You’ll recall January milk production was down 1.1% from a year ago and the January Dairy Products report shows that milk was directed away from the vat to the churn. StoneX points out however that higher solids and continued declines in fluid milk sales meant about 1.1% more solids were available for processors.

Cheese production totaled 1.19 billion pounds, down 0.5% from December and 1.2% below January 2023, second month in a row to be below a year ago, and the December total was revised 12 million pounds lower.

The Daily Dairy Report says the cheese decline was unexpected in light of the nation’s growing cheese production capacity.

 Butter production shot up to 214.2 million pounds, up 20.4 million or 10.5% from December’s total which was revised 2.5 million pounds lower, and was up 12.9 million pounds or 6.4% from a year ago. The record for butter output is 215.7 million pounds in April 2020.

Yogurt production totaled 391.0 million pounds, down 0.2% from a year ago. Hard ice cream, at 49.6 million pounds, was down 6.3% from 2022.

Dry whey production climbed to 78.0 million pounds, up 5.4 million pounds or 7.6% from December, and 1.3 million pounds or 1.7% above a year ago. Stocks slipped to 67.5 million pounds, down 1.8 million or 2.6% from December and 900,000 pounds or 1.4% below a year ago.

The Daily Dairy Report says whey processors continued to funnel large volumes of whey into high-protein concentrates and isolates.

Analyzing the report in the March 11 “Dairy Radio Now” broadcast, StoneX broker Dave Kurzawski said the weak Cheddar production was a big surprise and hard to believe that prices were where they were at in January. The last time Cheddar output was down that much, he said, was December 2009, down 8%.

The weak cheese production moved some fat and protein to butter and powder production, he said, which was higher than expected. The Cheddar data tells him that cheese demand was “worse than we thought.” “Exports may have helped a little,” he surmised, “but domestic demand must have been awful.”

If demand returns, he warned, we won’t have an overhang in the market and it could mean tremendous volatility. “U.S. cheese manufacturers are doing a great job of not over producing, with demand being lackluster the past few months.” That may have kept prices higher than were they otherwise would have been, he said, and “If demand returns this market is going to rock,” he concluded.

The Agriculture Department lowered its 2024 milk production estimate for the fifth consecutive month in its latest World Agricultural Supply and Demand Estimates report issued late Friday morning, citing a smaller dairy cow inventory and slower growth in output per cow. 

Class III milk prices were projected higher based on higher cheese prices, while Class IV prices were lowered, as the lower expected nonfat dry milk price more than offset the higher butter price. I’ll have complete details next week.

Cash dairy prices were lower the first full week of March except for butter. The Cheddar blocks fell to a Friday close at $1.46 per pound, lowest since Jan. 19, losing 9 cents on the week and 32 cents below a year ago.

The barrels finished at $1.4875, 16.25 cents lower, lowest since Jan. 26, and 28.25 cents below a year ago, but still 2.75 cents above the blocks. Sales totaled 18 loads of block on the week at the CME and 13 of barrel.

CME butter recovered some of the previous week’s 9.25 cent loss, climbing to $2.85 per pound Wednesday, then gave back 8.25 cents Thursday, only to regain 3.50 cents Friday and close at $2.8025, up 4.50 cents on the week and 47 cents above a year ago. There were 13 CME sales on the week.

Some butter makers shifted gears this week, slowing their churns, though they “have not lost their cream appetite. Spot cream bids at a 1.15 multiple or thereabouts will provide all they need,” says DMN. Butter remains available but at steady/higher pricing. Retail demand is seasonally moderate, despite bullish price directions. Butter makers generally have somewhat bullish near-term expectations, says DMN, despite ample cream and active churning schedules.

Grade A nonfat dry milk, thanks in large part to the week’s GDT, fell to $1.1475 Thursday, lowest since Sept. 20, 2023, but was bid up Friday to $1.17, down 2.75 cents on the week and a half-cent below a year ago on 7 sales for the week.

Dry whey, after dropping almost a dime the previous week, suffered an additional 1.50 cent loss this week, closing at 41 cents per pound, lowest since Jan. 18, and 3.25 cents below a year ago. There were no sales reported on the week.

Class III futures are under pressure and dairy margins were relatively flat over the last half of February as projected feed costs continued to decline to new lows while milk prices were steady to slightly weaker, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“CME Class 4 milk futures are trading at elevated levels due to less milk going to driers,” says the MW, “as new cheese plants absorb an increasing share of the nation’s milk supply, Class 3 prices are barely covering producers’ overhead even with shrinking feed bills. Whey prices climbed 8.5 cents in January which added about 51 cents to the Class 3 milk price, with the rally continuing in February as whey added another 6 cents although that trend reversed over the second half of the month as whey declined 10 cents. Whey powder production has been lower than the prior year in every month since September as poor demand from Asia and strength in the U.S. dollar has hurt exports”

Meanwhile; January’s U.S. dairy exports had the proverbial good news and bad. Milk equivalent exports were down 4.8% from a year ago. The good news was that cheese sailings topped those a year ago for the third month in a row, and with a double-digit percentage growth, first time since January 2023, according to HighGround Dairy. 

Nonfat and skim milk powder exports, at 129.3 million pounds, were down 14.0%, as international demand is poor. HGD says the biggest losses were due to reduced demand from Mexico, down 21.7%, followed by smaller purchases from the Philippines, Indonesia, Thailand, Colombia, and China.

Butter exports totaled just 5 million pounds, down 33.1% from a year ago, no surprise there considering the high U.S. price. Sales to Canada were up 8.2%, however, and made up almost 70% of the US’ butter exports. Butter imports were up 30.9%, as the high U.S. price was a strong attraction.

 Dry whey exports climbed to 29.8 million pounds, up 2.9%, and demand for whey protein concentrates and isolates were robust, says HGD. Shipments to China plunged 23%, but the Daily Dairy Report points out that the decline was more than offset by greater exports to Mexico, Curacao, and Japan.

The USDA’s National Agricultural Statistics Service issued its 2023 Cold Storage summary on Feb. 29. Butter stocks hit their highest level in May, at 367.9 million pounds. The lowest butter inventory was 199.5 million pounds in December. The highpoint in 2022 was in June, with 330.8 million pounds in storage. The low point was in November, with 199.8 million in the cooler.

American cheese stocks peaked at 857.1 million pounds in May and the low point was in February at 809.2 million pounds. The other cheese inventory peaked at 634.2 million pounds in June, with the low point at 583.7 million in December.

The highest total inventory of cheese in 2023 occurred in June with 1.510 billion pounds. The low point was in February, at 1.438 billion. The highest total in 2022 occurred in July, with 1.522 billion pounds tucked away. The lowest level was in November with 1.431 billion pounds.