Dairy producers are still working with a financial cushion after cashing large milk checks

The farm milk spigot slowed a bit in December. The United States Department of Agriculture’s preliminary data has December output at 18.93 billion pounds, up 0.8% from December 2021. The 24-state total, at 18.1 billion pounds, was up 0.9%. Revisions lowered the 50-state November total by 46 million pounds to 18.2 billion, up 1% from a year ago, instead of the 1.3% increase originally reported.Output for the quarter amounted to 56 billion pounds, up 1% from a year ago. Cow numbers, at 9.41 million, were down 4,000 from the previous quarter, but 27,000 more than the same period a year ago. Preliminary data puts 2022 milk output at 226.6 billion pounds, up 362 million pounds or 0.2% from 2021.December cow numbers totaled 9.4 million, down 8,000 head from the November count which was revised 12,000 head lower. The December herd was up 27,000 head from a year ago but the smallest since February. The 24-state head count was up 38,000 from a year ago and the smallest since June.Output per cow averaged 2,014 pounds, up nine or 0.4% from December 2021.California output, at 3.5 billion pounds, was up 0.3%, after slipping 0.7% in November. Cow numbers were up 5,000 from a year ago and output per cow was unchanged. Wisconsin output at 2.7 billion pounds, was up 0.6%, following a 1.3% increase in November. December cow numbers were down 5,000 but output per cow was up 20 pounds in the number two milk producer.Texas, secure in its number three milk producer position, was up 3.3%, thanks to 25,000 more cows offsetting a 15 pound per cow drop.Florida registered the biggest loss, down 12.7%, on 13,000 fewer cows and five pounds less per cow. Idaho was up 1.6% on 9,000 more cows and a 5 pound gain per cow. Michigan was up 1.1%, thanks to a 35 pound gain per cow offsetting the loss of 2,000 cows. Minnesota was off 0.3% on a drop of 5,000 cows, though output per cow was up 15 pounds. New Mexico was down 4.8% on a 13,000 cow drop and a 5 pound loss per cow.New York was up 2.8%, adding 10,000 cows to its milking string. Output per cow was up 25 pounds. Oregon was off 0.5%, on a loss of 2,000 cows, though output per cow was up 15 pounds. Pennsylvania inched up 0.1% on a 20 pound gain per cow, however cow numbers were down 5,000 head.Georgia had the biggest gain, up 10.8% on 9,000 more cows. South Dakota was up 8.9%, thanks to 16,000 more cows offsetting a 10 pound loss per cow. Vermont was unchanged, despite a 30 pound gain per cow. Cow numbers were down 2,000 head. Washington state was down 3.3% on 7,000 fewer cows and a 15 pound drop per cow.StoneX says “With dairy prices falling and input costs staying a bit more firm margins are likely squeezed and we expect the dairy herd to decline throughout the majority of 2023.”The shelves are full of butter again. The latest cold storage report shows butter stocks on December 31 at 216.3 million pounds, up 16.5 million pounds or 8.3% from November, and 17.2 million or 8.7% more than December 2021.Stocks have been below year ago levels for 16 consecutive months, but high prices likely slowed domestic sales and exports, resulting in building inventory.American type cheese stocks grew to 825.2 million pounds, up 9.1 million pounds or 1.1% from November, but were 17.7 million or 2.1% below a year ago.The “other” cheese category inched up to 595.6 million pounds, up 3.1 million or 0.5% from November, and were up 18.8 million or 3.3% above a year ago.The total cheese inventory came in at 1.445 billion pounds, up 14.1 million pounds or 1% from November and 3.4 million or 0.2% above a year ago.The International Dairy Foods Association’s annual Dairy Forum took place this week in Orlando. StoneX January 25 Early Morning Update listed highlights, including reports that California was flush with milk and rumors that dumping had occurred. December data doesn’t appear to confirm that however.U.S. retail demand was reported to be weak or weakening, especially for lower end products, however there were reports that retail cream demand is still strong.Another topic was increased cheese capacity coming online in Texas. Reports are that there is plenty of milk available to keep them operating.StoneX attendees reported that extended shelf life (ESL) milk is becoming more common with consumers expecting expiration dates that are two months or longer.On perhaps a more positive note, the cost of constructing a new dairy farm may not be as costly as expected. “We have been anticipating a cost of $5,000 to $7,000 per cow,” says StoneX, “but the cost is likely closer to $4,500.”Ron O’Brien, President of Nui Markets North America, shared his perspective in the January 30 Dairy Radio Now broadcast. “It's tough out there for dairy producers and dairy sales desks globally,” said O’Brien, citing higher interest rates, consumer demand destruction, warm winter weather leading to lower natural gas prices, overbearing milk production in Europe, maxed out credit capacity in China and good feed quality.He said GDT whole milk powder has been flat the past few sessions, which has led to some price appreciation in South America, specifically Brazil, but demand has yet to come back enough in China or southeast Asia.The unifying topic, according to O’Brien, was environmental, social and governance initiatives. “Sustainability initiatives and the pressures that manufacturers are facing both from consumers and investors was clearly defined,” he said, “whether climate change is due to man’s increasing carbon footprint or earth’s natural historical patterns. Solving this issue or even just the perceptions of how dairy is involved in climate change is priority one. Solutions to these problems must be looked at as an investment and not a cost,” he said, “regardless of most farmers seeing this as another thing they are asked to do.”Nestle’s Patty Stroup told attendees “We need to give the consumer permission to love dairy,” O’Brien reported adding, “We need to do more work to teach our consumer, specifically in the western world, the benefits of animal fats and milk proteins as medicine.” Some testified to that at the forum stating, “The rest of the world sees dairy as having a health halo.”Lastly, the case was made for work to be done in Washington with respect to the Farm Bill, trade policies, and comprehensive immigration reform. O’Brien said “It was gratifying to see that risk management is no longer just trading CME futures but includes not losing your edge or your sales force, plant staff, supply chain and most importantly not losing demand for more milk,” he concluded.After dropping 16.50 cents the previous week, cheddar block cheese jumped 15.50 cents Monday and hit $1.99 per pound, then fell to $1.9175 Wednesday, lowest price since September 8, 2022, but they closed Friday at $1.96, up 12.50 cents on the week and 17 cents above a year ago.The barrels were up nine cents Monday hitting $1.67 then fell to $1.5725 Wednesday and closed Friday at 1.5525, lowest since November 29, 2021, 2.75 cents lower on the week, 19 cents below a year ago and a whopping 40.75 cents below the blocks. There were five sales of block on the week and 34 of barrel.StoneX says “Supply is plentiful enough for processors to get their hands on whatever milk that they need, but demand has seen better days with both domestic and international interest drying up.”Midwest cheesemakers continue to report available milk supplies, according to Dairy Market News, though heavily discounted loads were not as numerous. Barrel producers warned that there are going to be extra loads available in the near term. Buyers are not as incentivized to add stocks.Cheese demand is steady in the west from retail purchasers. Food service is strengthening and some mozzarella producers report increased sales, thanks to pizza purchasing during football playoffs. Exports of cheese are strong, with purchasers in Asia buying loads to ship in second quarter, according to Dairy Market News.Butter saw its Friday finish at $2.2725 per pound, down a nickel on the week and 26.75 cents below a year ago when it plunged 39.50 cents. Sales totaled just three loads.Central butter plants report that cream remains somewhat steady with previous weeks. End users are “looking for deals” but location is clearly playing a part, as southern plants or those closer to Western sources, say cream is abundant.Plentiful cream remains readily available in the West. Cream demand is steady to higher. Some report purchasing enough cream to max out production and build more inventory at current prices. Butter output continues strong but second, third and fourth quarter sales are sluggish with the current spot prices being offered.Grade A nonfat dry milk closed at $1.1525 per pound, down 2.25 cents, lowest CME price since March 24, 2021, and 65.25 cents below a year ago, on 19 sales.Dry whey closed at 32.75 cents per pound up 0.25 cents on the week but 51.25 cents below a year ago, with 18 sales reported on the week.The second Global Dairy Trade Pulse of 2023 saw 2.2 million pounds of Fonterra whole milk powder sold, same as on January 10, but at $3,200 per metric ton, up $30, but lagged the January 17 GDT. There were 9 less participating bidders and five fewer winning bidders, lowest number of participating and winning bidders since the Pulse began August 9, 2022.HighGround Dairy says, “China's ongoing economic volatility and struggle with COVID, combined with the current Lunar New Year holiday celebrations, have kept buyers away from the market and buying activity to a minimum.”China’s December imports looked a little more promising. “After trending below prior year levels since February, skim milk powder imports rose above 2021 to mark their highest December volume since 2013,” says HighGround Dairy, with the increase driven by larger shipments from New Zealand, Belarus, and the U.S. skim milk powder imports in 2022 however were the lowest since 2018 and well below 2021.Cheese imports continued upwards month over month, says HighGround Dairy, but still 15.1% below a year ago for the second straight month. Imports from New Zealand were up but down from Australia, Italy, the U.S. and Denmark.Butter imports were up 19.4% from a year ago and up 4.3% year to date, while imports of anhydrous milkfat were up 130.1% from 2021 and up 24.1% year to date.The January 23 Daily Dairy Report says “China kicked off its Lunar New Year celebrations welcoming the year of the rabbit. According to Chinese tradition, the year of the rabbit is likely to be calm and contemplative, in contrast to the energy and positivity associated with 2022’s year of the tiger.”The Daily Dairy Report’s Monica Ganley Quarterra wrote in the January 20 Milk Producers Council newsletter “China announced that its population declined last year for the first time in 60 years, sparking concerns about economic prospects of the world’s largest dairy importer. Furthermore, economists continue to express pessimism about the 2023 outlook with 63% of the chief economists surveyed by the World Economic Forum expecting that this year will bring a global recession.”Cooperatives Working Together (CWT) member cooperatives accepted seven offers of export assistance this week that helped capture sales of 959,000 pounds of American type cheese and 10.6 million pounds of whole milk powder.U.S. dairy margins were relatively flat the first half of January as both milk prices and projected feed costs were little changed since the beginning of the year, says the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. “With milk production on the rise, dairy product is building and pressuring the cash market,” the Margin Watch warned.“Dairy producers are still working with a financial cushion after cashing large milk checks last year,” the Margin Watch stated, “and it may take six months of negative margins to begin restricting milk production in any significant way.”The Margin Watch stated that domestic demand was keeping pace with strong production but warned in conclusion, “Dairy Market News is reporting weaker retail, export and foodservice demand recently, possibly explaining some of the weakness in the cheese market to start the year. USDA also released the January WASDE report that tightened the corn balance sheet and reflected December 1 hay stocks of 79.1 million tons, the lowest level since 1954.”USDA announced details this week of additional assistance for dairy producers including a second round of payments through the Pandemic Market Volatility Assistance Program (PMVAP) and a new Organic Dairy Marketing Assistance Program (ODMAP). “The update to PMVAP and the new ODMAP will enable USDA to better support small-and medium-sized operations who weathered the pandemic and now face other challenges,” according to the USDA.The National Milk Producers Federation praised the announcement stating, “While losses due to the combination of unforeseen market circumstances and an inadequate class I pricing system have not been fully remedied, USDA and congressional efforts will aid thousands of dairy producers who otherwise would have absorbed losses created by policies that didn’t work for them.”Lee Mielke is a graduate of Brown Institute in Minneapolis, Minnesota. 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.