The “Mielke” Market Weekly

Whey demand continues to dwindle

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The U.S. Department of Agriculture lowered its milk production forecasts for the third time in its latest World Agriculture Supply and Demand Estimates report.

The 2023 forecast was reduced from last month based on lower milk cow inventories and lower expected milk per cow.

The 2024 forecast was also lower due to a reduced cow inventory and output per cow. The WASDE stated that the Jan. 31 cattle report will give an indication of producer intentions for retaining dairy heifers for addition to the breeding herd.

2023 production and marketing were estimated at 226.6 billion and 225.6 billion pounds, respectively, down 300 million pounds on both from a month ago. If realized, both would be up 100 million pounds, or 0.04%, from 2022.

2024 production and marketing were projected at 228.3 billion and 227.3 billion pounds, respectively, down 700,000 pounds on both. If realized, 2024 production would be up 1.7 billion pounds, or 0.8%, from 2023.

Prices for 2024 cheese were lowered due to recent price weakness, while butter, non-fat dry milk and whey prices are expected to be higher. The Class III price forecast was lowered, with lower cheese prices outweighing higher whey prices.

The Class III is projected to average $16.10 in 2024, down 75 cents from last month’s estimate and compares to $17.02 in 2023 and $21.96 in 2022.

Class IV prices were raised, due to higher butter and nonfat dry milk price forecasts. Look for the 2024 Class IV average at $19.35, up 45 cents from last month’s estimate and compares to $19.12 in 2023 and $24.47 in 2022.

The corn outlook is for greater production, larger food, seed and industrial use, increased feed and residual use, and higher ending stocks.

Corn production was estimated at a record 15.3 billion bushels, up 108 million as an increase in yield to a record 177.3 bushels per acre was partly offset by a decline in harvested area.

Corn use was raised 75 million bushels to 14.6 billion. Corn for ethanol was raised 50 million to 5.4 billion. Feed and residual use was raised 25 million bushels to 5.7 billion. Stocks are up 31 million bushels. The season-average corn price was lowered a nickel to $4.80 a bushel.

Soybean production was estimated at 4.2 billion bushels, up 35 million. The harvested area was estimated at 82.4 million acres, down 400,000 from the previous report. Yield was estimated at 50.6 bushels per acre, up 0.7 bushel. With slightly lower beginning stocks, soybean supplies are up 31 million bushels.

The soybean export and crush forecasts were unchanged. With higher supplies and slightly lower residual, ending stocks were projected at 280 million bushels, up 35 million. The U.S. season-average soybean price was projected at $12.75 per bushel, down 15 cents from last month. Soybean meal was projected at $380 per short ton, down $10, according to the WASDE.

The week ending Jan. 6 saw 48,500 dairy cows go to slaughter, up 5,900 head from the previous week but down 15,200, or 23.9%, below a year ago. Culling continues to fall. As of the week ending Dec. 30, 2023, the year-to-year difference was only 0.9%. The slaughter rate had approached 8% above a year ago in February.

U.S. dairy margins improved to start 2024 over the first half of January as milk prices held relatively steady while projected feed costs dropped on a bearish USDA report, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.

“The January WASDE featured higher yield and production than expected for both corn and soybeans, which, along with recent rainfall in Brazil, pressured those markets,” MW said. “Recent weakness in cheese has enticed more export demand with the outlook favorable for the first half of the year.”

“USDA’s semi-annual World Markets and Trade report projected global cheese consumption to reach an all-time high of 47.7 billion pounds this year, up 1.2% from 2023,” MW said. “Global cheese production is rising even faster than demand with the U.S. pacing the increase as production growth outside of the U.S. is not expected to keep pace with the growth in global consumption, favoring U.S. cheese exports which are competitively priced.”

“November cheese exports, at 85.1 million pounds, were a record for the month, up 4.1% year-over-year and the largest volume for any month since June 2022,” MW said. “Shipments to Mexico were up 42.2% year-over-year to 32.4 million pounds, the largest volume recorded in any month.”

“Overall, dairy product exports in November, of 480.4 million pounds, were second to last year’s record 520.7 million, but weak whey demand from China due to their struggling pork sector and slowing economy negatively impacted the total dairy export figure,” MW said. “November whey exports totaled 102.3 million pounds, down 13.4% year-over-year with reduced whey exports to China accounting for 97.2% of the decline in the total whey category in absolute terms.”

The Global Dairy Trade auction saw strength for the fourth event in a row this week, though volume slipped for the seventh consecutive session. The weighted average was up 2.3%, following a 1.2% rise Jan. 2, 2.3% Dec. 19, 2023, and 1.6% Dec. 5, 2023.

Traders brought 54.9 million pounds of product to market, down from 57.8 million Jan. 2, lowest since July 4, 2023. The average metric ton price climbed to $3,493, up from $3,363 Jan. 2, highest since May 2, 2023.

Butter again led the gains, up 5.8%, following a 2.1% rise Jan. 2. Anhydrous milkfat was up 4.3%, after inching 0.2% higher. Whole milk powder was up 1.7%, after jumping 2.5%, and skim milk powder was up 1.2%, following a 0.9% slip. Lactose was up 1.3%, following a 5% plunge, and GDT cheddar was up 1%, following a 2.4% drop Jan. 2. Mozzarella was down 3.3%.

StoneX said the GDT 80% butterfat butter price equates to $2.6135 per pound, up 17.3 cents from the Jan. 2 event and compares to CME butter, which closed Friday at $2.5450. 

GDT cheddar, at $1.9127, was up 2.4 cents and compares to Friday’s CME block cheddar at $1.4450. GDT skim milk powder averaged $1.1964 per pound, up from $1.1850, and whole milk powder averaged $1.5207 per pound, up from $1.4923. CME Grade A nonfat dry milk closed Friday at $1.1750 per pound.

“North Asia purchases, which includes China, were weaker than both year-ago levels and last event,” said analyst Duston Winston. “Southeast Asian demand fell from over the same period. Total volume was down 19% from last year, while purchased volume fell 22% from the second event of last year. The Middle East was the only region to experience an increase in purchase volume from both last year and last event.”

Cooperatives Working Together member cooperatives accepted 32 offers of export assistance this week that helped capture sales of 3.9 million pounds of American-type cheese, 6.2 million pounds of whole milk powder and 231,000 pounds of cream cheese. The product is going to customers in Asia, Central America, the Caribbean, Middle East-North Africa and South America through July and are the equivalent of 83.6 million pounds of milk on a milkfat basis.

CME dairy prices were mostly lower in the Martin Luther King Jr. holiday-shortened week. The cheddar blocks, after jumping almost 13 cents the previous week, fell to a Friday close at $1.4450 per pound, down 11.75 cents on the week and 39 cents below a year ago.

The barrels finished at $1.4675, up 2.25 cents, 11.25 cents below a year ago and an inverted 2.25 cents above the blocks. Sales totaled 21 loads of block and 16 of barrel, down from 42 barrel the previous week.

Milk availability in some areas of the Midwest is holding at what contacts consider holiday-levels, Dairy Market News said. Spot milk prices ranged $7-under to 50 cents under Class III at mid-week. A number of plants have been on lighter schedules, but weather further impacted that. Cheese demand is generally steady, and contacts say loads continue to move steadily, hopeful for better prices ahead. Some do not expect improvements while milk remains so widely available. Cheese inventories are noted as stable, DMN said.

Western retail cheese demand remains mixed, with some reports that demand has flattened. Food service demand is steady to lighter as weather decreased activity for some establishments. Class III milk is readily available; however, freezing temperatures in northern parts of the region caused transportation delays and disruptions. Cheese output is stronger to steady as plants bring in spot milk at below Class prices. Export demand has strengthened due to domestic prices becoming more competitive internationally, DMN said.

Butter climbed to $2.58 per pound Wednesday, but it closed Friday at $2.5450, down 2.25 cents on the week and 22.25 cents above a year ago. There were 33 loads that found new homes on the week.

Central butter makers say cream is widely available. There were weather-related setbacks over the weekend and early in the week, as cream handlers had an uphill battle finding homes for the ample supply. Equipment and hauling hurdles aside, butter makers are churning as much as possible, DMN said.

Cream is readily available in the West. Butter production is steady to stronger, though machine maintenance was taking place to prepare for heavier churning later in the winter season. Butter makers are working to build additional inventory for spring holiday demand.

Grade A nonfat dry milk inched up to $1.1950 per pound Tuesday, highest since Nov. 16, 2023, but saw its Friday finish at $1.1750, a penny lower on the week and dead even with a year ago. Fifteen loads were sold on the week.

CME dry whey closed Friday at 42.75 cents per pound, down 0.25 cents on the week but 10.25 cents above a year ago, with 11 sales logged on the short week.

StoneX broker Dave Kurzawski compared the fourth week of 2024 to that of a year ago in the Jan. 22 Dairy Radio Now broadcast. He said block cheese was trading close to $2 per pound a year ago, while today we’re hovering around $1.50, down over 20%. Butter is up about 20 cents from a year ago. Nonfat dry milk is up slightly, but it’s stable. Dry whey is also up from a year ago, so the markets are relatively stable, with the exception being cheese.

Kurzawski commended cheese producers for “doing a fantastic job adjusting production lower relative to the drop off in demand that we saw in the second half of 2023.” Demand has been weak, he said, though, year-to-date, it was up about 0.7%.

“It hasn’t dried up and gone negative, but it is off a bit,” Kurzawski said. … “We were dumping milk on the ground this time last year. We had too much, but that is not the case this year. We have enough to supply what we need, but you’re not hearing any stories of a burdensome supply. This is the time of year you might start hearing that.”

“The key for 2024 will be reduced milk production not only in the U.S. but globally, and it will accelerate as it gets hot this summer,” Kurzawski said. “The spring flush may be more shallow than normal. If demand stays subdued, that may not matter a whole lot. But if demand picks up, you could see spikes in cheese prices of 20 or 30 cents very quickly.”

We got a look at demand in USDA’s November 2023 Dairy Supply and Utilization report. Total cheese utilization hit a record high 1.2 billion pounds, up 1.4% from a year ago, with data back to 2011, according to HighGround Dairy.

Domestic consumption of American and other cheese remained above a year ago, HGD said, but the standout was other-cheese exports, which were up 17.4% from November 2022 and the largest volume since April 2021.

Butter usage, at 200.6 million pounds, was down 9.1%, lowest November volume since 2014, as domestic demand fell below the prior year for the first time since January, down 2.4%. “The extensive gap between lackluster exports in 2023 compared to incredibly strong volumes the same time in 2022,” HGD said.

Exports were down 81.7% from a year ago.

Nonfat dry milk consumption, at 185.6 million pounds, was down 11.7%, due to domestic usage being down 32% from a year ago and exports being down 4.7%.

“Even so, exports have risen month-over-month since the low in September suggesting they might have found some support,” HGD said.

Dry whey, at 71.8 million pounds, was up 6.2%, thanks to domestic usage being up 65%. Exports were down 25.5%, as Asian demand remains poor. Whey protein concentrate was down for only the second time in 2023, HGD said.

Fluid milk sales saw another small bump in November. Packaged sales totaled 3.7 billion pounds, up 0.3% from November 2022 and follows a 1% gain in October. Conventional product sales totaled 3.5 billion pounds, up 0.3% from a year ago. Organic products, at 231 million pounds, were up 0.4%.

Whole milk sales totaled just under 1.3 billion pounds, up 1.9% from a year ago and up 1.2% year-to-date. Skim milk sales, at 161 million pounds, were down 14% from a year ago and down 8.5% year-to-date.

Packaged fluid sales January to November totaled just under 39 billion pounds, down 1.4% from 2022. Conventional product sales totaled 36.4 billion pounds, down 1.4%. Organic products, at 2.6 billion pounds, were down 1% and represented 6.6% of total milk sales for the period.

The February federal order Class I base milk price is $17.99 cwt, down 49 cents from January, $2.79 below February 2023 and the lowest Class I since August 2023. It equates to $1.55 per gallon, down from $1.79 a year ago.

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