The “Mielke” Market Weekly

Midwest cheesemakers report steady production

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The U.S. Department of Agriculture again lowered its milk production forecasts for 2023 and 2024 in the latest World Agriculture Supply and Demand Estimates report. The 2023 forecast was reduced due to slower expected growth in milk per cow. Production in 2024 was lowered due to lower milk cow numbers and reduced milk per cow.

2023 production and marketings were estimated at 226.9 and 225.9 billion pounds, respectively, down 200 million pounds on both from a month ago. If realized, both would be up 400 million pounds, or 0.2%, from 2022.

2024 production and marketings were projected at 229.0 and 228.0 billion pounds, respectively, down 1 million pounds on production and 1.1 million pounds lower on marketings. If realized, 2024 production would be up 2.1 billion pounds, or 0.9%, from 2023.

The fat basis import forecast for 2023 was raised due to higher imports of cheese. Skim solids imports were lowered due to fewer shipments of milk protein products. The fat basis export forecast was lowered due to lower butter exports. The skim-solids export forecast was raised due to higher whey product shipments which more than offset the lower expected non-fat/skim powder.

The 2024 import forecast was raised on a fat basis but lowered on a skim-solids basis. Fat basis exports were lowered for 2024 on lower expected butter shipments, while a higher skim-solids basis forecast reflects higher nonfat/skim powder and whey product exports.

Cheese and butter price forecasts for 2023 were lowered while the nonfat dry milk price was raised. Whey was unchanged.

The Class III and Class IV milk price forecasts were lowered due to lower expected cheese and butter prices. The 2024 cheese price forecast was lowered, while butter, nonfat dry milk and whey prices were raised. The Class III price forecast was lowered due to lower cheese prices. The Class IV price forecast was raised due to higher butter and nonfat dry milk price forecasts, according to WASDE.

The Class III price is expected to average $17.05 per hundredweight in 2023, down a nickel from last month’s estimate, and compares to $21.96 in 2022 and $17.08 in 2021. The 2024 average was estimated at $16.85, down 85 cents from last month’s estimate.

The 2023 Class IV was projected to average $19.10, down a dime from a month ago, and compares to $24.47 in 2022 and $16.09 in 2021. The 2024 average was projected at $18.90, up a nickel from last month’s estimate.

Looking at the crop side of the report, the U.S. corn outlook is for higher exports and lower ending stocks. Exports were raised 25 million bushels to 2.1 billion, reflecting the pace of sales and shipments to date. Corn ending stocks were reduced 25 million bushels to 2.1 billion. The season-average corn price was unchanged at $4.85 per bushel.  

Soybean supply and use projections were unchanged from last month, but supplies will likely remain tight, the USDA said. The season-average soybean price forecast was unchanged at $12.90 per bushel. Soybean meal was increased $10 to $390 per short ton, and the soybean oil price was forecast at 57 cents per pound, down 4 cents.  

Checking Chicago as traders anticipated Monday’s November milk production report, CME block cheddar closed the third Friday of December at $1.52 per pound, down 6 cents on the week, lowest since Dec. 1 and 45.75 cents below a year ago when it dropped almost 12 cents.

The barrels finished Friday at $1.45, 10.50 cents lower, 29 cents below a year ago when they plunged 21 cents and are 7 cents below the blocks. CME sales totaled nine loads of block on the week and 27 of barrel, with 11 on Friday alone.

Midwest cheesemakers tell Dairy Market News that milk is available, allowing them to run steady production. Spot milk prices ranged from $4-under to $1-over Class. Volumes are not excessive, but some sellers are offering milk at below Class ahead of the holidays. Demand is seasonally steady for American and Italian type cheeses. Softening demand has contributed to a steeper decline in CME prices for barrels than blocks, according to DMN.

Western retail cheese demand remains steady while food service remains steady to moderate. Price competitiveness of domestic cheese has improved but has not manifested into strengthening moderate export demand.

“Supply remains constrained with milk production running weak,” StoneX said. “U.S. production was much weaker than forecast in October, down 0.5%. The biggest surprise was production per cow, which is below trend by a record amount. Milk production, and production per cow, remain well below a year ago in California, and there isn’t any sign that they are improving quickly, so that will be a drag on total U.S. production even if the rest of the country does improve in coming months.” 

That said, schools are closing for the holidays and thus pushing more milk into manufacturing.

Milk production also slowed more than expected in Europe during September and October, StoneX said, and should remain at or below year ago levels through the first quarter. Production in Argentina is also down.

“U.S. Cheese inventory in November was up 1.3%, and the market was about 18 cents lower than you would expect with inventories up that much,” StoneX said. “Either inventories for November are bigger than expected or the market was really undervalued in November. To fully justify a $1.60 block price for December, inventory would need to be up about 3.3%. It is possible that inventory isn’t up that much and the market is still just running weak relative to the fundamentals for other commercial reasons. Whichever way you cut it: At present, it seems that U.S. spot cheese prices are undervalued.”

CME butter fell to $2.46 per pound Wednesday, lowest since June 30, but it closed Friday at $2.49, down 18 cents on the week, ending three weeks of gain, and is 36.50 cents below a year ago. There were eight loads sold on the week.

Central cream is “looser,” DMN said, and butter makers say it’s plentiful. Some anticipate heavy Class I milk orders will largely slow down as schools close for the holidays. Churning and micro-fixing will keep pace with much of the past month. Plants report strong to steady production, DMN said.

Western cream volumes have improved along with strengthened average butterfat levels in milk. Butter makers anticipate more milk clearing to Class IV in coming weeks as bottling demand declines with breaks at educational institutions. Although this has strengthened bulk butter production schedules, bulk butter availability is on the tight end, DMN said. Domestic demand remains strong to steady while demand from international buyers remains moderate.

Grade A nonfat dry milk closed Friday at $1.16 per pound, a half-cent lower on the week and 19 cents below a year ago, on six sales put on the board.

Dry whey saw a Friday close at 39.50 cents per pound, unchanged on the week but 6 cents below a year ago, with two sales for the week at the CME.

The Federal Reserve will leave its benchmark interest rate unchanged. Meanwhile, re-tail dairy prices continue to improve for consumers, particularly for cheese. The U.S. retail price of cheddar in November was $5.65 per pound, down 20 cents from October and down 4.8% from a year ago. Butter was down 3 cents from October and 2.6% below last year.

Checking the demand side of the equation, the USDA’s latest data shows cheese utilization is sputtering. October usage totaled 1.2 billion pounds, up 0.8% from October 2022, following two months of loss, and year-to-date was up just 0.1%.

The increase was led by strong domestic consumption, according to HighGround Dairy economist Betty Berning in the Dec. 18 “Dairy Radio Now” broadcast, up 1.1%, and led by other-than-American-type cheese.

“Cheese started 2023 with nice year-on-year growth in January and February, but year-to-date comparisons fell in every month from March to September,” HGD said. 

Exports totaled 78.7 million pounds, down 4% from 2022.

Butter utilization totaled 199.8 million pounds, down 0.5% from a year ago but up 8.8% from September and up 4.6% YTD. Domestic usage, at 195.5 million pounds, was up 5.6% from a year ago, while exports, at just 4.3 million, were down 72.6%, the lowest since November 2020, according to HGD.

Nonfat dry milk-skim milk powder, at 185.7 million pounds, was down 15.2% from a year ago. 

“October was the third consecutive month of a double-digit year-over-year decrease, as feeble international demand continues to weigh on the commodity,” HGD said. 

Exports were down 11.2%, and domestic disappearance was down 37.5%, the lowest mark for the month since 2020.

Dry whey utilization was up from the prior year despite losses in the export market, which Berning blamed on African swine fever in Asian hog herds and overall poor margins overseas in the hog sector.

“Whey protein concentrate maintained its strength, increasing year-over-year for the ninth consecutive month, with disappearance at its highest value since 2018,” HGD said, as domestic and export consumption grew. 

Whey protein concentrate usage, at 55.5 million pounds, was up 33.7%, according to Berning.

Cooperatives Working Together member cooperatives accepted 13 offers of export assistance that helped capture sales of 1.2 million pounds of American-type cheese and 487,000 pounds of cream cheese.

The product is going to customers in Asia and Middle East-North Africa through February and brings CWT’s 2023 exports to 47.2 million pounds of American-type cheeses, 1.1 million pounds of butter, 26,000 pounds of anhydrous milkfat, 39 million pounds of whole milk powder and 8.8 million pounds of cream cheese. The products are going to 24 countries and are the equivalent of 816 million pounds of milk on a milkfat basis, according to the CWT.

The Dec. 12 GDT Pulse saw 4.9 million pounds, or 99% of the total 4.96 million pounds of product on offer, sold. The same amount of instant whole milk powder and 38,660 pounds less of regular whole milk powder was sold versus the last Pulse. This auction, 5.3 million pounds more of skim milk powder on offer was sold.

Dairy cow culling continues to slow. The week ending Dec. 2 saw 55,200 cows go to slaughter, down 5,600, or 9.2%, from a year ago. Year-to-date, 2,863,100 head have been retired from the dairy business, up 54,000, or 1.9%, from a year ago.

In politics, the House of Representatives, by a 330 to 99 vote, passed the Whole Milk for Healthy Kids Act, a bill that would allow for whole and reduced-fat varieties of milk to once again be served in school cafeterias.

Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association, praised the measure and called for swift action on the companion bill in the Senate “so that schools can once again provide children with a wide variety of milk options that deliver essential nutrients and meet their individual needs, whether that be whole or 2%, low-fat, or lactose-free milk.”

National Milk Producers Federation President and CEO Jim Mulhern also gave the measure a thumbs up.

“Milk’s unique nutritional profile gives it an unparalleled role in providing kids the nutrients they need,” Mulhern said. “Expanding the milk schools can choose to serve to include 2% and whole is a common-sense solution that will help ensure kids have access to the same healthful milk options they drink at home.”

U.S. milk production is steady to stronger, according to DMN’s weekly update, and starting the upward climb along the seasonal milk production curve. Handlers indicate that component levels in milk output are increasing. Class I demand, along with Classes II, III and IV, was strong to steady as educational institutions were back in session before the Christmas and New Year’s holiday breaks arrive.

Those increasing component levels in milk were reported in the Dec. 13 Daily Dairy Report.

“For years, high butter prices have encouraged dairy producers to make more butterfat, and they have responded,” the Daily Dairy Report said. “Producers have filled stalls with more Jerseys and fewer Holsteins, used selective breeding and genomic testing, and tweaked feed rations to boost butterfat tests.

“These changes have improved productivity and lifted other components, albeit at a slower pace. U.S. butterfat output in the first 10 months of 2023 was up 7.2% compared to January through October 2020. Over the same period, milk output climbed just 2.2%. Protein out-put jumped 5.2%, and nonfat solids production grew 4.1%.”

The Daily Dairy Report said that the increased component levels help make the case for changes in milk pricing formulas, part of the ongoing hearings to reform the Federal Milk Marketing Order program.

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