Mielke Market Weekly

By Lee Mielke

 

There’s more milk coming. The Agriculture Department raised its 2023 US milk production estimate in the April 11 World Agricultural Supply and Demand Estimates report (WASDE), again citing a “larger expected cow inventory.”

2023 production and marketings were estimated at 228.7 and 227.6 billion pounds respectively, up 200 million pounds on production from a month ago and 100 million pounds more on marketings. If realized, 2023 production would be up 2.2 billion pounds or 0.97% from 2022. 

“Fat basis imports for 2023 were primarily raised on the strength of a number of dairy products during first quarter. Imports of casein and milk protein concentrates are expected to remain firm,” says the WASDE, “supporting higher skim-solids basis imports through the year. Expectations of increased competition in butter, cheese, nonfat dry milk, and whey markets were reflected in lower forecast exports on both a fat- and a skim-solids basis for 2023.” 

Cheese and butter price forecasts were raised, nonfat dry milk was lowered. Whey prices were raised on recent prices and stronger expected demand. 

Dairy product demand looked strong in February. The USDA’s latest US Dairy Supply and Utilization report shows cheese utilization totaled 1.13 billion pounds, up 2.8% from February 2022, driven primarily by a 3.0% increase in domestic use. Exports were off 0.1%, a result of higher other-cheese varieties counteracted by a significant drop in American cheese volume compared to February 2022, according to HighGround Dairy’s assessment.

Butter utilization, at 164.3 million pounds, was up 13.1% from a year ago, thanks to domestic usage being up 16.9%. Exports however, were down 32.1%.

Nonfat dry milk-skim milk powder totaled 175 million pounds, up 1.5% from a year ago, with domestic use up 10.1%. Exports were off 0.5%, although year to date are up 6.5%. HGD cited the weak global economy and tepid demand and “While domestic utilization increased, February 2022’s domestic numbers were the weakest since 2002, making for a very easy comparison in 2023.”

Dry whey utilization amounted to 65.9 million pounds, up 3.3% from a year ago. Domestic usage was down 3.2%, but exports were up 9.5%.

The Cheddar barrels rolled into Chicago big time this week, as 70 loads found new homes at the CME, highest weekly total Jun. 30, 2018. That took the price down to $1.5125 per pound, down 20.75 cents on the week, lowest CME price since Nov. 22, 2021, 92.75 cents below a year ago, and 26.25 cents below the blocks. The barrel lost 45 cents in three weeks.

The blocks closed the second Friday of April at $1.7750, down 5.50 cents on the week, lowest since Sept. 6, 2022, and 59.75 cents below a year ago. 

“Central cheesemakers are clearly viewing the bearishly veering market prices with interest,” says Dairy Market News, though demand is reportedly healthy. Some of the concerns arise from a wait-and-see approach on the buyer side, as prices shift down. Lower prices are expected to entice more buying near-term. Some cheesemakers say orders are beyond what they can produce. Cheddar and Italian style cheesemakers say demand has been robust. Process producers say any extra loads are still moving at slight overages to usual formulas, and most recently produced cheese is “spoken for.” Milk availability remains a constant, with spot prices as low as $11 under Class III. Prices have in fact been at $10 below or lower every week in 2023, according to DMN.

Butter climbed to $2.3750 per pound Wednesday but closed Friday at $2.3275, up a penny on the week but 42.75 cents below a year ago, with 11 sales.

Central butter makers say cream remains widely available and near-term availability is not expected to change. Churning is busy and some plants ran churns throughout the holiday weekend. Bulk butter demand is lackluster, according to some contacts who say April has been somewhat quiet in sales in both retail and food service. Plant managers say they are churning for the potential of stronger demand in late summer-early fall, according to DMN.

The week ending April 1 saw 66,800 head of dairy cattle go to slaughter, up 600 from the previous week and 5,800 more than a year ago. Year to date, 871,500 cows have been culled, up 32,800 head or 3.9%, from the same period in 2022.

Rising beef prices have incentivized cash strapped dairy producers to cull more or even shutter their operations. The April 12 Daily Dairy Report stated; “Front-month cattle futures reached fresh all-time highs. The April contract settled at $174.275 per cwt., eclipsing the previous high set in October 2015.”

The DDR says “Beef producers are scrambling to find animals to finish, and they are willing to pay higher prices for dairy calves. A growing share of US dairy producers have been crossbreeding with beef genetics and producing fewer pure dairy calves. This has slowly reduced the supply of US dairy heifers ready to enter the milking herd.”

StoneX broker Dave Kurzawski says dairy beef is making up a bigger percentage of the beef supply than a year ago. Speaking in the April 17 Dairy Radio Now broadcast, he reported culling the past 12 weeks was up 3.5% from a year ago.

He said farmers are doing what they can to “cheapen the ration, to cut costs,” as evidenced in components. Both protein and butterfat were down for the past 12 months, he said. “Dairy farmers want to milk cows. That’s what they do for a living. They don’t want to cull animals unless they’re going out of business. Margins will be tough and those with a little extra, with beef prices being what they are, will be culling a little extra,” he concluded, “But the price of milk has a bigger impact on their margin than that of the beef price.”

Tuesday’s Global Dairy Trade Pulse saw 2.0 million pounds of Fonterra whole milk powder sold, down 200,000 pounds from the Mar. 28 Pulse, and at just $3,005 per metric ton, down $15 from the April 4 GDT event. 

 HighGround Dairy stated; “Whole milk prices fell further in this event to set a new GDT Pulse auction low as weak demand and a poor global macroeconomic environment keep sentiment bearish.”

In politics, The International Dairy Foods Association gave a thumbs up to the US Food and Drug Administration’s (FDA) final order announced Thursday, to modify the yogurt standard of identity final rule, published on June 9, 2021.

Joseph Scimeca, PhD, senior vice president of regulatory and scientific affairs for the IDFA, stated: “Following more than four decades of advocacy from IDFA and formal objections filed by IDFA in July 2021, the FDA announced changes to the 2021 Yogurt Standard of Identity final rule on December 14 that largely aligned with IDFA’s requested changes and objections. Today, FDA issued additional clarity on the final rule. IDFA considers the final rule a win for consumers and yogurt makers.” Complete details are posted on the IDFA’s website.

The American Dairy Coalition (ADC), in a letter this week to Agriculture Secretary Tom Vilsack, urged him to deny two recent Federal Milk Marketing Order (FMMO) hearing petitions, which ask for increased payments from farmers’ pockets to processors in order to offset higher input costs. 

 “Holding a federal milk pricing hearing on only these ‘make allowances,’ without the opportunity to look at additional concerns facing dairy farmers, is misaligned,” the ADC charged. “As a grassroots dairy farmer organization, ADC believes a comprehensive FMMO hearing is needed. We also do not support ‘make allowance’ updates based on processors having the ability to voluntarily participate in the cost surveys, which undoubtedly would exclude essential relevant data. Farmers need transparency in order to understand how their net payment is calculated, and these ‘make allowances’ are not line items. They are embedded in pricing formulas,” says ADC CEO Laurie Fischer. 

“The milk component pricing that is credited with make allowances only captures the value of about 10% of milk sales today. The specific products that are included in the circular end-product pricing formulas are: block and barrel Cheddar cheese, salted butter, nonfat dry milk and dry whey.” 

 “This means 90% of total milk sales do not have their end-product prices captured, not even for informational purposes or market transparency. USDA only surveys the prices of the specific products that are used in the FMMO formulas,” Fischer points out. “Processors have the flexibility to offset costs from additional sales opportunities the non-formula products represent without having the increased value they extract from consumers captured and used in the FMMO formulas that establish the minimum prices paid to farmers.”

 Lastly, our prayers go out to South Fork Dairy which suffered a huge explosion Monday night in Dimmitt, Texas. Some 18,000 cows were reported to be lost in the resulting fire and one farm worker was hurt and hospitalized. The cause of the explosion is being investigated.