By Lee Mielke

 The world witnessed the start of war last week as Russian troops invaded Ukraine. Energy markets shot higher as did grains. Russia is the world’s largest wheat supplier, according to StoneX, and Ukraine is the world’s third largest exporter of corn and fourth largest exporter of wheat. What happens next is anyone’s guess as well as how effective sanctions against Russia will be. 

Meanwhile, U.S. milk production dropped for the third month in a row from a year ago. The USDA’s latest Milk Production report shows preliminary January output at 19.05 billion pounds, down 1.6 percent from January 2021, steepest year over year decline since March 2004, when there was a shortage of recombinant bovine somatotropin, according to Dairy and Food Market Analyst editor, Matt Gould, in the Feb. 28 ‘Dairy Radio Now’ broadcast.

Output in the top 24 producing states totaled 18.2 billion pounds, down 1.4 percent. Revisions lowered the original 50-state December estimate by 35 million pounds, now put at 18.8 billion pounds, down 0.3 percent from a year ago.

Gould blamed high feed costs, supply chain problems, and perhaps weather for the 1.6 percent drop and said it was “certainly bullish.” He added that the Russian invasion will have serious implications for agriculture. For one, feed costs are skyrocketing, which raises U.S. milk production costs.

Class III futures moved higher but backed off some. February was trading late Friday morning at $20.90; March, $21.96; with a peak of $22.35 in April.

Milk output globally is tighter than anyone expected and it isn’t any better down under either, according to StoneX. Dairy Companies Association of New Zealand said January output was down 6.1 percent (down 6.1 percent on a milk-solids basis). StoneX expected it to be down 5.7 percent. The decline puts their season-to-date production down 3.8 percent so far.

“This marked six consecutive months of lower than forecasted production,” said StoneX. “Pasture growth index levels have been running below year-ago and five-year averages for the last few months, but recently pasture levels surpassed the five-year average as weather has begun to improve. With poor production through the first two thirds of the season we have moved our full season forecast down to a 3.8 percent decline, but we see an easy path toward a 4 percent decline,” said StoneX.

Dairy cow culling in January was down from December and from a year ago, according to USDA’s latest Livestock Slaughter report. An estimated 260,800 head were sent to slaughter under federal inspection, down 7,000 from December and 16,500 head or 6.0 percent below January 2021.

n the week ending Feb. 12, 70,000 dairy cows were sent to slaughter, up 7,100 from the previous week, and 3,500 head or 5.3 percent above a year ago.

U.S. butter stocks grew in January but at a slower than normal rate and were well below those a year ago, according to the USDA’s latest Cold Storage report. The Feb. 22 Daily Dairy Report said that both butter and cheese inventories grew by less than-typical margins in January.

The Jan. 31 butter inventory stood at 221.3 million pounds, up 22.3 million pounds or 11.2 percent from December, reversing sixth months of declines from the previous month, but were down 110.6 million pounds or 33.3 percent below those in January 2021, fourth consecutive month to fall short of a year ago.

American type cheese fell 4.1 million pounds or 0.5 percent from December’s level, which was revised down 3.4 million pounds, but was 29.7 million pounds or 3.7 percent above a year ago.

The “other” cheese category grew to 583.2 million pounds, up 6.4 million or 1.1 percent from December, and 5.4 million pounds or 0.9 percent above a year ago.

The total cheese inventory inched up to 1.445 billion pounds, up 3.9 million pounds or 0.3 percent from December, setting a new all-time high for total stocks, and were 37.3 million pounds or 2.6 percent above a year ago.

Driven by bullish Milk Production and Cold Storage reports and perhaps the invasion, cash dairy prices in the President’s Day Holiday shortened week moved higher, then slipped back. The Cheddar blocks climbed to $2.0175 per pound Thursday but closed Friday at $1.9450, down 4.25 cents on the week, while 32.75 cents above a year ago.

The barrels got to $1.9550 Tuesday but finished at $1.90, down 3.50 cents on the week, 48 cents above a year ago, and 4.50 cents below the blocks. There were four sales of block reported on the week at the CME and six of barrel.

Reports of port congestion have been a broken record, however the Feb. 18 Dairy and Food Market Analyst said, while things are improving, there remains “significant severe port problems in the West. While the number of ships waiting to unload has decreased to levels comparable with October, we are nowhere near pre-pandemic levels (with no delays). There is also a waiting line at every major port in the East.”

On a happier note, the DFMA also reported that “Foodservice sales in the U.S. are surging with the end of mask mandates. In the latest seven-day period, restaurant firm ‘OpenTable’ reported total restaurant traffic was up 1.4 percent versus pre-pandemic levels, which was the best weekly performance since September and a stark improvement from early January when restaurant traffic decreased by 30 percent.”

Speaking of the ports, the International Dairy Foods Association (IDFA), the Port of Los Angeles, and CMA CGM, a world shipping and logistics firm, stated in a joint press release that they are “working together to prioritize exports of U.S. dairy products and report significant progress moving cargo to Southeast Asia, South America, and other export destinations.”

In January, the groups formed the Dairy Exports Working Group to identify and address supply chain issues hampering U.S. dairy product exports. Ongoing discussions, planning and problem-solving among the organizations have yielded breakthroughs that could lead to long-term solutions for U.S. dairy exports, including moving cargo from the interior of the U.S. to the West Coast, the press release stated.

Dairy Market News reported that Midwest cheese plants continue to undergo operational updates and maintenance, which resulted in time away from cheese production. Plants are performing updates now because labor shortages and higher production costs have yet to cease. Cheese inventories are balanced to available and customer interest is steady. Plant managers said orders are more analogous to pre-COVID years. Spot milk is remaining somewhat available, primarily due to plant maintenance downtime, according to DMN.

Western cheesemakers said that export demand is strong as loads are being sold at lower prices than those from other countries, with continued notable interest from Asian markets. Domestic cheese interest is “more muted,” said DMN, as retail demand is steady to lower. In some parts of the West, warmer weather and loosening COVID restrictions have led to an uptick in food service demand. A shortage of truck drivers was causing delays, while port congestion is further delaying exports. Spot cheese inventories are unchanged. Cheese production is steady though some plants say labor shortages and delayed deliveries of production supplies continue to cause them to run below capacity.