Overview
Slowing milk production, combined with a robust gain in demand, is supporting a buoyant outlook for U.S. milk prices in commodity markets.
U.S. milk production growth slowed to a crawl in July; meanwhile, total commercial use of milk in all products showed one its strongest gains of recent months. Increased domestic use more than offset a double-digit percentage drop in total export volume in July. This additional demand, combined with flat production, is drawing down stocks of the major dairy products. That may make July the year’s low for milk prices, according to dairy futures, as milk prices add more than four dollars per hundredweight during the following three months. Strong increases in cheese and Class III prices in August signal the start of this milk price recovery.
Commercial Use of Dairy Products
Despite unchanged milk production during the May–July period, gains in domestic use have lowered dairy inventories, even as exports also fall. Reduced exports have particularly contributed to increased domestic use of skim solids in all products, since U.S. dairy exports consist mostly of skim solids-containing ingredient products. Increased domestic use of butter and cheese was the main driver of growth in domestic milkfat use. Fluid milk use was down less than one percent from a year earlier during the period, due to a small annual increase in May.
U.S. Dairy Trade
Dairy exports continued to drop at mostly double-digit percentage rates during May–July, although the major
export category of dry skim milk, consisting of nonfat dry milk and protein-standardized skim milk powder, held steady. Production of skim milk powder, which is produced primarily for the export market, dropped during the period, but dry skim milk exports to Mexico, which uses both nonfat dry milk as well as skim milk powder, increased by more than this drop.
Low U.S. domestic dairy product prices during recent months, compared with a year earlier, has, as would be expected, resulted in lower U.S. dairy imports.
Milk Production
USDA reported that July milk production was almost threequarters of a percent below July production a year earlier. Two-thirds of this drop was due to lower production per cow continued on page 2
Milk Production from page
and one-third to lower cow numbers. For the May–July period, cow numbers, production per cow, and milk production were all basically unchanged from a year earlier. The July milk-production drop was driven heavily by significant reductions in production in California, Texas and New Mexico, which together accounted for more than one-quarter of all U.S. milk production in July. The USDA/NASS and USDA /ERS data on milk and milk solids production together indicate that U.S. dairy farmers produced a greater annual increase in milk solids during May–July than they did for liquid milk production, suggesting a potential downward revision in the latter.
Dairy Products
Total U.S. cheese production was again virtually unchanged from a year earlier during the May–July period, with Americantypes continuing to grow, while Italian-types continued to
decline. Skim milk powder production continued to drop, although dry skim milk exports were flat over last year during the period. Whey Protein Concentrate production was up almost 15 percent over a year earlier despite stable total cheese production.
Dairy Product Inventories
Stocks of most of the major dairy products were lower in July compared with the month earlier. Milk production dropped that month while commercial use increased, resulting in stock drawdowns. The tightening supply-demand balance bodes well for near-term milk and dairy product price recovery.
Dairy Product and Federal Order Class Prices
Monthly NDPSR cheese prices recovered between 30 and 40 cents a pound from July to August, and butter prices
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rose as well. The combination boosted Class III prices by $3.42/cwt during that time, but moved Class IV prices up by just $0.65/cwt. Nonfat dry milk and dry whey prices were little changed.
After their rather swift rise in 2022, retail prices for most dairy products have dropped from the peaks they reached between late that year and earlier this year and have fallen below their year-earlier levels for the past several months. This includes cheese, butter and all categories of fluid milk. By contrast, the aggregate measures of retail prices for all items, used to measure the general rate of consumer price
inflation, and for all food and beverages continued to rise in August, posting gains over their respective year-earlier levels of 3.7 percent and 4.5 percent that month.
Milk and Feed Prices
The July Dairy Margin Coverage (DMC) margin dropped $0.13/cwt from June to $3.52/cwt, the second time in a row the margin has been below $4/cwt since margin protection became the basic federal safety net mechanism for dairy in 2014. It will generate payments of $0.48/cwt payments for the free $4/cwt coverage level, and payments of $5.98/cwt for coverage the maximum $9.50/cwt Tier 1 coverage. The July all-milk price was $17.40/cwt, $0.50/cwt
lower than in June, while the DMC July feed cost was $0.37/cwt of milk lower than June’s. Lower corn and premium alfalfa hay prices were partially offset by higher soybean meal prices that month.
Looking Ahead
USDA has been steadily lowering its forecasts of 2023 U.S. milk production since April. It’s done the same with its 2024 production outlook since it began forecasting for next year in
Looking Ahead from page 4
May. The Department’s World Agricultural Supply and Demand (WASDE) September update projects 2023 production at 0.6 percent over 2022 and 2024 production at 1.3 percent over 2023. The September WASDE report raised the Department’s calendar-year 2023 average all-milk price forecast by $0.45/ cwt to $20.40/cwt and its 2024 price forecast by $0.95/cwt to $20.30/cwt.
USDA’s forecasts of the 2023 product, class and the U.S. all-milk prices have generally gotten much closer in September to what dairy futures markets have indicated than in previous months. The same is broadly true for USDA’s calendar-year 2024 price forecasts that month, but the department is still more bearish on next year’s prices than futures markets. Available forecasts continue to indicate the DMC margin will increase rapidly during the following three months and may reach about $10.00/cwt by the end of the year.
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.