Nerves were frayed this week over the collapse of Silicon Valley Bank and New York’s Signature Bank, even as the Federal Deposit Insurance Corporation stepped in. The latest inflation indicator was only up 0.4 percent in February, but 6 percent above a year ago as we await the Fed’s decision on further interest rate hikes. Torrential rains and snow weres again hitting California, resulting in flash flooding in some areas, including dairy regions. Parts of New York saw heavy snowfall.

Tight dairy margins are fraying U.S. dairy producers and dairy cow culling remains strong in response. The USDA’s latest weekly data shows 66,879 head were sent to slaughter the week ending March 4, up 1,579 head from the previous week, but 621 head less than a year ago. Year-to-date slaughter stood at 606,100 head, up 21,700 or 3.7 percent from a year ago.

StoneX points out that dairy cows are taking up a greater percent of the beef market share, and blames tight dairy margins.

The USDA’s monthly Livestock, Dairy, and Poultry Outlook, issued March 14, mirrored milk price and production projections in the March 8 World Agricultural Supply and Demand Estimates report, but the Outlook also stated that milk cows are projected to average 9.390 million head in 2023, 10,000 head higher than last month’s forecast.

Cow numbers are expected to decline through the year however, as lower numbers of replacement heifers and higher expected cull-cow prices will likely contribute on the decline of the dairy herd. The milk-per-cow projection was unchanged from last month at an average 24,345 pounds per head.

 Dairy margins were mixed the first half of March, improving in some marketing periods while deteriorating in others, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“Class III Milk futures prices recovered on strength in the cheese market, while soybean meal prices held steady and corn futures continued to sell off,” the MW stated. “January dairy exports were solid, with 466.1 million pounds of product shipped during the month, up 13.2 percent from last year and a record for the month.

“Exports to Mexico were almost 50 percent higher than last year as strength in the peso relative to the U.S. dollar has increased purchasing power for Mexican consumers who are experiencing a stronger economy relative to other developing markets.

“Cheese exports totaled 75 million pounds, a record for the month and up 15.6 percent from last year. NDM exports of 150.4 million pounds were likewise up about 15 percent from last year and the second highest January NDM export total on record.”

January butter exports of 7.5 million pounds were down 3.7 percent from last year but still 2 million pounds larger than the five-year average. Exports to both Canada and Mexico, who have a free trade agreement with the U.S., were solid although demand from Asian and Middle Eastern markets was weaker, highlighting the fragile nature of the global economy at present, the MW stated. “Demand will be a big focus for the market as milk output continues to expand relative to last year,” the MW warned, “particularly in Central states as the spring flush begins.

“Excess milk has been cleared on the spot market for as much as $10 per cwt. below the class price from December through February as surging milk production in the Central region has overwhelmed processing capacity,” the MW concluded. For additional details log on to www.cihmarginwatch.com .

Tuesday’s Global Dairy Trade Pulse saw 2.1 million pounds of Fonterra whole milk powder sold at $3,230 per metric ton, down 0.6 percent or $18 from last week’s GDT.

HighGround Dairy stated, “The slight decline on the WMP price from the previous GDT auction reaffirms the bearish market sentiment as milk supplies begin to grow in the Northern Hemisphere while global demand remains lackluster.”

Meanwhile, the U.S. Dairy Export Council states on its website that it yearly “summarizes key ‘signposts’ that our analysts will be watching in the year ahead that will determine the direction of U.S. dairy exports and global markets.”

This year, they will focus on the major structural factors that will come into play, including the so-called economic headwinds, namely inflation and consumer purchasing power.

China’s import demand, when and if it returns. was number 2, followed by usage of dairy alternatives like palm oil and plant-based imitators. EU27 and UK milk production will be watched, according to the USDEC, as will farm input costs and availability here at home. Last but not least, inventories will be closely watched. USDEC concluded that they “expect hand-to-mouth buying to be common, likely making markets and import demand more volatile in the year ahead.”

Cash cheese prices in Chicago converged and strengthened this week, driven by demand, according to Matt Gould, editor of “The Weekly Wire” in the March 20 “Dairy Radio Now” broadcast.

Domestic demand has been “so-so at best since December,” Gould said. He blamed consistently negative retail cheese sales, which means more dependence on food service and exports. Price inflation is clearly seen at any McDonald’s or Burger King, he said, “So that leaves exports for any hope of optimism.”

Recent price declines have resulted in some short-term export bookings, he said, however “The international marketplace continues to be a place with headwinds.

“European cheese prices, particularly for Mozzarella, which tends to go into the international food service market, and Gouda, are well below U.S. prices,” he warned, “So our ability to even maintain market share this year is going to be a challenge.

“This is not going to be an explosive price year for dairy farmers,” he concluded, and the West is seeing the most auction notices. California is one of the states and is also being inundated by water. New Mexico, and to a lesser degree, Texas, are also seeing an uptick in exists, according to Gould, who expects that to continue for the next several months.

The Agriculture Department supplied January dairy supply and utilization data this week. Starting with cheese, total utilization amounted to 1.198 billion pounds, up 0.7 percent from January 2022. Domestic use, at 1.123 billion pounds, was down 0.2 percent, while exports, at 75 million, were up 15.6 percent, an all-time high for January.

Butter saw further weakness, at 156.4 million pounds, down 13.2 percent, lowest volume since July 2020, according to HGD, which blamed poor domestic consumption, down 13.6 percent from a year ago, while exports were down 3.8 percent.

Total nonfat dry milk utilization dropped to 199.1 million pounds, down 3.8 percent, with domestic demand falling to 48.7 million, down 35.8 percent, lowest January reading since 2020. Exports climbed to 150.4 million, up 14.8 percent from a year ago, highest January level since 2020, according to HGD.

Dry whey totaled 81 million pounds, up 0.1 percent from a year ago. Domestic use fell to 52 million pounds, down 4.1 percent, and exports, at 29 million, were up 8.6 percent.

Cheese market tones experienced a bullish push this week as prices climbed both for blocks and barrels, says Dairy Market News. “Markets are also under a more assured tone as the block to barrel price difference narrowed noticeably.” Cheesemakers in the Midwest say demand is hearty.