Butter producers report slowing demand, as customers have holiday needs met
As reported last week, the USDA left its 2022 milk production forecast unchanged in its World Agricultural Supply and Demand Estimates report (WASDE), but raised the 2023 estimate slightly, citing higher expected cow numbers and slightly more rapid growth in output per cow.
Cheese was projected to average $2.11 per pound in 2022, up a penny from last month’s WASDE, and compares to $1.6755 in 2021 and $1.9236 in 2020. The 2023 cheese average was projected at $1.9950, up 2.50 cents from a month ago, but that would be 11.50 cents below the projected 2022 average.
The 2022 butter price average was estimated at $2.8750 per pound, up 3 cents from a month ago, and compares to $1.7325 in 2021 and $1.5808 in 2020. The 2023 average was projected at $2.4650, up a penny from a month ago, but 41 cents below the expected 2022 average.
Nonfat dry milk will average $1.68 in 2022, unchanged from last month’s estimate, and compares to $1.2693 in 2021 and $1.0417 in 2020. The 2023 average was estimated at $1.3750, down 3 cents from a month ago, and would be 30.50 cents below the anticipated 2022 average.
The dry whey average for 2022 was unchanged at 60.50 cents per pound and the 2023 average was lowered 2 cents to 46.50 cents per pound, 14 cents below the expected 2022 average.
The 2023 Class III milk price was projected to average $19.80 per hundredweight, up 15 cents from last month’s WASDE, but would be $2.15 below what the 2022 average is expected to be.
The 2023 Class IV price was estimated to average $20.10, down 25 cents from last month’s estimate, and would be $4.40 below the anticipated 2022 average.
This month’s corn outlook is for lower exports and greater ending stocks. Exports were lowered 75 million bushels as competition from other exporters and relatively high U.S. prices have resulted in slow sales through early December. Corn ending stocks were raised 75 million bushels. The season-average corn price was lowered a dime to $6.70 per bushel. Corn exports were raised for Ukraine but lowered for the U.S., Russia, and the EU, according to the WASDE.
Soybean projections were unchanged from last month. Based on a review of the Environmental Protection Agency’s recent proposed rule for renewable fuel obligation targets, soybean oil used for biofuel was reduced 200 million pounds to 11.6 billion. Soybean oil exports were also reduced. With those reductions, food use and ending stocks were raised. The season-average soybean price forecast was unchanged at $14.00 per bushel. Soybean oil was reduced a penny per pound to 68 cents, and the soybean meal price forecast was increased $10.00 to $410.00 per short ton.
Speaking of feedstuffs; StoneX Dec. 12 U.S. Dairy Outlook points out that alfalfa in the West is priced at record highs. California was seeing average hay at $370 per ton and Arizona at $340, with high quality prices much higher.Alfalfa in Wisconsin, on the other hand, is around $169, which is close to the five year average, says StoneX.
Western prices could decline from their record highs moving forward, but the water situation in parts of the West remains tenuous, which could keep input costs in the region expensive relative to other regions.”
This week’s Livestock, Dairy, and Poultry Outlook reported that October alfalfa hay averaged $281 per short ton, $4 higher than September and $62 above Oct. 2021. The 5-State weighted-average price for premium alfalfa hay was $348 per short ton, $6 higher than September and $94 higher than October 2021.
The Outlook reflected milk price and production projections in the Dec. 9 WASDE and reported that “Dairy cow slaughter has been active and has been in line with 2021 for the past couple of weeks.”
The Outlook stated that the National Restaurant Association reported restaurant activity from January to October was below 2021 levels. “Nevertheless, the restaurant performance index has been above 100 points, showing an expansion that may boost domestic use for dairy products for the rest of 2022 and 2023.”
Things are looking a little better for consumers. The Consumer Price Index fell for a second month, from 7.7% to 7.1%. Core inﬂation fell in November from 6.3% to 6.0%, which is the best reading on inﬂation since Dec. 2021, according to StoneX, but with one sticking point: Rents were up 7.1% year-over-year and accounted for almost half the total increase in Core Inﬂation.
Meanwhile, the Federal Reserve raised its interest rate a half-point this week, which was slightly less than previous raises, however the rate is at the highest level in 15 years.
Dairy product consumption in October was a “mixed bag,” according to HighGround Dairy’s Lucas Fuess in the Dec. 19 Dairy Radio Now broadcast.
Cheese disappearance totaled 1.22 billion pounds, up 2.4% from Oct. 2021, third month in a row to top that of a year ago, though Fuess said the gain weakened slightly from September’s growth. Year to date consumption was up 2.1%. U.S. cheese exports, at 81.4 million pounds, were up 4.5%.
Butter disappearance totaled 199.9 million pounds, down 8.0% from a year ago, pulled lower by an 11.3% drop in domestic consumption, though exports were up 61.9%, the strongest of any month since 2014. October was the third consecutive month total butter utilization was below a year ago, however and HGD points out it was the lowest October utilization since 2017.
Nonfat dry milk-skim milk powder disappearance amounted to 208.5 million pounds, down 12.8%. Domestic usage was down 49.4% while exports were up 10.6%, first year over year gain since Nov. 2021, according to HGD.Dry whey utilization totaled 76.3 million pounds, down 4.5% from a year ago, though, like nonfat dry milk, exports were strong, up 20.0% from a year ago, as Chinese demand for dry whey has returned, according to Fuess.
The demand picture in next month’s report will be interesting, Fuess concluded, as U.S. milk production growth will not bow well for milk price increases in 2023.
The Dec. 13 Global Dairy Trade Pulse, auction number 11, saw 2.1 million pounds of Fonterra whole milk powder sold, down 38 million pounds from the last Pulse and down 0.3% or $10 per metric ton from the Dec. 6 GDT event.HGD says “Buyers are still finding value at this current price point following the slight strength that materialized at last week's main GDT auction.”
Eyes will be on CME powder in the coming days after Fonterra increased its forecast total oﬀer quantity for skim milk powder for the next 12 months by 21.2 million pounds between January and April. The upcoming event offering was increased by almost 816,000 pounds.
Cooperatives Working Together (CWT) member cooperatives accepted two offers of export assistance this week from CWT that helped capture sales contracts for 1.2 million pounds of American-type cheese. The product is going to customers in Central America and Oceania from January through May 2023.
CWT-assisted exports to-date total 93.3 million pounds of American-type cheeses, 657,000 pounds of butter, 30.7 million pounds of whole milk powder, and 8.8 million pounds of cream cheese. The products are going to 21 countries and are the equivalent of 1.168 billion pounds of milk on a milkfat basis.
More details were announced Dec. 12 on the USDA’s solicitation of the Special Supplemental Nutrition program for Women, Infants, and Children. A total of 8.56 million pounds of natural Cheddar was awarded to three different vendors, with delivery between March and September 2023 or about a 1.22 million pound average per month. No process cheese or fluid milk was awarded.
HighGround Dairy says “USDA awarded far more than the 2.1 million pounds of natural and process cheese in the original solicitation, but with just 1.22 million pounds per month, it equates to about 30 truckloads per month. The bigger news was that the fluid milk solicitation was canceled, meaning USDA will focus its efforts on their normal fluid purchasing programs for the upcoming year.”
“This news should have little impact on the current trend of the market,” says HGD, “though it may create disruptions depending on USDA's order patterns.”
Mid-December cheese prices headed sharply lower and butter oscillated, as traders awaited the November Milk Production report on Monday, Dec. 19.
The Cheddar blocks plunged to $1.9775 per pound Friday, lowest since Nov. 1, down 11.75 cents on the week but still 9 cents above a year ago.
The barrels saw their Friday finish at $1.74, 21 cents lower on the week, lowest since Jan. 27, 11 cents above a year ago, and 23.75 cents below the blocks. CME sales for the week included 4 carloads of block and 7 of barrel.StoneX says “Buyers are just not banging down doors looking for fresh loads of cheese here in mid-December. And then we have the appearance of a well-supplied barrel market.”
Central cheese sales are seasonally steady, according to Dairy Market News, with moderate to busy production reported. Milk is plentiful with spot loads priced as much as $6 under Class, with some at Class. Barrel production is busier, as some cheesemakers report sales at slight premiums. Some Cheddar and Italian-style cheesemakers report “somewhat tight inventories for the rest of the year.”
Retail and food service demand for cheese is steady in the West. Export demand is mixed. Lower prices for internationally produced cheese is contributing to softer demand, while strong demand remains from Asian purchasers. Contacts report that block loads are selling more quickly while barrel inventories are growing. Milk is available for strong regional cheese production however labor shortages and delayed deliveries of supplies continues to limit output of some.
Spot butter started the week falling 11.25 cents to $2.70 per pound, lowest since Nov. 3, but then reversed direction and ended Friday at $2.8550, up 4.25 cents on the week and 76.25 cents above a year ago, putting 23 sales on the board.
Butter producers report slowing demand, as retail customers have their holiday ordering met. Food service demand has also seasonally slowed, says DMN, “Particularly as butter prices remain above where some were expecting them to be this late in the year.” Cream availability is mixed. Some plants are full and not entertaining spot offers while others say cream availability is steady with previous weeks. Churning remains very busy and plant managers expect to churn as much butter as possible despite the holidays.
Demand for cream is steady to lighter in the West. Cream multiples have moved lower in the region amid softer demand and strong availability. Butter makers are running busy schedules, though some say tanker and labor shortages continue to keep them operating below capacity. Demand for butter is softening in retail markets, as customers have filled holiday needs. Food service demand is steady. Spot purchasers report butter loads are becoming more available, says DMN, though unsalted butter inventories remain tighter than salted. Some players anticipate that butter prices will slip lower into the New Year; thus causing some buyers to limit their orders.Grade A nonfat dry milk fell to $1.34 per pound Wednesday, lowest since Sept. 16, 2021, but closed Friday at $1.35, down 1.50 cents on the week and 32.75 cents below a year ago, with 14 sales reported.
Dry whey closed the week at 45.50 cents per pound, 2 cents higher, but 27.50 cents below a year ago, with 4 loads exchanging hands at the CME.
Dairy Market News says “Online sources say August milk production in Ukraine was approximately 711,000 tons, compared to 845,000 in August 2021. The Russian invasion of Ukraine has disrupted normal dairy business activities and the recent missile attacks left numerous processing facilities without power.”
“The Ukrainian agricultural ministry, as of December 1st, reported that the 2022 Ukraine grain harvest is approximately 85% complete for a total of 41.9 million tons. Ukraine has been able to export 17.2 million tons of grain so far in the 2022/23 grain season, down 31.9% from a year ago.”
Looking down under; DMN reports that “New Zealand's dairy industry resilience has been tested in recent months. The country has seen slow pasture growth in most dairy regions this production season. New Zealand's dairy exports have seen a rise, due to the build-up of inventory caused by Covid-19 and China interruptions in earlier months. Meanwhile, with the weak New Zealand dollar and falloffs from key dairy exporting regions, the industry now expects the country's export revenue to climb 6%, to a record high $23.3 billion in the 2022/23 season.
Australia continues to lag last year's milk output. Rain soaked fields in the Eastern states have impacted the wheat quality, prompting downgraded yields and could lead to market flooding of devalued feed grade grain, says DMN.