Overview
Looking for bright spots in this year’s dairy outlook is increasingly challenging. Butter continues to do outsized work in supporting milk prices, holding firm at around $2.40/lb, while other key product prices sag. The butterfat value of producer milk checks has averaged an estimated 58 percent of total milk checks since last August, compared to a more normal 40 percent during 2020–2021.
Retail price inflation has dropped dramatically this year for all dairy products tracked by the Bureau of Labor Statistics (BLS), with the Consumer Price Index (CPI) for all dairy products just 2.7 percent higher in June than a year earlier, a potential boon to demand. The overall Consumer Price Index measuring general inflation was 3 percent higher in June than a year ago. Domestic commercial use of milk in all products, meanwhile, is up over a year ago by more than 3 percent on a total solids milk equivalent basis, according to USDA.
Commercial Use of Dairy Products
Domestic butter use continues its strong recovery as last year’s extreme annual retail price inflation has subsided, but its running three-month consumption growth rate has dropped back into the single-digit percentages. Total domestic cheese use growth has gone flat and is further polarized between American and other varieties, with the former notching a three-month annual growth of 3.4 percent while the latter, heavily driven by pizza restaurant business, is down 1.8 percent, evidence of continued weakness in food service dining by inflation-battered consumers. Still, domestic use of milk in all products is up over a year ago by over 3 percent, on a total solids milk equivalent basis, during March–April.
U.S. Dairy Trade
U.S. dairy exports retreated from their collective record levels of last year in all listed categories during March–May, with most fat and cheese annual changes showing well into negative double-digit percentages. Annual losses in dry skim ingredient product exports were much more modest, in the low single-digits. Total losses were equivalent to almost 2 percent of domestic milk solids production.
U.S. dairy imports were also down during March–May in the major categories as well as overall volume, except for butter.
2022 2022–2023 Change Percent Change
Milk Production
The annual growth rate of U.S. milk production ticked up in May, to 0.6 percent, after falling steadily from 1.4 percent in January to April’s 0.4 percent. This was driven by a rebound, to nearly half a percent, in the annual increase in national milk per cow following two months of nearly flat change. Growth in national cow numbers has dwindled down so far this year to nearly flat. In addition, the May uptick in production was thinly generated, in that only seven of the 24 states that report monthly milk production showed a similar gain, either an increase in the rate of growth or a decrease in the rate of decline. However, those seven included the three largest milk producing states, which represented 40 percent of total U.S. milk production in May.
Total milk solids production rose 1 percent from a year earlier during March-May, twice the rate of liquid milk production growth during the period and providing an additional indication
of why such a seemingly small increase in milk production, as has been occurring recently, can have such a devastating impact on milk prices.
Dairy Products
Dairy product production data indicate that additional milk production not needed for immediate consumption is largely being manufactured into cheddar cheese, whey protein concentrate, and butter. Nonfat dry milk and dry whey production was stable to slightly higher compared to a year earlier during March–May.
Dairy Product Inventories
Production gains in butter and American-type cheese showed up in higher inventories of these products in cold storage at the end of May. Manufacturers’ stocks of nonfat dry milk and dry whey were stable to lower at that time.
Dairy Product and Federal Order Class Prices
Increased production and stocks of Cheddar cheese continue to take a toll on monthly Cheddar prices, which were 36 percent lower in June than a year earlier. Butter experienced similar increases in production and stocks but has had only a 16 percent fall in prices over those 12 months. And although nonfat dry milk and dry whey production and stocks have not increased measurably, their monthly prices are also down from a year earlier in June, by 33 percent and 48 percent, respectively. Over the same period, Class III prices were
almost 40 percent lower and Class IV prices were down by almost 30 percent.
The Bureau of Labor Statistics-reported U.S. average retail prices of fluid milk products and Cheddar cheese were lower in June than both a month and a year earlier. Average retail prices for processed cheese, butter and yogurt dropped in June from a month earlier.
Milk and Feed Prices
The May Dairy Margin Coverage (DMC) margin dropped by $1.01/cwt from April to $4.83/cwt, the first time it’s been
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below $5/cwt since margin protection became the basic federal safety net mechanism for dairy in 2014. Continued weakness in milk prices, coupled with much slower declines
in feed costs, have brought the margin down to record-low territory. Current futures prices indicate that a few more extreme lows are likely during the next couple of months before milk prices begin to recover in late summer.
Looking Ahead
USDA’s July World Agricultural Supply and Demand Estimates (WASDE) report continues to predict this year’s U.S. milk production will be 0.9 percent higher than 2022 and slightly lowered its calendar year 2024 production forecast to 1 percent over this year’s. USDA’s July estimate of this year’s average milk price dropped further to $19.55/cwt from June’s WASDE estimate. The CME-based forecast for 2023 average milk prices dropped a bit more sharply during the month, but remained above USDA’s at the time of the July report, at $20.05/cwt. USDA’s average price estimate for 2024 also fell in the July report, to $19.10/cwt, while the corresponding
CME-based futures forecast, though down slightly during the month, was considerably higher at $20.90/cwt. The markets effectively disbelieve that the milk price could stay in the low-to-mid $19/cwt range for two straight years, with feed prices expected to remain elevated.
The mid-July dairy and grain futures, and the DMC Decision Tool on the USDA website both anticipate the DMC margin will bottom out slightly below $4/cwt in July and then rebound fairly strongly toward $9.50/cwt during the remainder of the second half of the year, but not reaching that program benchmark until early 2024.
Peter Vitaliano National Milk Producers Federationpvitaliano@nmpf.org
www.nmpf.org
Dairy 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.