail. U.S. cheese remains at a discount to international prices and contributing to strong export demand. Milk volumes are sufficient for cheesemakers to run steady schedules, says Dairy Market News, but labor shortages and delayed deliveries of supplies continue to cause some facilities to run below capacity. 

After plummeting almost 37 cents the previous week, CME butter fell to $2.80 per pound Tuesday, then rallied and closed Friday at $2.905, up 13.25 cents on the week and 95.5 cents above a year ago. There were 13 CME sales on the week.

Butter market tones are clearly in a corrective shift lower, says Dairy Market News, but Central contacts say, “Despite the large drop from the record-breaking prices of October, current $2.70 plus prices are still in a relatively strong place. Comparing recent historical butter price averages during week 45, this sentiment is accurate. Since 2017, CME weekly averages during this week have not topped $2.25 and during the past two COVID affected years, butter prices during week 45 were under $2,” says Dairy Market News. Churning rates are growing but cream availability is mixed. 

Cream is becoming more available in most of the West, though contacts in some parts say volumes remain tight. Tanker availability is limited so some processors are selling cream at a discount. Class II and butter makers are steadily purchasing cream. Churns are busy though labor shortages are preventing some from running full schedules. Demand for butter is unchanged in food service and steady at retail, according to Dairy Market News.

StoneX November 7 early morning update warned, “We are on track to see a major drop in butter consumption in the U.S. this year as we work thru the dairy products report data. While we could see some revisions higher in September numbers or get a surge in October’s numbers, year to date disappearance is down 5.2% from last year. High butter prices have taken their toll and domestic sales were down 18.4% in September. We knew retail sales were taking a hit already but now it could be food service as well.”

Grade A nonfat dry milk fell to $1.3850 per pound Monday but reversed and closed Friday at $1. 43, up three cents on the week but 12 cents below a year ago. There were 12 sales reported for the week.

StoneX says “We’re seeing healthy supplies of powder and lackluster demand both domestically and globally.” 

The daily dairy report’s Sarina Sharp warned in the November 4 Milk Producers Council newsletter “Kiwi skim milk powder is within striking distance of U.S. nonfat dry milk for the first time in years. Despite lower milk output in New Zealand, the U.S. is likely to face stiffer competition for milk powder exports in the months to come. In September, U.S. milk powder exports were healthy, but fell 7.6% short of the record setting volumes of 2021. Shipments to Mexico were especially strong, up 24% year over year.” 

Dry whey closed at 44 cents per pound, down 2.75 cents on the week and 23 cents below a year ago, with seven sales reported on the week at the CME.

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 lkmielke@juno.com.