Overview
Annual growth of total domestic use of milk in all dairy products turned positive during December–February, following several rolling three-month periods of falling use when retail dairy price inflation was peaking. That trend is fading as the Consumer Prices Indices for most dairy products have begun to fall, rapidly lowering their year-over-year CPI changes.
This resurgence in demand is coming at a challenging time for dairy margins. Milk production growth remains below 1 percent, and milk solids production growth was just two-tenths of a percent higher during the three-month period that ended in February. This, combined with the previous demand weakness, has sent wholesale dairy prices down considerably from their highs of last spring and summer. And that’s sent the Dairy Margin Coverage margin into the low $6/cwt territory, as feed costs have not followed milk prices down. Fewer than one in six of the monthly margins have been lower since 2020, when the current DMC feed cost formula began to use only premium alfalfa hay.
Commercial Use of Dairy Products
Annual growth of total domestic use of milk in all dairy products turned modestly positive during December–February, following several rolling three-month periods of falling use during the peak of retail price inflation affecting dairy products. This was driven in part by growth in use of most major dairy product categories, other than fluid milk and butter.
U.S. Dairy Trade
The pace of growth in U.S. butter, cheese and whey protein concentrate exports slowed during December–February.
Other key export categories, dry skim milk and dry whey maintained steady, though modest growth. The months around the turn of the calendar year are typically slower months for exports, and this year is no exception. However, the current turn-of-the-year slump was deeper a year ago, even as 2022 became the current record-holder for calendar year export volume and value.
The pace of butter imports into the United States picked up again during this period, while milk protein concentrate and casein imports remained strong.
Milk Production
Annual U.S. milk production growth dropped back to 0.8 percent in February, following a 1.3 percent increase in January, based on preliminary numbers from USDA. Current production growth so far has not exhibited the expansionary momentum that typically characterizes such episodes. The same slight downshift in expansion from January to February is also evident in the data from most of the monthly-reported larger milk-producing states. The drop in milk prices over the past several months would likely not have been as great in the face of this relatively modest production gain had it not been compounded by the softness in demand due to the recent retail dairy product price inflation, embedded within an overall inflationary environment. U.S. production of total milk solids was up by 1 percent in February.
Dairy Products
Total cheese production growth slowed during the December–February period, except for cheddar. Butter production growth
also slowed, while the pace of dry skim milk production picked up and whey product production continued below year-ago levels.
Dairy Product Inventories
Butter stocks in cold storage are rising seasonally but continue to generally maintain a slightly lower level than during the past couple of years. Stocks of all cheese have been relatively constant for the past several months, with a slight shift to lower American-type stock levels. This has likely contributed to cheese prices reaching what might be a bottom for this year. Manufacturers’ stocks of dry skim milk have been rising in recent months while dry whey stocks have been fairly steady.
Dairy Product and Federal Order Class Prices
The Class III price rose in March from a month earlier after falling steadily for the four prior months, driven by higher
barrel cheese and dry whey prices and a relatively steady butterfat price. Class IV prices, by contrast, extended their monthly drops to five straight in March, as nonfat dry milk production has increased and export growth has been moderate during the period.
Retail prices overall and food and beverage prices are still creeping up as measured by their respective Consumer Price Indices (CPIs), but at a slower rate than in earlier months. Price inflation in these items, as measured by the commonly reported year-over-year changes in their CPIs, has therefore been dropping, down to 5 percent in the case of overall
inflation. Retail price inflation for most dairy products, by contrast, has been dropping in the CPIs for the past few months, and has therefore been declining even faster as measured by annual CPI changes. For example, butter, which hit an annual high of 31.4 percent last December, was down to just 8.7 percent over a year ago in March, as its CPI has tumbled since maxing out in January.
Milk and Feed Prices
The Dairy Margin Coverage (DMC) program will pay $3.31/cwt for $9.50/cwt coverage in February, based on a margin of $6.19/cwt for the month. This was $4.70/cwt less than November’s margin just three months earlier. A milk price
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drop of $1.50/cwt from a month earlier, to $21.60/cwt, and a $0.25/cwt rise in the DMC feed cost formula combined to lower the February margin by $1.75/cwt from its January level.
Looking Ahead
Mid-April forecasts indicate that the monthly DMC margins are close to bottoming out for the year, at around $6.00/cwt in the next few months, followed by a slow rise that will not Producer
Looking Ahead from page 4
likely top $9.50/cwt until the fourth quarter. This year will return many times the cost of this very affordable means of managing margin risk.
In its World Agricultural Supply and Demand Estimates (WASDE) report for April, USDA is projected a 1 percent annual increase in milk production for calendar year 2023. The Department forecasts this will be matched by a similar
increase in total milk use, resulting from a 2.2 percent increase in total domestic milk use coupled with a 4.2 percent drop in total export volume.
The mid-April dairy futures indicated that butter and cheese prices had reached their low points for this year, but that nonfat dry milk and dry whey prices still had a bit further to fall. Together, they were indicating an average U.S. all-milk price of $21.35/cwt for 2023, while USDA raised its April WASDE 2023 estimate from a month earlier to $20.65/cwt.
Peter Vitaliano National Milk Producers Federation pvitaliano@nmpf.org www.nmpf.orgDairy Management Inc.™ and state, regional, and international organizations work together to drive demand for dairy products on behalf of America's dairy farmers, through the programs of the American Dairy Association ®, the National Dairy Council ®, and the U.S. Dairy Export Council ®
The National Milk Producers Federation (NMPF) is a farm commodity organization representing most of the dairy marketing cooperatives serving the U.S.