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Global dairy strengthened with weighted average highest since March

By Lee Mielke
The Agriculture Department lowered its estimate for 2021 milk production in its latest World Agricultural Supply and Demand Estimates report, third month in a row, and lowered the 2022 estimate, citing lower dairy cow numbers and output per cow for both years.
2021 production and marketings were estimated at 227.8 and 226.7 billion pounds respectively, down 300 million pounds on production from last month’s estimates and 400 million lower on marketings. If realized, 2021 production would still be up 4.6 billion pounds or 2.1% from 2020. 
2022 production and marketings were estimated at 230.6 and 229.5 billion pounds respectively, down 600 million pounds on production and down 700 million on marketings. If realized, 2022 production would be up 2.8 billion pounds or 1.2% from 2021. 
Butter, cheese, nonfat dry milk (NDM) price forecasts for both years were raised on improving demand and lower production. Whey prices were unchanged for both years. Class III and Class IV milk price forecasts were raised.
Look for the 2021 Class III price to average around $16.65 per hundredweight, up a dime from last month’s projection and compares to $18.16 in 2020 and $16.96 in 2019. The 2022 Average was estimated at $16.45, up 30 cents.
The 2021 Class IV average was pegged at $15.55, up 40 cents from a month ago and compares to $13.49 in 2020 and $16.30 in 2019. The 2022 average was projected to hit $16.05, up 75 cents from last month’s estimate.
In the week ending Aug. 28, 62,400 dairy cows were sent to slaughter, up 3,400 from the previous week, and 8,300 or 15.3% above that week a year ago. 
The 4-week rolling total continues to gain premium on year ago levels, says StoneX, up to 12% above year-ago levels this week. “This high slaughter level reiterates the theme that the dairy herd is continuing to contract.” 
USDA data showed July milk production at 19.1 billion pounds, up 2.0% from July 2020. The latest Dairy Products report shows July cheese output totaled 1.15 billion pounds, up 2.4% from June and 3.5% above July 2020. Year to date (YTD) output stood at 7.9 billion pounds, up 3.3% from the same period in 2020. 
Churns produced 151.7 million pounds of butter, down 8.6 million pounds or 5.4% from June, and 1.2 million pounds or 0.8% below a year ago. YTD butter output was at 1.28 billion pounds, down 2.0% from 2020. 
Yogurt output totaled 394.2 million pounds, up 7.9% from a year ago, with YTD at 2.8 billion pounds, up 4.4%.
Dry whey amounted to 80.8 million pounds, up 9.4 million pounds or 13.2% from June, but 1.8 million or 2.3% below a year ago. YTD dry whey output hit 543.5 million pounds, down 4.7% from a year ago. Stocks climbed to 66.8 million pounds, up 5.2 million or 8.4% from June but were 20.6 million pounds or 23.6% below those a year ago.
Nonfat dry milk production fell to 157.3 million pounds, down 29.7 million pounds or 15.9% from June and down 8.8 million or 5.3% below a year ago. Powder production YTD totaled 1.3 billion pounds, up 9.3% from 2020. Stocks fell to 322.3 million pounds, down 27.1 million pounds or 7.8% from June, but were up 8.5 million pounds or 2.7% above those a year ago.
Skim milk powder totaled 51.1 million pounds, up 7.6 million pounds or 17.5% from June but 10.3 million pounds or 16.8% below a year ago. YTD skim milk powder, at 284.4 million pounds, was down 22.3% from 2020.
Global dairy trade strengthened this week as evidenced in the Global Dairy Trade auction. The weighted average jump 4.0%, following the Aug. 17 0.3% increase, and was the biggest gain since March 2. Traders brought 55.3 million pounds of product to market, up from 49.7 million on Aug. 17, and the most since April 20. Prices averaged $3,927, up $100 from the last event.
Skim milk powder led the gains, up 7.3%, after a 1.1% uptick on Aug. 17. Butter was up 3.7%, following a 4.0% advance, and anhydrous milkfat was up 3.1%, after climbing 1.5%. Whole milk powder was up 3.3%, after falling 1.5%, and Cheddar was up 3.6%, following a 2.8% advance. Buttermilk powder was up 3%.
StoneX says the GDT 80% butterfat butter price equates to $2.1896 per pound U.S., up 7.9 cents, and compares to CME butter which closed Friday at $1.7850. GDT Cheddar, at $1.9630, was up 6.5 cents, and compares to Friday’s CME block Cheddar at $1.79. GDT skim milk powder averaged $1.4850 per pound, up from $1.3845. Whole milk powder averaged $1.6740 per pound, up from $1.6112. CME Grade A nonfat dry milk closed Friday at $1.3575 per pound.
Slowing milk supplies in Europe, and to some degree in the US, meeting good dairy demand was GDT’s message, according to StoneX. Broker Dave Kurzawski, in the Sept. 13 Dairy Radio Now broadcast, said “Milk tightness is the key underpinning for all of the markets, both here in the U.S. and globally,” although it’s not a “terrible tightness.” The trend has been fewer cows in the U.S. and New Zealand, he said, and hotter weather, which took a toll in Europe this summer, and while milk output is still growing, it’s at a “diminished rate.”
I asked about the increased costs of production and Class III futures not promising much in the way of breaking even let alone making a profit, and he agreed. He said that was felt more acutely this summer in Europe but U.S. farmers will be feeling it in coming months. The 2022 average, which was at $17.60, would normally be considered a good price, he concluded, but not so much now. “There are things farmers can do to protect themselves as we enter a bigger demand period with schools reopening and the holidays upon us.”
Speaking of “down under;” the Sept. 7 Daily Dairy Report points out that “Australia wrapped up its 2020-21 milk production season with output up just 0.6% over the previous season. The DDR said dairy producers there were feeling uncharacteristically confident about the industry’s future, according to Dairy Australia’s June 2021 Situation and Outlook report.
Dairy Market News says the emerging New Zealand season is starting off strong. Much of the calving is wrapping up on the North Island and the South Island is only a few weeks behind. Preliminary milk volume is on target, says DMN.
Cream continues to tighten. Seasonal drawdowns have begun to take place due to heat and humidity. Churns were not as active over the holiday weekend but cream was available. Post-holiday, some say cream is out of their fiscal reach. Plant managers continue to report employee shortages and truck drivers are short so cream hauling issues continue. Market tones are awaiting direction. As the stronger demand season looms, some foresee strengthening prices ahead.
Cream in the West was slightly more available this week but widespread driver shortages remain a hindrance. Some butter plants are operating at capacity to grow inventories ahead of the holiday season while others are running reduced schedules. Food service demand is steady and has yet to be dampened by the Delta variant, says DMN, and retail orders are unchanged.
Grade A nonfat dry milk hit $1.36 per pound Tuesday, highest price in 7 years, but closed Friday at $1.3575, 1.75 cents higher on the week and 31.75 cents above a year ago, with 12 sales reported on the week.
Dry whey regained ground this week, closing at 53 cents per pound, up 4.50 cents on the week and 17.50 cents above a year ago, with 4 sales reported.
Agriculture Secretary Tom Vilsack announced this week that $700 million in competitive grant funding will be available through the new Farm and Food Workers Relief (FFWR) grant program to help farmworkers and meatpacking workers with pandemic-related health and safety costs. 
Additionally, to recognize the essential role and costs borne by front-line grocery workers, $20 million of this amount has been set aside for at least one pilot program to support grocery workers and test options for reaching them in the future. The new program is funded by the Consolidated Appropriations Act of 2021 and will provide relief to farmworkers, meatpacking workers, and front-line grocery workers for expenses incurred due to the COVID-19 pandemic.