The “Mielke” Market Weekly

US butter demand up over 20%


Dairy product consumption continues to please, and butter was the big story in the U.S. Department of Agriculture’s latest supply and utilization report, according to HighGround Dairy’s Alyssa Badger.

Speaking in the Feb. 19 “Dairy Radio Now” broadcast, Badger reported that butter demand hit 220.9 million pounds, up a whopping 22.5%, the largest value ever for the month, and credited strong domestic utilization, which was up 25.3%. It gained 4.7% from November to December, she said, the first increase in that period ever, versus the five-year average of a decline of 22.6%.

Butter exports have been terrible, she said, down 41.3% from a year ago. But, the disappearance numbers “justify the prices we’ve been seeing, and we may even see a revision in the next cold storage report,” Badger said.

Nonfat dry milk utilization, at 199.6 million pounds, was down for the fifth month in a row and down 12.1% from a year ago. Quite the opposite story of butter, according to Badger, as domestic usage was down 34.2% while exports were up 0.9%. Inventories were down 21% from a year ago, she said, an eight-year low, because production continues to be weak.

December cheese utilization totaled 1.2 billion pounds, up 1.9% from December 2022, and the third consecutive monthly gain. Total consumption for the year was up 0.3%, smallest annual gain since 2020, when disappearance actually fell, according to Badger. Interestingly, the December dairy products report showed 2023 cheese production was also only up 0.3% from 2022.

Dry whey disappearance, at 72.1 million pounds, was down 8% from a year ago, the smallest December value since 2012, according to HGD, as exports fell 15.6%. Exports were down on an annual basis from April to December 2023, said HGD, but domestic usage was stronger in 10 months of 2023, propping up the annual total, and resulted in an increase of 2.8% from 2022.

Meanwhile, the USDA’s latest livestock, dairy and poultry outlook stated that “domestic demand for dairy products in 2023 was year-over-year higher for most of them. On a milk-fat milk-equivalent basis, 2023 domestic use increased 1.8% over the previous year, in contrast to the 1.1% decrease in 2022. Domestic use on a skim-solids milk equivalent basis increased by 2.8% in 2023, compared to a 0.8% decrease in 2022.”

The outlook reported that “there were considerable increases in domestic use of whey protein concentrate, dry whey, butter, lactose and American-type cheese in 2023, relative to 2022. However, domestic use for other-than American-type cheese and dry skim milk products decreased.”

The 2024 dairy herd size forecast was revised up 5,000 head, totaling 9.355 million for the year, due to higher expected milk cow numbers in the second half. This small increase in the number of cows is attributed to higher than expected milk prices early in the year, as milk production usually responds to changes in milk and feed prices with a lag of several months.

Even with the higher forecast for milk cow numbers, they are expected to be lower than 2023. Recent slaughter trends, together with tight replacement heifer inventories and high reported prices for dairy heifers, suggest a year-over-year decline for the dairy herd in 2024 despite lower expected feed costs, improved milk prices and robust demand for dairy products. The forecast yield per cow was reduced by 20 pounds to 24,395 pounds based on recent data.

The week ending Feb. 3 saw 60,000 head go to slaughter, down 100 from the previous week, and 5,700, or 8.7%, below a year ago. Year-to-date, 275,700 head have been culled, down 62,900 head, or 18.6%, from a year ago.

The outlook pointed out that dairy cow slaughter for the first three weeks of 2024 continued the downward trajectory from the second half of 2023, with the reported weekly slaughter rates among the lowest observed for this period of the year (lower than the 20-year average), but this may reflect slaughter schedule reductions due to winter weather in late January.

The StoneX Feb. 15 update said, “Feed is getting cheaper, but it won’t help dairy producers with their fixed costs, which continue to be a deterrent to any sort of on farm enthusiasm.”

The USDA estimated 2024 U.S. corn plantings at 91 million acres in their ag forum commodity outlook this week, down from 94.6 million in 2023. Yields are initially seen at 181 bushels per acre, with production at 15.040 billion bushels and carryout at 2.532 billion.

Soybean acreage came in at 87.5 million acres, up from 83.6 million last year. Yields are seen at 52 bushels per acre, with output at 4.505 billion bushels and carryout at 435 million. 

Checking finances, the Feb. 9 “Daily Dairy Report” stated that USDA distributed record-level payments via the Dairy Margin Coverage and Dairy Revenue Protection programs in 2023.

“Smaller dairies have regularly used the DMC program, which has provided greater premium subsidies to farms producing 5 million pounds or less of milk, about 200-225 cows,” the DDR said. “Coverage levels have ranged from $4-$9.50 per cwt. However, any farm could have enrolled in DMC and received catastrophic coverage ($4 per cwt) for a $100 administrative fee.”

Information on 2024 enrollment from the Farm Service Agency has yet to be released, according to the DDR.

CME block cheddar cheese, after dropping 8 cents the previous week, crept back to $1.5850 per pound Monday, but closed Valentine’s week at $1.48, losing another 9 cents, lowest since Jan. 19 and 40 cents below that week a year ago.

The cheddar barrels hit $1.60 Wednesday, then reversed direction, but closed Friday at $1.6075, up 3 cents on the week, 6 cents above a year ago and an inverted 12.75 cents above the blocks. Sales totaled 16 of block and eight of barrel.

HighGround Dairy’s “Monday Morning Huddle” warned, “Despite the U.S. price advantage to global markets, industry contacts report that future international sales are slow. Further, market participants continue to talk about the impact of the new capacity coming online later this year, with some concerned about an oversupply situation.”

Dairy Market News reported that cheese demand ranges from steady to seasonally quiet. Midwest cheesemakers are focused on building inventory as spring holiday demand draws closer. Some plants say milk availability is not where it would be expected in mid-February and spot prices under-Class had yet to be reported. Some do not expect them to return in the near-future, DMN said. Spot prices are holding in a tight range at or just over Class III, while last year during week seven, they were $10 to $2-under Class.

Western retail cheese demand is steady to light. Manufacturers and distributors note food service demand is strengthening and export demand is steady. Milk volumes are tighter, but spot loads are available. Plants report steady cheese production, and a few say near term inventories are tight, according to DMN.

StoneX said, “The July U.S. retail price of cheddar cheese was higher than expected at $5.72 per pound, up 18 cents from December, but down 22 cents from January last year. We should see some downward pressure on retail prices given the weakness we’ve seen in the spot cheese market. Comparing cheddar cheese to other food prices, it comes in dead last when looking at the percentage change since January 2021. Again, we should see a correction, and it is down significantly from the highs in late 2022. But, consumers are still likely reconsidering buying the extra bag of cheese given the elevated retail prices from pre-pandemic levels.”

Cash butter closed Friday at $2.75 per pound, up 6 cents on the week and a hefty 37.50 cents above a year ago, with 17 sales reported on the week.

Midwest butter contacts continue to report bullish expectations, DMN said. Inventories are available but only if buyers are willing to pay premiums. Customers continue to say 82% milkfat (unsalted) loads are notably tight. Butter plants are focused on spring/fall demand inventory building. Plants are running at or near capacity as cream offers are abundant and expected to remain so the rest of the month, when Class II manufacturing moves into higher gear.

Cream is readily available throughout most of the west for butter makers, DMN said, and they are running busy schedules, working to ensure adequate inventories for spring holiday demands. Domestic demand is steady. Unsalted butter loads are tight but available. Distributors relay that inquiries from international buyers have been more frequent recently, and export demand is stronger, according to DMN.

Grade A nonfat dry milk fell to a Friday finish at $1.17 per pound 3 cents lower on the week, lowest CME price since Dec. 28, 2023, and 5 cents below a year ago. There were 16 CME sales on the week.

Comments around weak Mexico demand still persist, StoneX said, and that has likely been putting pressure on spot prices.

Dry whey held most of the week at the previous week’s close of 52 cents per pound. It gained a penny Thursday, only to give it back Friday and close at 52 cents, 7 cents above a year ago, with only one sale on the week at the CME.

Cooperatives Working Together member cooperatives accepted eight offers of export assistance this week from CWT that helped them capture sales contracts for 853,000 pounds of American-type cheese and 42,000 pounds of whole milk powder. The product is going to customers in Asia, Central America, the Caribbean and Middle East-North Africa, through June.

The sales raise CWT’s 2024 exports to 16.5 million pounds of American-type cheeses, 6.9 million pounds of whole milk powder and 842,000 pounds of cream cheese. The products are going to 13 countries in four regions and are the equivalent of 209.3 million pounds of milk on a milkfat basis. Over the last 12 months, CWT assisted sales were the equivalent of 914.6 million pounds of milk on a milkfat basis.

Tuesday’s GDT Pulse saw 4.35 million pounds of product sold, down from 4.4 million Jan. 30, with 98.8% of the total offered sold. There was 50,706 million pounds less instant WMP and 4,409 pounds less regular WMP sold versus the last Pulse. Prices were up from the last Pulse but were down from the last GDT.

Singapore Exchange futures Friday morning were pointing to the first expected decline in GDT value in the last 11 events for the Feb. 20 event, according to StoneX.

In politics, the USDA is considering more than 12,000 pages of testimony, following the Federal Milk Marketing Order hearing and must now formulate its plan for FMMO modernization.

The National Milk Producers Federation said it is doing what it can to “ensure that proposal best reflects the interest of dairy farmers and their cooperatives,” according to two NMPF economists in a recent “Dairy Defined” podcast.

“The key to successful modernization is a comprehensive approach that addresses the complexity of federal orders in a way that respects the entire dairy industry while keeping in mind that orders most fundamentally must work for farmers,” said Dr. Peter Vitaliano, vice president for economic policy and market research, and Stephen Cain, senior director for economic research and analysis at NMPF. “That’s always been the bedrock principle behind NMPF proposals on areas ranging from returning to the ‘higher-of’ Class I mover to updating milk composition factors.”

“What separates National Milk’s proposals from processor groups is more of our holistic approach,” Cain said. “You can’t look at the federal order system having not been updated in 20 years and not address all facets of the industry, right? You can’t say in good faith that Class I differentials need to be updated because costs have gone up without also conceding the fact that make allowances need to go up for the same reason. So, we took that holistic approach. That is going to help move the industry forward together.”

U.S. milk production is steady in the Eastern region and steady to strong in the West, according to DMN’s weekly update. California handlers noted year-over-year production has been at or above 2023 levels. However, some manufacturers relayed limited ability to take additional spot loads. Midwest sentiment among contacts is that 2024 milk output will not be in line with that of 2023. Spot milk prices in the Midwest remain reported at Class III to $1-over. Class I, II, III and IV milk demands are strong to steady.


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