Falling cow numbers driven by higher feed costs and tightening farm margins, plus intense hot weather impacting output per cow, resulted in a smaller increase in August milk output than expected and the weakest year over year gain since June 2020.

The USDA’s preliminary data shows production at 18.84 billion pounds, down 282 million pounds or 1.5 percent from July, but 208 million or 1.1 percent above August 2020. It was the 15th consecutive month to top year ago output. The 24-state total hit 18.0 billion pounds, also up 1.1 percent from a year ago. Revisions lowered the July 50-state estimate by 18 million pounds from last month’s report, to 19.1 billion pounds, up 2 percent from 2020.

Cow numbers totaled 9.48 million, down 19,000 from July (15,000 from New Mexico alone), third month in a row cow numbers fell from the previous month, but still 106,000 above a year ago. July numbers were revised down 1,000 head.

August output per cow averaged 1,987 pounds, down 1 pound from 2020.

California was up 0.7 percent on a 15-pound gain per cow offsetting 1,000 fewer cows. Wisconsin was up 2.6 percent on a 20-pound gain per cow and 21,000 more cows. Idaho was up 1.1 percent on 9,000 more cows offsetting a five-pound drop per cow. Michigan milk output was up 3.9 percent on 17,000 more cows. Output per cow was unchanged.

August dairy cow culling was well above the previous month and year, according to the USDA’s latest Livestock Slaughter report. The data shows an estimated 261,400 head were sent to slaughter under federal inspection, up 13,500 from July and 36,100 or 16 percent above August 2020. Culling in the eight-month period totaled 2.07 million head, up 21,300 or 1 percent from the same period a year ago.

StoneX cautioned however that slightly more imports and an extra kill day this year means the daily pace of domestic dairy cow slaughter was up about 11.1 percent but, “We’re still killing them faster than we can replace them. This isn’t fresh news but it’s worth repeating because $1.65 cheese and $5 corn will do little to change this dynamic. Also it’s worth mentioning that while corn prices have been high all year, for many dairy producers the increase is really only starting to be felt in the last month or so. All things equal, this dynamic has the potential to accelerate on farm changes and propel slaughter rates in fourth quarter.”

American-type cheese crept up to 823.6 million pounds, up 6 million or 0.7 percent from July and 33.7 million pounds or 4.3 percent above a year ago. The “other” cheese category saw its number slip to 582.6 million pounds, down 26.8 million pounds or 4.4 percent from July, but 19.8 million or 3.5 percent above a year ago.

That put total cheese at 1.43 billion pounds, down 21.1 million pounds or 1.5 percent from July, but still a bearish 55.4 million pounds or 4 percent above a year ago.

Cheese demand is still outperforming 2019 and 2020 levels, according to StoneX, which suggested, “We can attribute a good chunk of that to strong exports thus far and with global cheese prices pushing higher over the past month that could continue to be the case since U.S. prices sit at a discount.”

Strength remained in this week’s Global Dairy Trade which saw the weighted average up 1 percent, following the 4 percent jump on Sept. 7. Traders brought just under 54 million pounds of product to market, down from 55.3 million on Sept. 7.

Chinese demand at the GDT remained subdued, according to StoneX, but South East Asia and the Middle East picked up the slack.

Meanwhile, China’s August imports continue to impress. Whole milk powder totaled 163 million pounds, up 146.6 percent from August 2020 and up 41.9 percent year to date. Volume expanded from every key supplier, according to HighGround Dairy.

Skim milk powder imports, at 74.5 million pounds, were up 22.8 percent and topped year ago numbers for the eighth consecutive month and marked a new all-time record high for the month, according to HGD.

Butter totaled 12 million pounds, up 8.4 percent, and cheese imports amounted to 34.5 million pounds, up 50.1 percent from a year ago. Fluid milk and cream import growth was the second strongest, HGD said, following whole milk powder, “and that despite anecdotal chatter that milk production is strong throughout China.”

Whey imports, at 137 million pounds, were up 12.1 percent from a year ago, with YTD up 33.3 percent, most coming from the United States and up 32 percent from a year ago.

HGD said, “The inventory situation within China is a hot topic at present but the holiday season will help to absorb heavy stocks and result in strong import volumes through the end of the year. As shipping container shortages remain widespread, China is likely ramping up purchases earlier than normal to make sure product hits their borders by January without interruption. There is also an increased need to keep inventories well above prior year to meet the rising internal demand that has been propelled by the pandemic.”

U.S. fluid milk sales continue to plunge. USDA’s latest data put July sales of packaged fluid milk products at 3.5 billion pounds, down 6.3 percent from July 2020, after plummeting 6.7 percent in June. Conventional product sales totaled 3.3 billion pounds, down 6.2 percent from a year ago. Organic products, at 221 million pounds, were down 9 percent, and represented 6.4 percent of total sales for the month.

Total packaged fluid milk sales for the first seven months 2021 amounted to 25.6 billion pounds, down 5.3 percent from 2020. Conventional product sales totaled 23.95 billion pounds, down 5.5 percent. Organic products, at 1.7 billion, were down 2.1 percent, and represented 6.4 percent of total milk sales for the period.

Dairy margins were steady to slightly stronger over the first half of September with limited price movement in the milk and feed markets, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

The MW stated that “strength in dairy exports has been a vital source of support for the market.” July dairy product exports, which I reported previously, totaled 504.3 million pounds, according to the MW, up 7.9 percent from last year with year-to-date exports running 11.6 percent ahead of 2020. Exports to Mexico totaled 114 million pounds and were 14.3 percent higher than 2020 while exports to China of 88.4 million were likewise strong with the YTD total on pace to exceed 2017’s record.

The MW reported, “USDA increased yield projections for both corn and soybeans in the September World Agricultural Supply and Demand Estimates report which put slight pressure on both markets. The corn yield was raised to 176.3 bushels per acre from 174.6 in August, with harvested area also increased by 600,000 acres to 85.1 million. Corn production of 14.996 billion bushels was up 246 million from last month and about 100 million higher than the average trade forecast with ending stocks of 1.408 billion bushels up 150 million from August. Soybean ending stocks of 185 million bushels were up 30 million from August, although the balance sheet remains historically tight.”