Overview
Bright spots in the dairy outlook are harder to find than usual at the moment. As in 2015–2019, butter is acting as the pole holding up the dairy price tent, having found a firm floor at around $2.40/lb, as certified by the current futures. This is happening in spite of what could be described as a case of raging inflation, which peaked at a 31.4 percent annual rate last November, but is now down to just 3.1 percent in May.
Most dairy products are unwinding from their peak inflation rates of 2022, although that trend is not yet translating into correspondingly strong wholesale prices; even so, domestic commercial use of milk in all dairy products is recovering from last year’s inflation, and growing by more than 2 percent by all milk equivalent measures. Butter and American-type cheese domestic use is growing again, by at least as much as their production is up.
Commercial Use of Dairy Products
Fluid sales took a large drop in April, bringing down their February–April annual change to -3.5 percent. Domestic yogurt use has turned up this year after spending most of last year below the pandemic-boosted sales of the year before. Domestic butter use was almost 13 percent higher than a year earlier during February–April, after it also spent much of 2022 down year-over-year. U.S. consumption of other than American-type cheese was flat during this period, reflecting stagnant food service use by inflation-stressed consumers. Aggregate use of milk in all dairy products was up more than 2 percent from a year earlier by all milk equivalent measures.
U.S. Dairy Trade
Weakness in 2023 U.S. dairy exports has extended beyond the usual first month or two, with February–April exports down year-over-year for most of the major product categories. Annual declines were well into the double-digit percentages for American-type cheese and fat-based products.
Butter and casein imports were up significantly from a year ago during the period, but were down for milk protein concentrate and flat for cheese.
Milk Production
The current period of increasing milk production continues to be anemic by various measures, relative to historic experience. continued on page 2
For example, April was the seventh consecutive month during which U.S. milk cow numbers were meaningfully higher than a year earlier. By the seventh month of the eight previous such herd expansion events, the U.S. dairy herd was between 45,000 and 101,000 cows larger than a year earlier, with an average of 74,000. This April, the U.S. herd was up by only 26,000 cows from April 2022 and by just 13,000 cows in May. In a similar vein average production per cow in April was up by only 0.015 percent from a year earlier, while by month seven in the prior expansion episodes, per cow production was up over the prior year by between 1.4 percent 4 percent, with an average of 2.4 percent. The comparable numbers for total milk production were 0.4 percent this April, while the range in earlier episodes was 2.0 percent to 4.6 percent, averaging 3.2 percent.
These trends clearly indicate strong headwinds blowing against the current spurt of milk production growth. Milk
solids production growth again outpaced liquid milk production growth by 0.3 percent during February–April.
Dairy Products
Production of mozzarella, and Italian-type cheese overall, fell below a year earlier February–April, likely reflecting weaker food service orders. Increased American-type cheese, butter and whey protein concentrate production was matched or exceeded by greater domestic commercial use during the period, although exports of each were lower. Reduced production of skim milk powder, a mostly export-focused product, reflected weaker foreign demand.
Dairy Product Inventories
March-ending inventories of butter and other cheese were revised upward in the USDA Cold Storage report for April. End-of-March butter reported in storage saw a particularly striking revision, rising from 293 to 309 million pounds.
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Dairy Product Inventories from page 2
April-ending stocks of butter and American-type cheese were up from their revised March levels, but other cheese stocks were lower in April. March-ending manufacturers’ stocks of dry skim milk were revised down and then dropped further in April.
Dairy Product and Federal Order Class Prices
The barrel-driven modest price rally in monthly cheddar cheese prices from February through April collapsed in May, taking Class III prices and the futures markets’ expectations
of near-term milk prices and margins down with them. Blocks and barrels each lost over 20 cents a pound over the month, and Class III lost $2.42/cwt. Luckily, Class IV prices held up, gaining a modest $0.15/cwt, buoyed up by stable to higher prices for nonfat dry milk and butter. There were very large negative numbers for the year-over-year changes in both product and class prices in May. May retail prices were lower than a year ago for fluid milk, as dairy products’ recent bout with significant retail price inflation is unwinding just as quickly as it came on a little more than a year ago. Year-over-year retail price increases for the major dairy product groups are now well below the
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6.6 percent rate for all food and beverages, except for frozen dairy products, and even slightly below the 4.0 percent overall inflation rate.
Milk and Feed Prices
The April Dairy Margin Coverage (DMC) margin dropped by $0.25/cwt from a month earlier to $5.84/cwt. The last time the margin was below $6 was August 2021. The April all-milk
price was $20.70/cwt, down $0.40/cwt from March, while the DMC feed price was down for the month by $0.15/cwt. On a milk equivalent basis, soybean meal prices were $0.20/cwt lower in April from a month earlier, while corn and premium alfalfa hay prices together were up by $0.05/cwt.
Looking Ahead
In its June World Agricultural Supply and Demand Estimates (WASDE) report, USDA continued to modestly reduce its estimate of calendar year 2023 milk production, to 0.9 percent over 2022, and maintained its 2024 forecast at 1.1 percent over 2023. Both estimates were slightly below the Department’s corresponding estimates of total commercial use growth. But the Department’s implicit forecast of tightening supplydemand balances did not deter it from further dropping its
milk price forecasts this month. It’s now projecting 2023 average milk prices at $19.95/cwt, while the dairy futures were anticipating $20.60/cwt. at the same time. Its June forecast of 2024 milk prices was even lower, at $19.65/cwt, while the dairy futures were more optimistic, at $21.10/cwt. It is sobering to imagine the effect on dairy producers of two years with milk prices averaging below $20/cwt, with DMC feed costs projected between $14/cwt and $15/cwt.
The mid-June dairy and grain futures, and the DMC Decision Tool on the USDA website show a further deterioration in the DMC margin outlook. They now anticipate the margin dipping down closer to $4/cwt during early summer, and not rebounding above $9.50/cwt until early in 2024. Lows near $4/cwt would imply there will likely be some not insignificant payments under Tier 2 coverage this year, for the first time in a while.
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.