The Agriculture Department lowered its estimate for 2021 and 2022 milk production in the latest World Agricultural Supply and Demand Estimates (WASDE) report, fifth month in a row, citing lower than expected dairy cow numbers and slower growth in milk per cow.

2021 production and marketings were estimated at 226.4 and 225.3 billion pounds respectively, down 600 million pounds on production from last month’s estimates and 700 million lower on marketings. If realized, 2021 production would still be up 3.2 billion pounds or 1.4% from 2020. 

2022 production and marketings were estimated at 228.1 and 227 billion pounds respectively, down 1.6 billion pounds on both production and marketings. If realized, 2022 production would be up 1.7 billion pounds or 0.8% from 2021. 

Butter, nonfat dry milk (NDM), and whey price forecasts were raised from last month on strength in demand and lower expected production. The cheese price forecast was reduced on current prices and continued large supplies. 

The 2021 Class III milk price forecast was reduced as the lower forecast cheese price more than offsets the higher whey price. The 2021 average is now projected at $16.95, down a dime from last month’s estimate, and compares to $18.16 in 2020 and $16.96 in 2019. The 2022 average is pegged at $17.75, up 65 cents from last month’s estimate.

The 2021 Class IV price forecast was raised on higher NDM and butter 

prices. It is expected to hit $16.00, up 30 cents from a month ago, and compares to $13.49 in 2020 and $16.30 in 2019. The 2022 average is projected at $18.70, up $1.55 from last month’s estimate. The 2022 cheese, butter, NDM, and whey price forecasts were raised on strength in demand and lower expected milk supplies. 

In the week ending Oct. 30, 59,600 dairy cows were sent to slaughter, down 1,200 from the previous week but 1,800 head or 3.0% above that week a year ago.

Checking the dairy farm bottom line; StoneX’s Nate Donnay, Director of Dairy Market Insight, writes in his Nov. 11 “Udder Intelligence” how inflation is affecting U.S. cost of production data and fertilizer impacts globally. “The cost of producing milk globally is shifting higher,” he said. “That doesn’t guarantee strong/higher dairy prices, but it should limit production growth. I certainly feel a little more bullish about the 2022/2023 outlook after looking at the shift in costs.” 

“The biggest expense for dairy farmers is feed, and feed prices fluctuate wildly depending on weather and government policies. Feed costs are up sharply this year, and they will likely stay high next year, but eventually crop production will rebound and feed costs will come back down. The same is true for energy costs. However, there are costs that are increasing and will probably not come back down again, like labor. Well, even that might be wrong. Maybe robotic milkers will be perfected and some of the costs will shift from labor to capital.”

Donnay believes total costs will increase about 16% or $3.34 per cwt. this year with only a small increase next year.

Dairy prices were mostly higher the second week of November, though the week was a little thin on fresh data. The Cheddar blocks climbed to $1.81 per pound Thursday, but dropped 6 cents Friday to $1.75, still 16.50 cents higher on the week and 16.75 cents below a year ago when prices were plunging. The blocks lost 42.50 cents a year ago. The barrels were down 70.75 cents, second highest single-week loss ever. The record was 71.75 cents, the week of Aug. 3, 2020.

Midwest cheesemakers are busy, reports Dairy Market News. Lighter amounts of spot milk were offered this week but cheesemakers say they are working full schedules if possible. Foodservice and retail buyers are actively searching, says DMN, in fact, some cheesemakers say new customer interest has grown, as needs are not being fulfilled elsewhere. Worker shortages, thinly spread milk supplies, and holiday demand have created a tighter cheese market. 

The November 5 ‘Dairy and Food Market Analyst’ cites three factors in the cheese price drop. “First, cheese backed up when the largest processed cheese manufacturer in the country suddenly shut down operations due to a cyberattack. Secondly, West Coast port conditions worsened significantly that week (at least according to our network) and this is likely resulting in cancelations in cheese export shipments. Thirdly, we are hearing about more supply chain shortages that are limiting cut and wrap producers’ ability to manufacture.”

The good news, according to the Analyst, is that “all three are very short-term. And with USA cheese prices as much as 75 cents cheaper than cheese in Europe and Oceania, probably won’t last long.”

HighGround Dairy’s Lucas Fuess stated that cheese has been the most volatile of our four main dairy products and blamed port congestion for all but shutting down exports as end users are hesitant to commit to product, not knowing when they will get it. 

Butter sales are very strong, according to Central contacts. Retail and foodservice interest has increased, which was seasonally expected, says DMN, and bulk butter prices have increased, as supplies tighten. Butter plant managers say employee numbers have begun to improve. Time and training are expected to aid the labor shortage of the past year. Cream is reportedly tight and getting tighter. Market tones are healthy, with more bullish than bearish undertones.

Cream is available throughout the West though shipments continue to face delays due to a shortage of truck drivers. Food service demand for butter is strong and retail demand is strengthening, as customers prepare for the holidays. Exports are increasing. Some butter makers are, reportedly, running below capacity due to delayed deliveries of production supplies and labor shortages. Spot availability of butter is limited, as demand continues to outpace production. 

The “Restaurant SmartBrief” reports “Menu prices at U.S. limited-service eateries surged 7.1% last month over October 2020 and full-service eateries saw an increase of 5.9%, both record jumps, according to the Bureau of Labor Statistics. Consumer demand for restaurant meals has remained strong, indicating that people are willing to pay the higher prices.” Restaurants are vital customers of dairy products, especially cheese and butter.