Ice cream producers continue to increase their demand

The March Federal order class III benchmark milk price crept higher this week, propelled by higher cheese, butter and dry whey prices. The U.S. Department of Agriculture announced the price at $18.10 per hundredweight, up 32 cents from February, but $4.35 below March 2022. The first quarter average stands at $18.44, down from $21.25 a year ago, and compares to $15.98 in 2021.Mid-Thursday morning class futures portended an April price at $18.61, May at $17.77, June at $18.08 and July at $18.62 with a peak of $19.60 in October.The class IV price is $18.38, down 48 cents from February, $6.44 below a year ago and the lowest since December 2021. Its three-month average is at $19.08, down from $23.97 a year ago, and compares to $13.71 in 2021.We have plenty of product to sell, despite February milk production only being up 0.8% from 2022. The Dairy Products report shows cheese production totaled 1.109 billion pounds, down 7.9% from January output which was revised down 4 million pounds and was up just 0.4% from February 2022. Output for the two months totaled 2.3 billion pounds, up 1.6% from the same period a year ago.Italian cheese totaled 460 million pounds, down 8.0% from January and 1.4% less than a year ago. American output slipped to 453.1 million pounds, down 9.1% from January but up 2.4% from a year ago, with year to date at 951.8 million pounds, up 4.1%. Mozzarella totaled 365.0 million pounds, down 7.1% from January, but up 1.6% from a year ago. Year to date at 758.1 million was up 0.5%.Cheddar production, the cheese traded at the CME, fell to 325.4 million pounds, down 28.5 million pounds or 8.1% from January’s count, which was revised down 2.2 million pounds, but was up 17.3 million pounds or 5.6%, from February 2022. Year to date cheddar stood at 679.3 million pounds, up 6.1% from 2022.Butter output dipped to 186.4 million pounds, down 14.9 million pounds or 7.4% from January, but was up 2.9 million pounds or 1.6% from a year ago. Year to date butter output was at 387.7 million pounds, up 2.7% from a year ago.Yogurt production totaled 401.3 million pounds, up 7.4% from a year ago and hard ice cream output hit 59.1 million pounds, up 7.7% from a year ago.Dry whey production totaled 66.5 million pounds, down 10.2 million pounds or 13.3% from January and down 3.8 million pounds or 5.7% from a year ago. Stocks grew to 69.4 million pounds, up 6.4 million or 10.2% from a year ago.Nonfat dry milk output climbed to 178.5 million pounds, up 3.5 million pounds or 2.0% from January and up 7.7 million or 4.5% above a year ago. Stocks jumped to 310.0 million pounds, up 39.5 million pounds or 14.6% from January and up 21.6 million pounds or 7.5% from a year ago.Skim milk powder production totaled 38.2 million pounds, down 6.4 million or 14.4% from January, but 8.6 million pounds or 28.9% above a year ago.StoneX says the more than expected surge in cheese is “bearish in and of itself, but when considered in the context of lighter than expected inventories from the February Cold Storage report we surmise that cheese disappearance, both domestic as well as export, was likely quite strong in February.”The report is bearish on butter, says StoneX, “But like with cheese, inventories of butter in February were lower than expected and implies better than expected demand. It would seem fair to suggest that the staying power of late in the $2.30s is the result of good demand at budget price levels.” “The report also likely underscores dismal domestic and export demand of nonfat dry milk.”The March 21 Global Dairy Trade auction removed hopes of things turning around. The weighted average dropped 4.7%, biggest loss since October 2022 and followed a 2.6% drop March 21, 0.7% on March 7 and 1.5% decline on February 21.Traders brought 52.5 million pounds of product to market, down from 59.1 million on March 21 and the average metric ton price fell to $3,227 U.S., down from $3,361.00 on March 21.Anhydrous milkfat led the declines, down 7.2%, after falling 3.8% on March 21. Whole milk powder followed, down 5.2% after a 1.5% descent. Butter was down 3.3% after falling 3.0% last time and buttermilk powder was down 3.3%. Skim milk powder was down 2.5%, after falling 3.5% on Mar. 21.Cheese was the only positive, up 3.8%, after leading the declines last time with a 10.2% drop, and that after dropping 10.2% on March 7.GDT 80% butterfat butter equates to $2.0333 per pound U.S., down 6.8 cents after losing 6.7 cents on March 21 and compares to CME butter which closed Thursday at $2.3175. GDT cheddar at $1.8902 was up 5.2 cents after dropping 20.7 cents last time and 26.2 cents the time before that. Thursday’s CME block cheddar closed at $1.83. GDT skim milk powder averaged $1.1699 per pound, down from $1.2012 and whole milk powder averaged $1.3846 per pound, down from $1.4641. CME Grade A nonfat dry milk closed at $1.1250.HighGround Dairy says “Even though the direction of the result was expected, the scale of the price slide is a surprise. As has been the trend in 2023 so far, GDT values continue to correct lower with light demand the headline driver. With a poor macroeconomic outlook still in play, it would be remiss to assume this is the bottom of the market,” HighGround Dairy warned.Adding to the woes, February U.S. dairy exports fell below a year ago for the first time since January 2022. While the second largest February ever, the total, at 458.5 million pounds, was down 0.3% according to the USDA’s latest data.HighGround Dairy cited “Higher dairy product prices at the end of 2022, when these exports were booked, and weaker international dairy demand, which slowed sales. Shipments to Mexico, the top dairy export market with nearly 30% share, grew again in February compared to prior year levels. Exports to China also increased year over year. However, dairy products sailing to other Asian markets, such as Japan, South Korea, Indonesia and the Philippines fell.”Cheese exports totaled 72.5 million pounds, down 0.2% from February 2022, but up 6.8% year to date. Butter totaled 7.6 million pounds, down 31.8% from a year ago and down 21% year to date. Nonfat skim milk powder totaled 139 million pounds, off 0.5% from a year ago, but 6.5% ahead year to date. There was 35.6 million pounds of dry whey exported, up 9.4% from a year ago and up 9.1% year to date.Cheese imports were up 16.1% from a year ago and up 10% year to date and butter imports were up 68.9% from a year ago and up 59% year to date.Ron O’Brien, President of New Zealand based Nui Markets North America, cited some contributing factors for the depressed GDT and lower exports in the April 10 Dairy Radio Now broadcast. They included interest rate hikes in New Zealand, additional whole milk powder being added to the offerings and farmers selling futures. O’Brien said the weakening price situation in Oceania is due to buyers “sitting on their hands.”He said Fonterra recently reported a 50% increase in profits but are now cutting their mid-point forecast payout price by 20 cents per kilogram of milk solids.Mexican exports have been a bright spot he admitted, however, “With Mexican currency trends higher versus the dollar and interest rates discouraging Mexico from building inventory, Mexican demand will not outpace a growing U.S. supply.”The week’s GDT, February Dairy Products report and export data impacted CME dairy markets in the Good Friday holiday shortened week. The cheddar blocks fell to $1.8125 per pound Wednesday, lowest CME price since March 13, but they closed Thursday at $1.83, down two cents on the week, after plunging 25 cents the previous week and were 49 cents below that week a year ago.The barrels finished at $1.72, 8.75 cents lower, after dropping 15.50 cents the previous week, lowest since March 8, 64.75 cents below a year ago and 11 cents below the blocks. There were 16 sales of block on the week and 15 of barrel.Midwestern cheese producers were still taking on spot milk as low as $11 under class III this week, according to Dairy Market News, but cheese demand was holding its own according to a number of cheesemakers within the region.Butter finished the week at $2.3175 per pound, down 8 cents, lowest CME price since January 31 and 46.50 cents below a year ago on seven sales for the week.Cream availability increased noticeably for Midwest butter makers this week and has incrementally grown for two weeks. Many are now turning offers away.Cream is heavier to ample in the West and cream demand is steady to light, says Dairy Market News, though ice cream producers continue to increase their demand.Grade nonfat dry milk saw its Friday finish at $1.1250 per pound, down 3.50 cents on the week, lowest CME powder since February 25, 2021, and a whopping 69.75 cents below a year ago. There were only two sales on the week.Dry whey climbed to 46 cents per pound Monday but then headed lower and closed Friday at 36.50 cents per pound, down 8.25 cents on the week and 27 cents below a year ago with 17 sales put on the CME board.Dairy farm profitability continues to struggle. The latest Ag Prices report shows the February milk feed price ratio fell to 1.58, down from 1.73 in January, lowest since August 2021 and compares to 2.06 in February 2022.The all milk price average fell for the fourth consecutive month, dipping to $21.60 per hundredweight, down $1.50 from December after losing $1.60 the month before and is $3.10 below February 2021.The national corn price averaged $6.80 per bushel, up 16 cents from January after jumping six cents the month before and is 71 cents above February 2022.Soybeans climbed to a record $15.10 per bushel, up 60 cents after gaining a dime the previous month and were 40 cents per bushel above February 2022.Alfalfa hay averaged a record $266.00 per ton, up $3 after dropping $6 the month before and is $46 per ton above a year ago.The February cull price for beef and dairy combined continued to strengthen, averaging $89.50 per hundredweight, up $7.80 from January after gaining $4.80 the month before, $11.60 above February 2022 and $17.90 above the 2011 base average.Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri says, “The gain in feed costs offset the third highest February all milk price and dropped the income over feed from the previous month. Income over feed costs in February were just below the $8 per hundredweight level needed for steady to increasing milk production for the first time since September 2021.”Feed costs were the highest ever for the month of February, according to Brooks and the seventh highest all time. The all milk price was just inside the top forty at the thirty-eighth highest recorded.”Looking at 2023, milk income over feed costs using March 31 CME settling futures prices for class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay are expected to be $8.49 per hundredweight, predicts Brooks, a gain of 22 cents per hundredweight versus last month’s estimate. 2023 income over feed would be close to the level needed to maintain or grow milk production, he concludes, but down $3.72 per hundredweight from 2022’s level.”Meanwhile, the latest Margin Watch (MW) from Chicago based Commodity and Ingredient Hedging LLC. says “Dairy margins were relatively flat over the last half of March, with limited price movement in either milk futures or feed markets.”The MW analyzed the February Milk Production and Cold Storage reports stating, “With plentiful cheap supplies of spot milk available to processors, the fact that cheese stocks did not build would indicate strong domestic and international demand. Demand will continue to be a big focus for the market as milk output expands with the spring flush.”The Prospective Plantings and Quarterly Grain Stocks report offered mixed signals, according to the MW. “Corn plantings at 91.996 million acres were up 3.417 million from last year and higher than the average trade estimate of 90.849 million. Soybean acreage of 87.505 million was only up 55,000 acres from last year and below the average trade estimate of 88.235 million. March 1 soybean stocks of 1.69 billion bushels were likewise below the average trade estimate of 1.753 billion while corn stocks at 7.40 billion bushels were in line with the average trade estimate at 7.48 billion,” the MW concluded.Cooperatives Working Together member cooperatives accepted six offers of export assistance this week that helped them capture sales contracts 445,000 pounds of cream cheese. The product is going to customers in Asia through June.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.