Mielke Market Weekly
By Lee Mielke
U.S. milk production continues to recover. USDA’s latest data shows October output at 18.85 billion pounds, up 1.2% from Oct. 2021, fourth consecutive month to best that of a year ago. The 24-State total, at 18.1 billion pounds, was up 1.4%. The latest WASDE projects 2022 output will total 227 billion pounds, up just 0.3% from 2021. Revisions lowered the 50-State September total by 13 million pounds to 18.3 billion, up 1.4% from a year ago instead of the 1.5% increase originally reported.
October cow numbers totaled 9.418 million, up 1,000 head from September numbers which were revised 6,000 head higher. The October herd was up a hefty 31,000 from a year ago and 51,000 more than in January. The October 24-State count was up 42,000 head from a year ago.
Output per cow averaged 2,001 pounds, up 17 pounds or 0.9% from Oct. 2021. September output per cow was revised down 3 pounds, to 1,940 pounds.
The report is viewed as neutral to the market. StoneX Dairy points out that, while 12 of 24 states lost cows in October, overall cow numbers are growing following some contractions in the herd the last few months.
Dairy cow culling was down again in October. An estimated 252,800 head were sent to slaughter under federal inspection, according to the latest Livestock Slaughter report, down 7,700 head from September and 3,400 or 1.3% below Oct. 2021. Culling in the 10 month period totaled 2.53 million head, down 63,100 or 2.4% from a year ago.
Checking the cooler; U.S. butter stocks were below those of a year ago in October, according to the Agriculture Department’s latest Cold Storage report. Oct. 31 stocks totaled 239.6 million pounds, down 27.7 million pounds or 10.4% from September, but that’s well below the typical October drawdown of 47 million pounds, according to the Nov. 22 Daily Dairy Report, and likely due to the high prices. Stocks were also 39.2 million pounds or 14.1% below those a year ago.
American type cheese stocks fell to 830.8 million pounds, down 12.3 million pounds or 1.5% from September, and 12.5 million or 1.5% below a year ago.
The “other” cheese category saw stocks dip to 595.9 million pounds, down 7.7 million or 1.3% from the September level, but up 12 million pounds or 2.1% above a year ago.
The total cheese inventory fell to 1.448 billion pounds, lowest since January, down 21.7 million pounds or 1.5% from September, and 460 million pounds or 0.03% below a year ago.
The DDR points out that this is only the second time in 18 months that cheese stocks slipped under prior-year volumes. HighGround Dairy (HGD) sees the report as neutral on cheese but bearish on butter.
Dairy prices were mixed in the shortened Thanksgiving Day Week. The Cheddar blocks closed Wednesday at $2.15 per pound, down 8.25 cents on the week but 29.25 cents above a year ago. No block was traded and only 2 cars of barrel.
After plunging 13.50 cents the previous week, the barrels fell to $1.8050 on Tuesday, lowest since Aug. 8, and a loss of 24.75 cents in five consecutive sessions. They recovered 1.25 cents Wednesday to close at $1.8175, 11 cents lower on the week, but 29.25 cents above a year ago. They were also at a 33.25 cent deficit to the blocks, which HGD stated that; “When excluding 2020, Tuesday saw the highest block premium over barrels since the non-pandemic record high of 43.25 cents per pound set on September 23, 2019.
“We excluded 2020,” says HIGD “because of the COVID-19 pandemic dramatically impacting the supply/demand fundamentals of cheese, particularly blocks, where the spread got as wide as $1.0125 per pound on Sept. 21, 2020.”
Central cheese production schedules varied this week, according to Dairy Market News. Some plants were finding extra milk in a somewhat consistent range with previous weeks, while others saw discounts as low as $4.50 under Class.
Western retail demand for cheese is steady, though food service demand is mixed. Restaurants were operating reduced hours around Thanksgiving while some said increased traveling may contribute to higher sales for those that are open. Export cheese demand remains strong, thanks to competitive prices. Milk is available for cheese makers to run busy schedules, but some say labor shortages and delayed deliveries of supplies continues to limit output.
Butter, after dropping 9.50 cents the previous week, was flirting with $3 again, shooting to a $2.9475 per pound close, up 13.75 cents on the week and 95.75 cents above a year ago. There were 17 loads traded on the short week. Butter producers stayed somewhat busy Thanksgiving week, according to DMN, with some running through the weekend with spot loads of cream at multiples below 1.20 for the second week in a row. Some plants are behind on order fulfillment and were churning as much as possible. DMN says “Butter market tones continue to find bullish tailwinds, defying some contacts’ expectations.”
Milk production is steady to higher in the West and contributing to increased cream availability. Strong demand is present for cream, though some had additional loads for sale, at lower multiples ahead of the holiday. Strong demand is present for cream from butter makers and Class II processors, says DMN.
Grade A nonfat dry milk closed Wednesday at $1.3975 per pound, down 3 cents on the week and 16.50 cents below a year ago, with 4 sales on the week.
CME whey held fast at 44 cents per pound for nine consecutive sessions, 26 cents below what it was trading at a year ago, with 2 sales on the short week.
The Global Dairy Trade’s Pulse auction Tuesday saw 2.1 million pounds of Fonterra whole milk powder sold, down 34 million from the last Pulse, and at $3,305 per metric ton, down $35 or 1.0% from the Nov. 15 GDT. HGD stated; “After a rise in the second November primary GDT Event last week, whole milk powder prices failed to gain any momentum and rolled back slightly.”
Cooperatives Working Together member coops accepted 29 offers of export assistance this week that helped capture sales contracts for 4.6 million pounds of American-type cheese, 132,000 pounds of whole milk powder and 35,000 pounds of cream cheese. The product is going to customers in Asia, Central America, Middle East-North Africa, Oceania and South America through May.
The Agriculture Department announced the final Federal order Class I base milk price of the year at $22.58 per hundredweight, down $1.51 from November but $3.41 above Dec. 2021, and the lowest Class I since February. It equates to $1.94 per gallon, up from $1.65 a year ago. The Class I average for 2022 is $23.66, up from $16.83 a year ago and $16.91 in 2020.
Speaking of fluid, after showing a small gain in August, September fluid sales returned to their normal decline. The latest data shows sales of packaged fluid products totaled 3.58 billion pounds, down 2.4% from Sept. 2021. Conventional product sales totaled 3.3 billion pounds, down 2.7% from a year ago. Organic products, at 238 million, were up 1.1%, and 6.6% of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 0.7% from a year ago, up 1.1% year to date, and represented 34.1% of total milk sales YTD.
Skim milk sales, at 183 million pounds, were down 9.6% from a year ago and down 8.6% YTD.
Total packaged fluid sales for the nine months amounted to 32.1 billion pounds, down 2.2% from 2021. Conventional product sales totaled 30.0 billion pounds, down 2.3%. Organic products, at 2.1 billion, were down 1.2%, and represented 6.7% of total milk sales for the period.
You’ll recall that two weeks ago the Agriculture Department issued a pre-solicitation announcement to purchase a variety of protein items to “support activities feeding kids and families.” Product included dairy, meat, and poultry items, with a price tag of nearly $1 billion.
The initial solicitation, announced Nov. 18, was much smaller than expected, says HighGround Dairy, with USDA seeking to purchase just 1.6 million pounds of natural cheese and 554,000 pounds of processed cheese. Bids are due on December 1, with a delivery time frame of April through September 2023. A fluid milk solicitation will be released later, according to the USDA, however HGD deemed the announcement as bearish towards cheese prices.
Dairy producers are heading into next year with unusually light protection against declines in milk revenue, according to the Nov. 18 Daily Dairy Report. The DDR says “About 25% of national milk output is protected from lower margins through USDA’s Dairy Margin Coverage (DMC) program, which pays dairy producers when national average milk prices are too low to cover national average feed costs plus other expenses. Because only 5 million pounds of annual milk output is eligible for the DMC’s government subsidy, most dairy producers will purchase DMC protection to cover annual production from about 200 cows. For small farms, that is enough,” the DDR stated, “but dairy producers with medium and large herds will need to explore other options for most of their milk.”
“Producers have a three-year history of protecting roughly 25% of U.S. milk output through the Dairy Revenue Protection (DRP) program. This program allows them to buy floors under the quarterly average of Class III, Class IV, or dairy component prices at values up to 95% of the futures market. The government underwrites between 44% and 55% of the cost,” the DDR stated.