After lowering estimates for 2021 and 2022 milk production for six consecutive months, the Agriculture Department left its latest projection unchanged in the Jan. 12 World Agricultural Supply and Demand Estimates (WASDE) report.

2021 production and marketings remain at 226.2 and 225.2 billion pounds respectively. If realized, 2021 production would be up 3.0 billion pounds or 1.3% from 2020. 

2022 production and marketings remain at 227.7 and 226.6 billion pounds respectively. If realized, 2022 production would be up 1.5 billion pounds or 0.7% from 2021. 

Cheese, butter, nonfat dry milk, and whey price forecasts were raised from last month on firm domestic demand and tight supplies. The 2022 cheese price average was projected at $1.8750 per pound, up from the 2021 average of $1.6755. Butter is expected to average $2.30 per pound, up from the 2021 average of $1.7325. 

Class III and Class IV milk prices were raised on the higher product prices. Look for a 2022 Class III average at $19.65, up $1.50 from last month’s estimate, and compares to $17.08 in 2021 and $18.16 in 2020. The Class IV average was projected at $20.90, also up $1.90 from last month’s estimate, and compares to $16.09 in 2021 and $13.49 in 2020. 

Dairy prices were mixed the second week of 2022. The Cheddar blocks climbed to $2.0525 per pound Wednesday, highest since Nov. 12, 2020, and but dropped from there to a Friday close at $1.92, down 7.5 cents on the week, and 9 cents above a year ago.

Spot milk availability for cheesemakers varies in the Central region, according to Dairy Market News. Some say milk offers are quiet and there is a general sense of balanced supplies. Still, holiday level discounts were being offered in other parts; in some cases, the discounts were due to neighboring plants being shorthanded. Bottling was also starting to affect milk availability as a growing number of cheesemakers say they were being asked to resell milk into Class I. Reported higher culling rates are being blamed on harsh winter conditions and stronger beef prices, according to DMN, and there are expectations that milk accessibility will begin to decrease. Cheesemakers report mixed demand but markets are strong despite the wide gap between blocks and barrels. High market prices may slow overall demand, warned DMN, but contacts suggest “the short term picture is being painted with a bullish brush.”

Butter climbed to $2.8425 per pound Tuesday, highest since Dec. 7, 2015, but the rising star reversed direction Wednesday and closed Friday at $2.7250, down 1.75 cents on the week, but $1.4350 above a year ago. 28 sales were reported.

Central butter churning is busy despite COVID related worker issues, even as cream supplies slowly tighten. Cream prices are slowly edging higher after the seasonal holiday abundance. Bulk butter is tight and end users are paying for it. Retail demand is keeping butter makers busy and market tones are “resolutely bullish,” says DMN. International butterfat values are also climbing. Contacts expect market tones will sustain this pressure for longer than just the near term.

Grade A nonfat dry milk shot up to a Friday finish at $1.8150 per pound, up 10.50 cents on the week, highest since June 25, 2014, and 61.50 cents above a year ago. 13 sales transpired on the week. The record CME price high is $2.16 per pound on Dec. 5, 2007.

CME dry whey kept creeping higher and closed Friday at a new record high 77 cents per pound, up 1.25 cents on the week and 24 cents above a year ago, with 3 sales reported for the week.

Dairy analyst and editor of the Dairy and Food Market Analyst newsletter, Matt Gould, said in the Jan. 17 ‘Dairy Radio Now’ broadcast that these higher dairy prices will likely be around for a while. He said COVID has kept new plants from being built so we won’t have an increase in supply of cheese or whey products.

He added that feed prices have been high and margins very challenging, so “There is no wall of milk in the dairy universe right now. Milk is tight in the U.S., milk is tight in Europe and in New Zealand, and that’s a recipe for high prices.”

When asked if the resulting high milk prices will find their way to the farm and not be derailed like what happened in 2020 due to de-pooling and high producer price differentials, Gould answered; “This time around, farmers are definitely going to benefit.” While he admitted there is a lag before they show up in the milk check, “The first half of 2022 is going to have pretty solid margins.”

Lastly, the latest COVID surge has been particularly disruptive to all kinds of manufacturing plants, according to Gould, with employees calling in sick. Often entire shifts or a big part of a shift is not able to show up because of outbreaks, with some plants not even able to run due to the lack of employees. 

StoneX Jan. 12 Early Morning Update echoed the sentiment; “The trend for dairy is up. But the takeaway from conversations around dairy products and prices is summed up in one word: chaos. And this isn’t just for dairy. Supply chains are chaotic.” Store shelves are spotty, some well stocked others not. There are reports of better milk supply in some sheds and milk is starting to be offered under class, but there has reportedly been aggressive dumping of millions of pounds of milk in the Pacific Northwest due to weather, trucking and labor issues.

“There seems to be something new and unforeseen happening,” warned StoneX. “This may be more normal than we give it credit for, but it highlights the potential for increased volatility on dairy markets now and in the near future. We’ve seen increased producer selling activity here to start 2022, but overall farm hedging activity remains on the lighter side. DRP insurance coverage for first quarter is 9.9% of U.S. milk supply. Not bad, but producer’s coverage was closer to 30% of U.S. milk for first quarter 2021. We may have a really high price year for dairy,” the Update concludes, “But given the news cycle and supply chain issues, producers ought to continue to be diligent with their hedge plans.”

The National Milk Producers Federation concurs with the optimism. NMPF chief economist Peter Vitaliano, in an NMPF podcast, stated; “Dairy prices for 2022 are projected at an eight-year high. With supply adjustments and booming exports across a wide range of products shoring up farmer balance sheets that have struggled with volatility during the pandemic era.”

“Not only is the outlook for milk prices the best in eight years, but that’s also the case for the individual dairy products,” Vitaliano said, crediting tight supplies. “The big question is, with milk prices this good and feed prices not going up as fast as they were last year, how long is that tightness going to continue? And how soon will it be before we see some expansion of milk production again?”

Vitaliano encouraged farmers to sign up for the Dairy Margin Coverage program, which has a deadline of Feb. 18 for 2022 assistance. “The futures markets look very good at the moment,” he concluded, “but there are many months to go. The history of dairy farmers second-guessing the markets, even based on the futures, is not very good. And again, given how inexpensive coverage is, our recommendation continues to be you should sign up for the program.” 

In politics; Agriculture Secretary Tom Vilsack announced an adjustment in school meal reimbursements to “help schools continue to serve children healthy and nutritious meals,” according to a USDA press release. The move puts an estimated $750 million more into school meal programs across the nation this year, “making sure federal reimbursements keep pace with food and operational costs, while ensuring children continue to receive healthy meals at school.

Last of all. U.S. milk production is mixed between and within regions, according to the USDA’s weekly update. Class I demand is increasing as winter breaks come to an end. Spot milk availability is varied. Where available, cheesemakers are acquiring milk at from $4 under Class to $1 under. 

The Jan.10 Daily Dairy Report stated; “Milk output among major global exporters fell short of a year ago in September and October 2021 and likely continued the trend during November,” concluding; “This rare global milk production deficit is sparking a fire in dairy markets and promising higher revenue for dairy producers, especially those whose income depends on Class IV products.”