December 27, 2021 at 4:45 p.m.
Strong cheese exports overcome weaker domestic market
American-style cheese disappearance, at 458.8 million pounds, was down 4.1% from a year ago and down for the second consecutive month. Fuess warned that, if the domestic disappearance decline persists, we could see prices drop after holiday demand subsides.
Butter disappearance totaled 209.8 million pounds, down 1.3% in total and down 3.6% domestically, first year over year decline since June following impressive gains in third quarter. Exports were up 91.4% but only totaled 9.8 million pounds.
Fuess speculated that holiday butter demand may have been front loaded in August and September as buying appeared earlier than normal. He’s says that’s not overly concerning because butter output is weaker and inventories are declining at a pretty quick pace.
Interestingly, the Dec. 15 Daily Dairy Report pointed out that Canada is the top market for U.S. butter and milkfat, accounting for more than 30% of U.S. exports in the past five years and 28% so far in 2021. Canada is also the primary market for U.S. cream. In the first 10 months of 2021, three out of every four loads was sent to Canada, according to the DDR, and through October, Canada imported a record-breaking 43 million pounds of butter, 30% more than in 2020.
Recent heavy rains and flooding in the lower mainland of British Columbia may have resulted in larger imports in November and December. The DDR says “The BC Dairy Association reported that the province was able to fill fluid milk orders but industrial processing dropped 20% in the weeks after the flooding.
Nonfat dry milk-skim milk powder disappearance hit 227.6 million pounds in October, up 9.3%, though exports were down 12.3%. The increase follows two consecutive months of weakness, says HGD, and the strength was driven by domestic demand. Exports year to date however are up 10.6% from a year ago and Fuess said we’re probably looking at another record year for powder exports.
Total dry whey disappearance amounted to 83.4 million pounds, down 3.0% from a year ago. Domestic demand was down for the sixth consecutive month, driven by lower exports which were down 21.5%, as China has imported less.
HGD says whey’s domestic weakness is “likely driven by weaker supply and tight product availability. While demand is firm and the price recently hit a record high at the CME, disappearance has struggled with limited product to sell.”
Meanwhile, the big topic of the recent American Dairy Products Institute’s Dairy Ingredients Seminar in Santa Barbara, California was inflation, according to the Dec. 3 Dairy and Food Market Analyst. Editor and analyst Matt Gould wrote that attendance was high and so were spirits, as most attendees were bullish.
However, “Virtually everyone is experiencing significant cost pressure and, looking into 2022, will raise prices and overages on their customers,” wrote Gould. “The million-dollar question: How much of a cost increase can we pass on? Answers that we heard ranged from 5% to 15%.”
Dairy product prices are soaring in Europe, according to the DFMA. European 82%-fat butter traded above $3.00 per pound, the week of Dec. 6, and Cheddar cheese traded between $2.20 and $2.30 per pound.
European milk production is crashing, the DFMA reported, and the latest period saw output down 3.7% in the big-three milk producing regions of Germany, France, and the United Kingdom.
Things aren’t much better “down-under.” DMN reports that Australian milk output through October, the fourth month of the season, continued to be disappointingly low. “October is the usual high point of seasonal milk production. While there are more seasonal months to follow than have occurred so far, production will be trending lower, so making up for the past will be a challenge in the future.”
Season to date, the DDR says Australian milk production is down 2.9%, compared to July through October 2020.
“New Zealand milk production through October is also termed disappointing,” says DMN. “While hopes are for a recovery, the typical trend of lower production month after month through the rest of the season will require a decent rebound to overcome the deficit so far. Early observations of the November results are said to suggest that when official results are released, November will offer little help.”
The New Zealand dairy herd declined for the third consecutive year during the 2020/21 season, according to the DFMA, after finishing last season at 4.9 million head, 1.8% lower than the count in 2018 and 0.4% smaller than a year earlier. The number of acres in dairy production shrank to a total of 4.2 million, which was an eight-year low and down 1.0% from a year earlier,” the DFMA stated.
Back on the home front; CME dairy prices were mixed the week before Christmas. The markets didn’t have a lot to feed on as regularly monitored USDA reports were few, however traders were anticipating Monday’s November Milk Production report. The last Global Dairy Trade of 2021 is Tuesday and the November Cold Storage report is released Wednesday.
The Cheddar blocks appeared to make an attempt at $2 per pound and got to $1.9475 per pound on Wednesday, highest since Jan. 12, 2021, but closed Friday at $1.8875, 2.25 cents higher on the week and 27 cents above a year ago.
The barrels didn’t fare so well, closing at $1.63, down 5 cents on the week, ending four consecutive weeks of gain, 15.50 cents above a year ago, and 25.75 cents below the blocks. CME sales included 9 cars of block and 38 of barrel.
Retail cheese orders are very busy, according to several Midwest cheesemakers. Curd and barrel producers, particularly, told Dairy Market News that demand is strong, supplies are limited, and do not foresee a change in upcoming weeks. Spot milk pricing mirrored the previous week, at Class III to slightly over. That said, some plants are already getting offered milk for the upcoming holiday weeks at slight discounts. Cheese market tones remain on similar ground to the past few weeks. It’s not a necessarily bearish sentiment, says DMN, but the block-over-barrel price gap “keeps the bulls corralled.”
Cheese demand is steady in the west in retail, food service, and internationally. Port congestion continues to cause delays as does the continuing shortage of truck drivers. Block inventories have been tight in recent weeks and, reportedly, tightening. Spot availability of barrels was unchanged. Cheese producers are running busy schedules in the region, as milk continues to be available.
Butter, after jumping 12 cents the previous week, suffered a melt-down Monday, dropping 6.25 cents, but rallied to close Friday at $2.0925 per pound, down 3 cents on the week but 63.75 cents above a year ago, on 42 sales on the week.
Bulk butter remains notably tight in the Midwest, according to DMN, and producers say customer interest is very active. Cream is available, at least from Western suppliers, however freight costs and general limitations are tribulations for plant management. Cream, regionally, was not as available as the previous week but demand is expected to trend lower Christmas Week and the final week of 2021. Butter market tones continued to shift bullishly on tight quantities and demand health, according to DMN.
Cream is available in the west and some contacts report sending loads to other regions. Demand is seasonally strong, though some contacts believe demand will decline in the coming weeks. Demand for butter is steady across retail and food service markets. International demand is strong though some contacts say export sales are being limited by increased delivery times due to port congestion. Spot butter inventories are limited and unsalted butter is especially tight, and that is what is exported. A shortage of truck drivers continues to cause delays to deliveries of cream and production supplies and labor shortages have caused some butter producers to reduce output, according to DMN.
Grade A nonfat dry milk saw daily gains and finished Friday at $1.6775 per pound, up 5.25 cents on the week, highest since July 18, 2014, and 52.75 cents above a year ago. There were 8 carloads that found new homes on the week. In case you’re wondering, the CME record was $2.16 per pound on Dec. 5, 2007.
CME dry whey held at its record high 71.25 cents per pound for 5 consecutive sessions, but jumped 1.75 cents Friday on a sale to set a new record 73 cents per pound, 27.50 cents above a year ago.
The Agriculture Department’s latest Livestock, Dairy, and Poultry Outlook, issued Dec. 15, mirrored milk price and production projections in the Dec. 9 World Agricultural Supply and Demand Estimates report.
The Outlook reported that the number of U.S. milk cows has continued to decline each month since June 2021. Year-over-year growth in milk supply was low in August and September and fell below the previous year in October.
The number of dairy cows is expected to continue declining in first and second quarter 2022, according to the Outlook. Accordingly, the annual 2022 forecast was lowered to 9.385 million head, 10,000 head below the last month’s forecast and 65,000 less than the forecast for 2021. The 2022 forecast for milk per cow is 24,265 pounds, 15 pounds lower than last month’s forecast. The projection for 2022 milk production was lowered to 227.7 billion pounds, 0.4 billion pounds below last month’s forecast but 1.5 billion pounds above 2021.
From the week ending June 12, 2021, to the week ending on November 6, federally inspected dairy cow slaughter has been above the corresponding weeks in 2020.
For the week ending November 13, it was slightly below the corresponding week of the previous year, and for the following weeks, it was slightly above the corresponding weeks. In most recent weeks, federally inspected milk cow slaughter has been below corresponding weeks in 2019.
In the week ending Dec. 4, 63,800 dairy cows were sent to slaughter, up 15,600 from the previous week, but 2,100 head or 3.2% below a year ago.
Cull prices continue to be strong, says StoneX, but slaughter levels are slowing, perhaps “indicating that farmer’s aren’t taking advantage of the opportunity, which could indicate that the dairy herd contraction is beginning to slow.”
“Bull or bear, producers should not overlook good price levels especially as it related to insurance,” StoneX warns. “Whether you believe in $25 milk or not, insurance in 2022 has likely never been cheaper.” “Producers should be looking at Dairy Revenue Protection and Livestock Gross Margin dairy insurance.”
One more story on demand; U.S. fluid milk sales unfortunately offer no holiday cheer to the dairy industry. The USDA’s latest data shows October sales of packaged fluid products at 3.8 billion pounds, down 5.2% from Oct. 2020.
Conventional product sales totaled 3.5 billion pounds, down 5.2% from a year ago. Organic products, at 224 million pounds, were down 5.4%, and represented 6.0% of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, down 3.9% from a year ago, with year to date consumption down 6.3%. Whole milk represented 33.1% of total milk sales for the ten month period.
Skim milk sales, at 205 million pounds, were down 11.6% from a year ago and down 13.1% year to date.
Total packaged fluid milk sales for the ten months amounted to 36.6 billion pounds, down 4.5% from 2020. Conventional product sales totaled 34.3 billion pounds, down 4.7%. Organic products, at 2.3 billion, were down 2.6%, and represented 6.4% of total milk sales for the period. The figures represent consumption in Federal milk marketing order areas, which account for approximately 92% of total fluid milk sales in the U.S.
In politics, The National Milk Producers Federation thanked Wisconsin Senator Tammy Baldwin for her “continued advocacy for accurate labeling and public health” in her questions for Dr. Robert Califf during this week’s hearing on his nomination to be commissioner of the U.S. Food and Drug Administration.
“Labeling integrity needs to be a top-of-mind issue for Dr. Califf as he moves toward his second stint as FDA commissioner. The ground has shifted since his previous tenure in the Obama administration, both as dairy imitators proliferate and the abuse of lax labeling enforcement creates nutritional confusion for consumers,” said NMPF president Jim Mulhern. Califf said he would make the issue a priority should he be confirmed.
NMPF and the U.S. Dairy Export Council praised a letter from the USDA and the Department of Transportation urging the world’s leading ocean carriers to reform their practices to provide better service to U.S. exporters. The letter specifically referenced the need to expand use of available West Coast terminal capacity and “restore reciprocal treatment of imports and exports inherent in trade.”
They urged the Administration to “call out profiteering by foreign-owned carriers at the expense of dairy exporters and take steps to address the supply chain crisis that’s cost the dairy industry $1.3 billion the first three quarters of 2021.”
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