The first few months of 2024 have proven to be a period of notable change within the dairy industry, mostly due to the combination of a smaller milking herd, tight replacement heifer supplies, and modest improvements in milk income margins. According to the latest USDA monthly data released on April 25th, a clear trend towards a reduction in dairy cull cow marketing is evident. 

Take note of the specifics: In March 2024, US slaughter plants marketed an estimated 244,600 dairy cull cows. Yes, this figure is down by 8,100 from February, making it the highest monthly total since August. However, it was also an astounding 61,600 cows fewer than March 2023, marking the lowest March total since 2009. 

Things do not stop there. As of April 13th, the USDA’s AG Marketing Service stated that the number of dairy cowsmarketed for beef has continuously trailed year-ago levels for a whopping 32 consecutive weeks, taking us back to September 9, 2023, and marking a reduction of 215,600 compared to the same period the previous year. 

“It seems to be a clear trend. March 2023 had 27 non-holiday weekdays and Saturdays in comparison to March 2024, which had 26 days, and daily slaughter reduced by an average of 800 head this year. Our estimated number of dairy cows in the U.S in March 2024 is 9.335 million, down 7,000 compared to our revised February estimate.”

Based on these numbers, the March dairy cow culling rate is measured at approximately 2.6% of the herd. 

There’s more. A closer look at the cull cow slaughter numbers for the first quarter paints a narrative of continued decline. Dairy cull cow slaughter for the first three months of 2024 is now at an estimated 747,500 head, which is down by 123,000 from the same period last year and making the number the lowest three-month total start to the year since 2010. 

The heaviest dairy cow culling in March occurred in the Southwest (Arizona, California, Hawaii, and Nevada), with a recorded 58,800 head. This occurrence was closely followed by the Upper Midwest (Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin) at 56,300 head. 

• Other Regional Monthly Totals:
• Arkansas, Louisiana, New Mexico, Oklahoma, and Texas – 33,800 head
• Delaware, Maryland, Pennsylvania, West Virginia, and Virginia – 32,300 head
• Alaska, Idaho, Oregon, and Washington – 32,100 head

All the primary data cited is sourced from the USDA’s Livestock Slaughter Report, capturing reports from about 900 federally inspected plants and close to 1,900 state-inspected or custom-exempt slaughter plants. 

Continue reading for an in-depth analysis and explanations on what these shifting trends mean for the dairy cull cow market in the coming months.

The use of beef sires on dairy cattle is becoming increasingly popular on farms across the country. Today, farmers are receiving top dollar for crossbred calves that are only a few days old. With the industry’s high input costs, this additional income can stretch far and wide. It can help cover seed and fertilizer costs, or assist with bulky feed bills. In essence, those extra dollars are not going to waste. However, it must be noted that fluctuating prices bring their own challenges. 

At the recent i29 Moo University Dairy Beef Short Course, Derrell Peel from Oklahoma State University provided an industry outlook. The beef and dairy sectors are experiencing some of the highest and lowest points in recent memory. Prices for slaughter steers, beef-dairy crosses, cull cows, and heifers have all skyrocketed in the past year or so. 

“Some weather conditions have contributed to these high prices, such as drought in various parts of the country, which has deeply affected hay prices. Recent drought years led some farmers to liquidate their herds. While some areas are on the road to recovery from drought, not all have seen the needed moisture. This year’s drought map outlook does indeed provide some room for concern. Hay availability could be a challenge this year,” declared Peel.

Because feeder cattle inventory is low, farmers are finding it difficult to maintain feedlot capacity. Despite feedlot inventories remaining stable so far, thanks to heavier finishing weights and more days on feed, Peel anticipates that a decrease in heifer retention will reduce these inventories. 

As of January 1, the beef cattle inventory was down 2% from the previous year. The downsizing in 2023 meant farmers entered 2024 with fewer cattle inventories across the board. With record beef cattle inventory lows set in 1961, this year’s inventory is on track to be the smallest U.S. beef cow herd since that date, strengthening the cattle market. The total cattle inventory topped out at 87.15 million head – the U.S. hasn’t seen an inventory this small since 1951. 

Producers have been cautious over the years due to high input costs coupled with rising feed prices. The growing cattle prices in the past year prompted the decision to sell more heifers as a means of securing financial stability. Peel expects farmers to breed more heifers this year as they rebound from previous financial strains. 

Looking ahead to 2024, Peel predicts the trend of high cattle prices and smaller-than-normal inventories to continue. “There will be higher prices yet for a longer period of time,” Peel noted, giving farmers and industry folks alike something to ponder.

Following an entire year of decline, US dairy exports have made an unexpected and impressive comeback. According to the numbers crunched by Italian dairy economic consulting firm CLAL, the recovery was observed in February. The engine that drove this resurgence? Cheese exports – to be specific, an increase of more than 10,000 tons, which indicates a 32.1% year-on-year growth. 

What’s more, the pricing strategy for almost all major dairy products seems to have given a helping hand to this export activity. With average unit prices standing at a budget-friendly $4.56/kg, 15% lower year-on-year, cheese exports couldn’t be more appealing! 

“Our prediction is that we might witness a possible upward push in SMP prices, if demand flies high. This would particularly be feasible given the recent surge in demand from Asian countries. For now, US production of SMP has been intentionally kept at rock-bottom for several consecutive months, leading to February stocks diminishing to over 30% lower than the same time last year,” reported CLAL.

Supporting CLAL’s report, FAS-USDA data revealed a hike in domestic SMP consumption of over 20% in Jan-Feb 2024. 

During the Agricultural Outlook Forum hosted in February by USDA, Agricultural Economist Michael McConnell projected dairy exports to outpace imports. Owed to a tight squeeze on supplies in the global markets, this is likely to hike the competitiveness of US dairy prices. 

“Overall, global dairy trade is expected to feel the pressure of lower milk production in several key exporters – notably the European Union and New Zealand,” McConnell explained. “This reduction would logically lead to decreased exports of several dairy products, particularly butter and non-fat dairy milk. However, it could serve to prop up global dairy prices.”

He saw a silver-lining, predicting, “The reduced production in Europe and Oceania opens doors for other dairy exporters to fulfill global demand. The US, in this scenario, is in an advantageous position to dispatch products to key markets.”

McConnell did add a note of caution though – while skim-solid exports are forecasted to rise by 4% more than in 2023, the domestic use is ready for a showdown to compete with export demand.

On Monday, the Chicago Mercantile Exchange saw rising milk futures and a mixed cash dairy market. April Class III milk went up $0.04 to $15.45. May was up $0.45 to $16.84. June was up $0.45 to $17.22. July was up $0.38 to $17.79. Contracts from August to November varied in price, with October and November being six cents higher and August being twenty-five cents higher. Dry whey remained constant at $0.36. Nine transactions were registered, with prices ranging between $0.3575 and $0.36. 40-pound cheese blocks went up $0325 to $1.5675. Two transactions were reported for $1.5450 and $1.5675. Cheese barrels were constant at $1.5725. There was one sale at that price. Butter remained steady at $2.92. There were no sales registered. Nonfat dried milk was down $0.0075, to $1.1350. There was one sale at that price.

The Federal Milk Marketing Order (FMMO) advanced Class I base price has declined by 72 cents from April 2024 to $18.46 per hundredweight (cwt), the lowest since February. The Class I base prices averaged $18.58 per cwt through the first five months of 2024, a three-year low for the period. The spread in the monthly advanced Class III skim milk pricing factor ($3.88 per cwt) and advanced Class IV skim milk pricing factor ($8.99 per cwt) jumped for May to $5.11 per cwt, the widest since October 2022. Based on Progressive Dairy calculations, the Class I mover calculated under the “higher of” formula would also have resulted in a Class I base price of $20.21 per cwt, about $1.75 more than the actual price determined using the “average of plus 74 cents” formula.

Dairy producers have until April 29 to complete their enrollment in the Dairy Margin Coverage (DMC) program, administered by the USDA Farm Service Agency (FSA). The revised regulations of this risk management program extend coverage for 2024, retroactive to Jan. 1, and provides an adjustment to the production history of enrolled farms with less than 5 million pounds of production. To evaluate the varying levels of DMC coverage for a specific dairy operation, producers can use the online dairy decision tool.

The price index of dairy product prices sold on the Global Dairy Trade (GDT) platform increased just 0.1% in an auction held April 16. Compared to the previous auction, prices for individual product categories were mostly lower to unchanged. The prices for anhydrous milkfat and whole milk powder increased slightly by 1.7% and 0.4%, respectively. Cheese prices decreased the most with cheddar cheese down 8.5% and mozzarella down 3.8%. Lactose and butter decreased a little over 1%, while there was little to no change in butter milk powder and skim milk powder.

The USDA unveiled a new online Livestock Indemnity Program (LIP) decision tool and farm loan resources available to agricultural producers and cooperators who help producers access USDA disaster assistance, farm loans, and other federal farm programs. The optional decision tool gives producers guidance on what is needed to gather and submit required loss documentation. The FarmRaise educational hub offers several easily navigated farm loan programs how-to videos designed to introduce producers to FSA’s many farm loan programs options and guide them through the application process. More FSA program resources and tools will soon be added to the FarmRaise educational hub.

As the global dairy market treads through various challenges, emerging signs of optimism point towards a potential price upturn. Despite the volatility and uncertainties that have lately characterized the industry, several converging factors create bright spots on the global dairy price horizon. According to a recent Rabobank analysis, while global dairy prices are on the incline, farmers worldwide are grappling with margin concerns. 

Milk supply growth is sluggish, with year-on-year output decreases from major exporting countries during the second half of 2023. A return to production growth will take time, seeing decreased year-on-year productions for this year’s first two quarters until volumes become positive again in 2024’s second half. However, encouraging trends have been observed in China, with retail and food service sales spiking during the Lunar New Year celebrations. 

Dairy commodity price increases are expected in the year. The New Zealand milk price projection for the 2023-2024 season has been slightly revised upward. A Global Dairy Trade Auction on March 19 saw a 2.8% decrease in dairy prices. Whole milk powder and skim milk powder prices dropped by 4.2% and 4.8% respectively. According to Westpac NZ, whole milk prices have declined by 8.6% from their February peak. 

Meanwhile, Australian milk production is witnessing a surge, with significant increases in milk supply across all dairying areas, thanks to favorable seasonal conditions and high farm gate margins. Between July 2023 and January 2024, Australian milk output rose by 2.5% year-on-year, reaching 5.35 billion liters. Summer rainfall dramatically exceeded forecasts across most of Australia’s east coast, making it a boon for cattle farmers. 

Australian dairy producers can anticipate a prosperous 2024, with milk prices staying high, new season pricing commencing on July 1 that supports margins, and an abundance of homegrown feed in storage as well as affordable bought feed. Rabobank predicts that the Australian milk supply will round out the 2023-2024 season at 2.6%, with growth continuing into the subsequent season projected at a range of 3-4% for 2024-2025.

Driving this optimism is a rising demand for dairy products, more so in emerging economies. With improving living standards and increasing disposable income in countries like China, India, and parts of Africa, there is a growing demand for dairy-based products. This rising demand is anticipated to significantly bolster global dairy prices as producers strive to meet the needs of these booming markets. 

Additionally, shifts in consumer preferences towards healthier and diverse diets are playing a pivotal role in driving dairy product demand. The health-conscious consumer base is growing, and so is the consumption of yogurt, cheese, and milk alternatives like almond and soy milk – a trend expected to continue, further bolstering dairy product demand and supporting price hikes. 

In addition to demand-side factors, supply-side dynamics also contribute to the positive outlook for global dairy prices. Dairy producers worldwide are slowly adapting and innovating despite challenges such as adverse weather and input cost pressures. Technological advancements in genetics, herd management, and feed formulations are enabling farmers to optimize their operations, leading to increased milk yields and helping to mitigate supply constraints and stabilize prices. 

The dairy industry is witnessing a rising emphasis on sustainability and ethical practices from both consumers and producers. This shift towards more sustainable production methods, including pasture-based farming and a reduced environmental footprint greatly improves dairy operation resilience and enhances industry reputation and marketability. As consumers become increasingly discerning about their food’s origin and its environmental impact, sustainably produced dairy products are likely to command premium prices, supporting the upward trajectory of global dairy prices. 

Despite these positive developments, challenges persist, including geopolitical uncertainties, trade disruptions, and regulatory changes. The ongoing Covid-19 pandemic continues to introduce volatility and unpredictability into the dairy market, as fluctuating demand patterns and supply chain disruptions impact prices and profitability. 

Yet, the demand is expected to outstrip supply in the coming years, and with ongoing efforts addressing sustainability and efficiency in dairy production, the overall global dairy prices outlook seems promising. While uncertainties loom, the industry’s resilience and adaptability, coupled with evolving consumer trends and market dynamics, imply that the bright spots on the horizon could signal a period of sustained growth and prosperity for the global dairy sector. 

On Monday, the Chicago Mercantile Exchange saw milk futures and cash dairy markets rise. April Class III milk went up $0.04 to $15.61. May was up $0.31 to $16.72. June was up $0.30 to $17.34. July was up $0.20 to $17.81. Contracts from August to February were between five cents lower in February to seventeen cents higher in August. Dry whey was down $0.01 to $0.38. There was one sale at that price. 40-pound cheddar blocks were up $0.0350 to $1.55. Six transactions were reported, with prices ranging from $1.5250 to $1.5550. Cheese barrels were up $0.0375, to $1.5675. Two transactions were reported for $1.5675 and $1.5825. Butter was up $0.03 to $2.97. Three transactions were made at that price. Nonfat dried milk went up $0.0050, to $1.1375. Two transactions were reported for $1.1350 and $1.14.

Friday’s cheese rally continued on Monday, with Class III milk testing being limited for a few minutes. Cheddar blocks rose 3 ½ cents to $1.55/lb, while cheddar barrels rose 3 ¾ cents to $1.56 3/4/lb. Cheese prices have risen by more than ten cents in recent trading sessions. Butter reached new highs for April at $2.97 per pound, up 3 cents. Grade A nonfat dry milk rose half a cent to $1.13 3/4 per pound, while dry whey fell a penny to $0.38 per pound. Class III milk completed the day with April up 10 cents to $15.67 and May up 34 cents to $16.75, but reached a day high of 17.06 for a brief while. June Class III milk increased 35 cents to $17.39, while July future prices were mainly higher, with November down 4 cents and the remainder up 4-26 cents. Class IV milk continues to reach new heights. April – June remained steady at $20.06, $30.24, and $20.50/cwt, respectively, with the remainder of the year above $21/cwt. Grain and feed markets were flat, with corn up 1 ¼ cent to $4.35 1/2, soybeans down 3 ½ cents to $11.81 ½, and soybean meal up $2.90 to $339.10/ton.

Dairy product output fell in February compared to January but remained higher than in February of previous year. The USDA reports that total cheese production was 1.13 billion pounds, up 3% from a year ago but down 5.6% from the prior month. American-style cheese output was down from the previous month and year, totaling 438 million pounds. Italian-type cheeses reached 479 million pounds, a 4.4% increase over last year but a 6.2% decrease from January data. In February, manufacturers produced over 373 million pounds of mozzarella, 304 million pounds of cheddar, and 132 million pounds of other American-style cheeses. Butter output reached 198 million pounds, down 9% from January but 5.6% higher than February 2023. According to the USDA, nonfat dry milk output declined 19.3% from February 2023. Skim milk powder production was down 2.6% from the previous year, totaling 36.2 million pounds. Whey protein concentrate output increased by 4.2% to 38.7 million pounds compared to the previous year. Frozen items, including ice cream, sherbet, and frozen yogurt, all reported lower February output than the previous year, with sherbet production down 32.7%.

The highly pathogenic avian flu (HPAI) has been confirmed in dairy herds in Michigan, Texas, Kansas, and Idaho, with some presumptive positive test results received from a herd in New Mexico. This has raised concerns for the dairy industry and consumers as pasteurization inactivates the bacteria in the commercial milk supply. HPAI has not had an impact on milk futures or the underlying cash prices, but it has put pressure on Class III milk futures sending nearby months to new contract lows.

The milk production report for February showed a decrease in milk production as anticipated, but the increase in cow numbers from January was a surprise. Cow numbers increased by 8,000 head from January for the top 24 states totaling 8.878 million head, down 61,000 head from February 2023. U.S. Cow numbers totaled 9.330 million head, down 89,000 head from a year ago but up 10,000 head from January. It was anticipated that cow numbers would fall as low milk prices continued. However, USDA revised cow numbers 3,000 head lower in to the top 24 states and 5,000 head lower in the U.S. from what was initially recorded last month.

The continued tightening of replacement heifers will also impact cow numbers and the ability of farms to keep stalls full or expand operations. There seem to be some positive things taking place in the market that may eventually provide support to prices, but it does not seem that prices are ready to move higher. They may not move higher over the next few months unless there is better international and domestic demand or a further tightening of the milk supply. In the near term, prices may remain choppy as buyers of dairy products see no reason to become concerned over supply.

The Global Dairy Trade index rose 2.8% in Tuesday’s trading session, reaching an average of $3,558 per metric ton. However, only lactose and buttermilk powder lost ground, with buttermilk powder falling 0.5% to $2,496 per metric ton and lactose down 3.1% to $753. Cheddar cheese saw the biggest gain, up 4.1% to $4,340 per metric ton. Whole milk powder increased 3.4% to $3,246 per ton, while butter rose 3.1% to $6,592 per metric ton. Anhydrous milk fat increased 2.3% to $6,934 per metric ton, and ski milk powder prices rose 1.4% to $2,550 per metric ton.

Despite signs of continued contraction, the dairy markets have been experiencing a decline, with CME spot Cheddar blocks leading the retreat. Cheddar output has fallen below year-ago volumes since October, and overall cheese production was lower than prior-year output in December and January. The industry remains concerned about the capacity to make more, with domestic demand described as “lackluster,” but they hope it will perk up for Easter. Cheap cheese has attracted a few export contracts, but most foreign buyers are deterred by the shape of the futures curve, which persistently offers pricier product later this year.

CME spot whey dropped a nickel this week to 39.5ȼ, within a penny of the year-to-date low. Demand for high-protein whey products remains strong, but with cheese vats full, there is more than enough whey leftover for the drier. Chinese demand for U.S. whey is in decline, with Chinese whey imports falling 24% from last year in January and February. The U.S. accounted for an unusually small share of the shrinking pie, and U.S. whey shipments to China in February plummeted to a four-year low.

Chinese milk powder imports also disappointed, with Chinaimporting more whole milk powder (WMP) in January and February than it did last year, but that was a very low bar to clear. Chinese imports of skim milk powder (SMP) fell short of 2023 volumes in February. Comparisons to previous years are skewed by changes to tariff policy, as before 2023, tariff structures incentivized Chinese milk powder buyers to stock up early in the year before low-tariff quotas ran out. Now that tariffs on Kiwi milk powder are no longer in play, there is no new year’s rush.

Even butter lost ground this week, although the setback in the butter market was modest and felt much different from the significant lows notched in the rest of the dairy complex. CME spot butter fell 1.5ȼ to a still lofty $2.8075. USDA reports that cream is “readily available” but “not overwhelming.” When combined with a healthy dose of demand and a dash of anxiety about butter supplies later this year, that’s a recipe for stubbornly strong butter prices.

Class IV futures didn’t go anywhere at all this week, with nearby contracts settled on either side of last Friday’s close, and deferred futures settled a penny or two higher than last week. Class III futures are low and falling, with the April contract plunged 27ȼ this week to a devastating $15.74. The market promises better prices later this year, but it’s going to be a rough spring flush for many dairy producers with low Class III prices and steep discounts besides.

Financial pain is sure to translate to an uptick in sellouts and a decline in cow numbers. Milk output is inching lower in the Southwest as dairy producers there combat a mysterious illness. Regional milk production declines so far have been incremental, and milk powder plants in the Southwest are still running at nearly typical volumes. Dairy producers are restricting cattle movement and adopting stricter biosecurity measures.

Original Report At: https://www.jacoby.com/market-report/dairy-markets-continue-to-drop/

Rabobank estimates that dairy producers in the Big 7 nations, which include the EU, the United States, China, Brazil, Argentina, New Zealand, and Australia, would return to profitability in 2024 and early 2025. Milk supply is expected to increase in the second half of 2024, with higher margins, rising consumer demand for dairy, and reduced production costs. However, manufacturing growth will take time.

There are hints of optimism in South America, where dairy producers have battled years of abnormally dry and warm weather, as well as tight production margins. In Brazil, Rabobank anticipates improving margins as the year develops, increased consumer demand for dairy, and reduced production costs due to decreasing feed prices. Production is expected to increase 0.5% over 2023 levels.

Argentina’s farmgate milk prices are already catching up with inflation, and better weather may help milk production rebound beginning in the second quarter of 2024. Farmgate milk prices are expected to rise, with Class IV prices remaining higher than Class III throughout the year. Australia is expected to have a high milk supply in 2024/25, with growth rates ranging from 3-4%. Production will benefit from favorable weather conditions, including record rainfall in the autumn and early January 2024, as well as more regular weather patterns through May 2024.

New Zealand’s output has exceeded expectations, with milk solids collections up 0.8%. Production is predicted to fall by 0.7% by the conclusion of the season, but the following season is likely to begin stronger. China’s dismal economic outlook may stymie dairy consumption growth, but Rabobank anticipates further improvement in the supply-demand balance. Rabobank anticipates 2% year-on-year rise in milk output, followed by a slowdown in H1 2025 due to poor to negative margins.

The EU’s demand forecast is encouraging as consumers recover confidence and inflation falls. According to the EU-27 dairy consumer price index, milk, cheese, and butter prices have all fallen, but butter and cheese sales volumes in Germany have increased in the last months of 2023. The bank anticipates a 0.4% year-on-year increase in demand.

Weak farmgate margins will improve in the first half of 2024, thanks to rising milk prices. Milk output in the bloc is expected to stay negative until Q4 2024, when it is expected to improve by 0.9% year on year.

The dairy market has experienced disappointments in recent weeks, with the strength of the market two weeks ago suggesting a potential bottom and higher prices over time. The recent price rally of milk futures was influenced by the bullishness of the January Milk Production report, which led to an increase in underlying cash prices. However, the market must prove itself before a long-term trend develops.

The January Milk Production report showed a significant decrease in cow numbers from December, which traders anticipated. Traders were ready to buy into the market, anticipating a repeat of the previous year’s record high milk prices. However, cow numbers dropped by 23,000 head and milk production declined by 1.1%, with production per cow declining 7 pounds from the previous year. This should be considered bullish, but it seems too early to generate shortage concerns. Lower milk production at a time of lower demand does not result in a tightening supply.

Underlying cash prices have not moved in tandem with milk futures, as trader perception is moving the market. Both block and barrel cheese prices are higher than they were a week ago, but this would have provided support under Class III futures if not for the weakness of dry whey. Dry whey is currently the anchor on the market, and Class IV futures have fared better.

Spot milk prices are vastly different from a year ago, with extra milk supplies tighter than a year ago. Manufacturers have sufficient milk to maintain production schedules and satisfy their obligations. If the pattern of declining cow numbers and milk production continues with spot milk supplies tight and at higher prices, it could result in stronger milk prices during the second half of the year. The extent of price strength will depend on both domestic and international demand levels.

Dairy experts anticipate a gradual but sluggish recovery in major global dairy markets in 2024, with Europe projected to be down in the first half of the year, New Zealand flat after four to five years of loss, and the US weak in the first quarter. Weather, tight business margins, and sustainability and regulatory challenges that affect production all contribute to a decrease in milk supply. The United States has had seven straight months of decreasing output, with milk cow numbers at their lowest since 2019.

Despite the low supply, dairy researcher Lucas Fuess does not anticipate the market to move bullishly. The theme for 2024 is gradual but consistent price rises as demand strengthens and tightness persists. The positive is the promise of increased profit margins if milk prices rise while feed costs fall. Class IV milk (used for dairy products such as butter, dry goods, and evaporated or sweetened condensed milk) is predicted to be more expensive than Class III milk until 2024 owing to increased cheese output.

Despite reduced milk availability, milk is predicted to flow freely to cheese processors owing to the industry’s rapid expansion, with new cheese facilities coming this year and in 2025. However, large supplies of cream from cows producing a lot of milk were unable to keep global butter prices down, which have hit record highs many times in recent years and are expected to reach new highs in 2024. Nonfat dry milk prices have remained rangebound for many months, despite stockpiles reaching their lowest levels since 2015.

• The dairy industry experienced a rough week due to mediocre demand and a short-lived rebound for Class III dairy markets.
• Cheese inventories grew seasonably in January, reaching 1.45 billion pounds, up 0.5% from January 2023.
• Cheese prices must remain low enough to keep product moving abroad, suggesting continued volatility in the range between $1.45 and $1.70 per pound.
• CME spot Cheddar blocks finished at $1.55, while Barrels climbed 3.5ȼ to $1.65.
• Whey prices tumbled, with CME spot whey powder falling 9.75ȼ to 42.5ȼ, erasing six weeks of hard-won gains and slashing nearly 60ȼ from nearby Class III values.
• The butter market retreated, with spot butter falling 9.25ȼ to $2.7575.
• The milk powder market took a small step back, with CME spot nonfat dry milk (NDM) slipping a quarter-cent to $1.1975.
• USDA announced the February Class III price at $16.08 per cwt, up 91ȼ from January’s painful lows, but still inadequate for producers who continue to suffer steep discounts despite a tighter milk market.
• The steep setback in whey prices took a big bite out of Class III values this week, with the March contract losing 53ȼ and the April Class III falling $1.10 to $16.75.
• Class IV prices are much better, with the February contract going off the board at $19.85, up 46ȼ from January.
• The dairy herd is in decline, and milk-cow head counts are likely to keep dropping.
• Feed prices bounced back from last week’s steep selloff, with May corn settled at $4.2475 per bushel, and May soybean futures closed at $11.5125, up 10.75ȼ.

The dairy business had a hard week on LaSalle Street, with decreased milk production and a smaller herd driving markets higher. However, lackluster demand continues to plague the dairy industry, rapidly suffocating any major rallies. Class III’s rebound has been short-lived, since unrelenting rise in cheese output calls into question the idea that decreased milk production is sufficient to reduce supply. Cheese inventories increased seasonally in January, reaching 1.45 billion pounds at the end of the month, up 0.5% from January 2023. Cheap cheese helped boost export sales, but the industry dried up after prices rose. Cheese prices must remain low enough to maintain goods going overseas, implying continuous volatility in the well-trodden band of $1.45 to $1.70 per pound.

Whey prices plummeted, with CME spot whey powder sliding 9.75̼ to 42.5̼, wiping six weeks of hard-won gains and chopping roughly 60ɼ off neighboring Class III values. Domestic demand for high protein whey concentrates continues to lower the proportion of the whey stream intended for the dryer, but increased cheese manufacturing means more whey output. The rising currency has significantly harmed US whey export prospects. Currency linkages have resulted in dairy goods priced in euros being 2% less costly than the identical product sold in dollars since the turn of the year, before accounting for any decreases in European whey prices.

This week, spot butter fell 9.25˼ to $2.7575. On January 31, there were 249 million pounds of butter in refrigerated warehouses, a 5.8% decrease from the previous year but much higher than in January 2022. Butter purchasers expect that less costly cream would increase production and allow them to avoid the exorbitant pricing of recent holiday seasons. Despite this week’s setback, butter prices are historically high and are expected to stay so.

The milk powder market took a modest step back, with CME spot nonfat dry milk (NDM) down a quarter cent to $1.1975. The February Class III price of $16.08 per cwt is up 91% from January’s lows, but it is still insufficient for farmers who continue to face substantial discounts despite a tighter milk market. The February Class IV contract sold for $19.85, a 46 percent increase over January.

Feed prices have rebounded following last week’s severe selloff, with Central Brazil trending drier, which may lower production predictions for the safrinah or second-corn crop. The trade is also afraid that farmers would plant fewer acres than usual since prices are just too low to cover input expenses.

Original Report At: https://www.jacoby.com/market-report/a-rough-week-on-lasalle-street-as-markets-propel-upward-and-downward/

The dairy industry operates within a complex ecosystem influenced by various factors, including supply and demand dynamics, global economic conditions, and regulatory policies. In recent years, milk prices have experienced volatility, prompting stakeholders to closely monitor market signals for indications of potential rebounds. This article examines key factors that impact milk prices and identifies important market signals to watch for insights into future price trends.

Supply and Demand Dynamics: One of the primary drivers of milk prices is the balance between supply and demand. Oversupply can lead to downward pressure on prices, as producers compete to sell their products in a crowded market. Conversely, a shortage of milk can result in increased demand and higher prices. Monitoring production levels, inventory levels, and consumption trends provides valuable insights into the supply-demand balance.

Global Economic Conditions: The dairy industry is interconnected with the global economy, with factors such as exchange rates, trade policies, and economic growth impacting prices. Changes in currency values can affect the competitiveness of dairy exports, influencing market prices. Additionally, shifts in consumer purchasing power and demand from emerging markets can drive fluctuations in milk prices.

Government Policies and Regulations: Government policies and regulations also play a significant role in shaping milk prices. Subsidies, tariffs, and trade agreements can impact the competitiveness of domestic dairy producers relative to their international counterparts. Moreover, regulatory changes related to environmental standards, animal welfare, and food safety can affect production costs and supply chains, influencing price dynamics.

Market Signals to Watch:

1. Milk Production Trends: Monitoring production levels, particularly in major dairy-producing regions, provides insights into supply dynamics. Changes in production due to factors such as weather conditions, input costs, and technological advancements can influence market prices.
2. Consumer Demand: Tracking consumer preferences and consumption patterns helps gauge demand for dairy products. Shifts towards healthier, plant-based alternatives or changes in dietary trends can impact the demand for milk and dairy products, affecting prices.
3. Trade Policies and Tariffs: Changes in trade policies, including tariffs and trade agreements, can have significant implications for dairy exports and imports. Monitoring developments in international trade negotiations and market access agreements helps assess the competitiveness of domestic dairy producers.
4. Input Costs: Fluctuations in input costs, such as feed prices, labor costs, and energy expenses, affect production economics for dairy farmers. Rising input costs can squeeze profit margins, potentially leading to adjustments in supply levels and prices.
5. Weather Conditions: Weather-related events, such as droughts, floods, or extreme temperatures, can disrupt feed production and impact milk production levels. Monitoring weather forecasts and agricultural reports helps anticipate potential supply disruptions and price fluctuations.

In conclusion, milk prices are influenced by a myriad of factors, including supply and demand dynamics, global economic conditions, and government policies. By monitoring key market signals such as production trends, consumer demand, trade policies, input costs, and weather conditions, stakeholders can gain valuable insights into potential price rebounds and navigate the dynamic dairy market landscape effectively. Adaptability, informed decision-making, and strategic planning are essential for dairy producers, processors, and industry stakeholders to thrive in an environment characterized by uncertainty and volatility.

The Global Dairy Index lost 2.3% during Tuesday’s trading session. Prices for Cheddar cheese, buttermilk powder, lactose, and anhydrous milk fat increased, but costs for skim and whole milk powder, butter, and mozzarella cheese decreased. Lactose prices increased 4.8% to $818 per metric ton, or $0.37 per pound. Cheddar cheese rose 4% to $4,277 per metric ton, or $1.94 per pound. Buttermilk powder increased 3.7% to $2,504 per metric ton, or $1.13 per pound. Anhydrous milk fat rose 1.4% to $6,637 per metric ton, or $3.01 per pound. Mozzarella cheese prices dropped four-tenths of a percent to $3,945 per metric ton, or $1.78 per pound. Butter dropped 1% to $6,461 per metric ton, or $2.93 per pound. Whole milk powder prices fell 2.8%, to $3,286 per metric ton, or $1.49 per pound. Skim milk powder prices fell 5.2%, to $2,640 per metric ton, or $1.19 per pound. Tuesday’s trade event sold 21,235 metric tons of dairy goods in fourteen bidding rounds, with 125 successful bidders.

• Texas dairy producers are optimistic about 2024 due to recent rains and the passage of the Whole Milk for Healthy Kids Act.
• The state is now the third highest milk-producing state in the nation, with milk production per cow rising slightly.
• The largest hit for dairy producers in 2023 was falling milk prices, with the uniform milk price falling from $23.68 per hundredweight in 2022 to $18.98 per hundredweight in 2023.
• The state is expected to see a further decrease in dairy numbers but an overall increase in Texas dairy herd size.
• The majority of Texas dairy cows are in the Panhandle, accounting for more than 75% of the state’s milk production.
• The dairy industry is optimistic about the future of feed production and market demand in 2024.
• Four different processing facilities are opening or under construction in the state, which could increase demand for Texas milk.
• The Whole Milk for Healthy Kids bill, passed in the U.S. House of Representatives with bipartisan support in December, could return the use of whole milk in schools and greatly increase demand.
• Dairies across Texas are increasingly using technology to help mitigate market prices and higher costs.
• Dairies are also considering more beef-on-dairy breeding to help their bottom line.

District Farm Conditions and Farming Activities
Rolling Plains:

• The district’s soil moisture profiles improved due to previous week’s rain, snow, and wintery mix.
• Both mature cattle and yearling calves on wheat pasture were in good condition.
• Some producers reduced supplemental feeding to help stretch thin hay supplies.

Coastal Bend:

• The weather has been warmer and drier, allowing cropland to dry out.
• Fall fieldwork resumed on lighter, sandy soils, while clay soils were still saturated after recent rainfall.
• Corn planting was underway in areas where conditions dictated, and it was nearing completion in Nueces County.

EAST:

• Winter pasture growth improved with recent moisture and warmer temperatures.
• Anderson County reported pastures were too wet to work for the most part.
• Pasture and rangeland conditions were fair to poor.
• Subsoil and topsoil conditions were adequate.
• Hay supplies remained tight.
• Livestock were in fair to good condition, with supplementation taking place.

South Plains:

• The district received 2-10 inches of snow earlier in the week.
• Winter wheat that emerged was in good condition.
• Cattle were in good condition as producers continued supplemental feeding.

Panahandle:

• As much as 4 inches of wet snow swept across different areas of the district.
• Additional moisture was needed to replenish the upper soil moisture profile.
• Soil conditions were reported from adequate to short.
• Pasture and rangelands were reported to be fair to very poor.

North:

• Topsoil and subsoil were reported as adequate to surplus for most counties across the district.
• Winter wheat and other cool-season crops were in very good condition.
• Livestock were looking for green forage instead of holding close to hay.

FAR WEST:

• Cool, cloudy conditions were prevalent across the region.
• Daytime highs were reported in the mid-70s, and nighttime lows in the mid-20s.
• Cotton and milo production was expected to be lower than average.
• Livestock and beef cattle producers continued supplemental feeding regimens as rangeland conditions continued to deteriorate due to lack of moisture.

WEST CENTRAL:

• Rain was scattered across the district, with some areas receiving over 2 inches.
• Small grains were growing slowly.
• Field preparation for spring crops began.

Southeast:

• Rain fell across multiple counties in the district.
• Warmer temperatures spurred ryegrass and clover growth.
• Livestock appeared in good body condition, and markets remained strong.

South West:

• Dry weather continued with no significant rainfall expected and near-normal temperatures anticipated in the upcoming week.
• Conditions were expected to remain ideal for early spring planting for the rest of February.

Dairy farmers in Texas are bullish about 2024, as recent rains promise better feed and pasture production after back-to-back droughts. The drought has reduced the number of cows and dairies in the state, with the average herd size dropping from 653,000 in 2022 to 635,000 in 2023. However, Texas milk output increased in 2023, making it the third greatest milk-producing state in the US.

The biggest damage dairy farmers experienced in 2023 was dropping milk prices, which dropped from $23.68 per hundredweight in 2022 to $18.98 per hundredweight in 2023. The average price of cheese per hundredweight was around $2 less than both of these values. This has made it difficult for dairy farmers to reach breakeven.

In 2024, there may be a transition year, with more decreases in dairy numbers but overall increases in Texas dairy herd size. The Panhandle is home to the majority of Texas dairy cows, which account for more than 75% of total milk output. Hartley is the top producing county in Texas, accounting for over 19% of total milk output.

Despite the obstacles, many producers are hopeful about 2024’s feed output and market demand. They are expecting for a better crop year, and with the recent rains, they do not anticipate growers to struggle as much as they have in previous years.

Aside from improving farming conditions in the coming spring, demand for Texas milk may be increasing. Four distinct processing facilities are opening or under development in the state, potentially increasing demand for Texas milk. Cacique Foods, a cheese facility, debuted in Amarillo in May, while the Great Lakes Cheese facility in Abilene is expected to be finished by late 2024. A milk processing factory in San Antonio is being built to supply H-E-B and is expected to be finished by the summer of 2025. The first phase of a Leprino Foods cheese production in Lubbock will be finished in early 2026.

The Whole Milk for Healthy Kids bill, which passed the United States House of Representatives with overwhelming bipartisan support in December, has the potential to restore the usage of whole milk in schools and significantly raise demand. Overall, the dairy business has witnessed good growth countrywide, with dairy product consumption increasing from 538 pounds to 655 pounds between 2022 and 2023.

Weather conditions have been good across the area, with rain, snow, and a wintery mix helping to enhance soil moisture profiles in pastures and wheat fields. Some regions were very wet, hampering agricultural production. Both older cattle and yearling calves on wheat pasture were in excellent health, and some farmers were able to minimize supplementary feeding to their cattle, which will help stretch tight hay supplies heading into spring.

The weather has been warmer and drier across the area, enabling crops to dry up somewhat. Some reporting locations received 0.5 to 1.5 inches of rain, which continued to improve soil moisture levels. Fall fieldwork continued on lighter, sandy soils, but clay soils remained moist from previous rains. Corn planting was beginning in regions where circumstances required, and it was almost finished in Nueces County. Sorghum planting began with plenty of soil moisture available. Pasture conditions improved on a regular basis, with enough rainfall and rising temperatures, albeit there was still a lot of soggy land in the region. Producers continued to supplement feed their herds, maintaining the cattle in fair to excellent condition. Market prices were high, and inventories were low.

EAST: Recent precipitation and higher temperatures have boosted winter pasture growth. Heavy rains persisted in several locations, and Anderson County reported that pastures were generally too wet to work. Pasture and rangeland conditions ranged from acceptable to bad. The subsoil and topsoil conditions were satisfactory. Ponds and streams were full, with some flowing over the spillway. Cattle prices were high, while some places had low numbers owing to rain. Hay supplies were scarce. Livestock were in fair to excellent condition, with supplements in place. Wild pig activities continues to rise.

SOUTH PLAINS: Earlier this week, the district got 2-10 inches of snow, with higher precipitation in the northern part. The winter wheat that emerged was in excellent shape, as were the cattle, as farmers continued to supplement feed.

PANHANDLE: As much as 4 inches of wet snow stormed throughout the region, wheat growth responded quickly as soil temperatures rose. Producers began pre-plant tillage for summer crops. Daytime temperatures rose steadily, but more precipitation was required to fill the top soil moisture profile, particularly in areas planted with small grains, cover crops, or improved and natural grass pastures. Cattle on the range continued to get supplemental feed.

NORTH: Topsoil and subsoil levels were recorded as sufficient to excess in most counties throughout the area. Most counties in the district classified pasture and rangeland conditions as fair to excellent. Warmer temperatures encouraged pastures to green up, while several regions had scattered rain throughout the last week. Ryegrass should begin to grow in the coming weeks, although higher temperatures have resulted in some volunteer ryegrass growth in some regions. Instead of staying near to hay, livestock sought green fodder.

WEST: Dry weather continues, with no major rainfall forecast and near-normal temperatures predicted for the following week. Most pastures were still in winter hibernation, although cool-season grasses and forbs were flourishing. Conditions were forecast to be favorable for early spring planting over the remainder of February. Corn planting was scheduled to begin shortly, and growers continued to supplement feed their animals and wildlife. Beef cattle prices were solid and stable across all classes.

The U.S. dairy sector is in decline, with the USDA lowering its forecasts for 2023 milk output and milk cow herd for every month last year. In 2023, the milk-cow herd dropped by about 50,000 head, with a further 23,000 head lost between December and January. This fall correlates with a sharp drop in dairy cow slaughter, with some dairy farmers driven out of business owing to low Class III pricing and substantial discounts on milk earnings.

In January, milk production was 19.1 billion pounds, a 1.1% decrease from the previous year and the largest year-over-year shortfall in two years. In 18 of the 24 major dairy states, production did not reach previous year’s amounts. Milk production in Europe and the United Kingdom declined 0.7% year on year in December, with Poland being the only country among the bloc’s seven main dairy countries to produce more milk in December 2023 than in December 2022. Tractors have stopped traffic in towns throughout Europe as farmers protest the Green Deal’s red tape. Farmers are particularly upset about increasing gasoline prices and competition from imports that are not subject to as stringent rules.

The EU Commission simplified or lowered some of the criteria under the bloc’s Common Agricultural Policy, allowing farmers some leeway from government demands to fallow lands and abandoning a commitment to halve pesticide usage by 2030. European dairy farmers are feeling harassed, as they confront greater expenses and a more stringent regulatory environment than their counterparts across the Atlantic. Growth may continue in locations like Poland, but Europe’s dairy sector is unlikely to attract significant new investment.

Producers in New Zealand are more confident, as expected pay prices rise with the global milk powder price. Kiwi milk output dipped 1.2% below year-ago levels in January, however for the season as a whole, milk output is down 0.6% on a fluid basis, while milk solids production is up 0.8% due to stronger components.

Slower milk supply has helped boost dairy product prices, but further gains would need stronger demand. This week’s Global Dairy Trade auction had mixed results, with anhydrous milkfat performing well, butter prices surging, skim milk powder (SMP) rising, and whole milk powder (WMP) falling 1.8%.

Original Report At: https://www.jacoby.com/market-report/usda-trims-2023-milk-estimates/

USDEC looks at the principal market factors influencing dairy import demand and trade in the year ahead. 

With full year 2023 data finally released, we can turn our attention entirely to 2024 and what lies ahead. As is tradition, the U.S. Dairy Export Council has summarized the key “signposts” that our analysts will be watching in the year ahead that will determine the direction of U.S. dairy exports and global markets, particularly in this uncertain environment.

China

It should come as no surprise that China remains the first major variable likely to influence the direction of U.S. dairy exports and global markets. Despite contraction in 2022 and stagnation in 2023, China remains the largest dairy importer in the world – a position it is likely to retain for the foreseeable future. However, China’s future growth trajectory remains murky.

On the economic front, the outlook for China is pessimistic. Both consumer confidence within China and investor confidence regarding China are at their lowest levels in years; a deflationary housing market has eroded household wealth; and the International Monetary Fund (IMF), World Bank and other macroeconomic forecasters are all expecting a marked slowdown in the country’s GDP in 2024.

Weaker economic performance is likely to weigh on China’s dairy consumption growth again next year, particularly at foodservice. Pizza sales have performed relatively well, but that success has been in part due to Pizza Hut China pitching low-cost options. Whether sales volumes can keep growing remains to be seen, especially in other segments like bakery, where dairy ingredients are prevalent. Additionally, the slower economic growth (combined with a stagnant population) has damaged pork consumption within the country and thereby hindered whey-for-feed demand.

Ultimately, with demand growth questionable, the abundance or scarcity of local milk supplies will play a major role in determining dairy import needs. As we’ve seen the past several years, the Chinese industry has made significant investments in boosting their local milk production. The expansion is primarily due to vertical integration of the major processing companies, with most local milk production going toward fresh milk, which has reduced the need for imported fluid milk or whole milk powder. With lackluster consumer demand, low milk prices and high input costs, this would theoretically hamper milk production. But with the industry’s vertical integration and the Chinese government’s self-sufficiency goals, it is unclear to what extent normal economic fundamentals apply to China. In which case, further expansion and commercialization may still be on the way, further depressing imports until dairy consumption in the country rebounds.

Because of the uncertainty in both consumer demand and local milk supply, the range of outcomes for China’s 2024 dairy imports is wide. However, even with the uncertainty, we believe it’s likely that China is headed for another largely flat year of imports, at least in the first half of the year, with fluid milk and WMP, in particular, remaining weak. Ultimately, China’s import mix is evolving away from fresh milk and WMP toward cheese, dairy fats and specialty ingredients – products that aren’t made locally. This evolution may open up more opportunities for U.S. dairy in the long run, but for now, China could have a bumpy road ahead in 2024.

Mexico

Gratefully, not all markets have been as bleak as China. 2023 was an exceptional year for U.S. dairy exports to Mexico. U.S. suppliers shipped a record high 631,511 metric tons (MT) in milk solids equivalents (MSE) to our neighbor to the south, up an astonishing 13.5% compared to the same period in 2022. These strong volumes were critical in compensating for slower exports to other major demand destinations.

Several factors drove the surge in volumes. While economic growth in much of the world sputtered, the Mexican economy outperformed expectations as GDP rose by an estimated 3.2%, according to the IMF. Falling unemployment, a resurgence of tourism, and a wave of foreign investment boosted the desire for consumer products, including dairy. As demand soared, strong economic results drove the Mexican peso to an eight-year high, increasing the purchasing power of Mexican buyers and further bolstering consumer confidence. At the same time, dairy products in the U.S. were moderately priced, creating an ideal buying opportunity. Mexican importers capitalized on these conditions, importing 16% more nonfat dry milk/skim milk powder (NFDM/SMP) and 20% more cheese than in 2022, the previous record year.

While Mexico will almost certainly continue to be the top destination for U.S. exports in 2024, it may be difficult to keep up the breakneck pace seen last year. Indeed, recent performance of NFDM/SMP exports to Mexico suggest a slowdown may already be underway.

The IMF is predicting that GDP growth will slow materially this year as high interest rates persist and public investment slows. Its current forecast suggests an increase of 2.7% compared to 3.4% in 2023. However, the agency, as well as many other banks and rating institutions have recently increased expectations in light of last year’s stellar performance and stronger growth in key trading partner economies like the U.S. In addition, presidential elections are scheduled for June of this year and guarantee a change in leadership as incumbent Andres Manuel Lopez Obrador cannot run due to term limits. Last-minute initiatives in the lead-up to the election could stimulate consumer activity and dairy demand. But even so, a cloud of uncertainty hangs over the second half of the year.

Mexican consumers and importers proved their love of dairy in 2023, buoyed by strong economic performance. Though many are keen to see the party stretch into 2024, time will tell if impending challenges slow the pace of U.S. dairy shipments south of the border. For now, we anticipate import growth rates to moderate, particularly for NFDM/SMP, but the outlook for Mexico still looks relatively bright in a world of uncertainty.

The global economy

Beyond just China and Mexico, the global economy is going to need to pick up if U.S. dairy exports are going to rebound in 2024. As we’ve seen this past year, there is a clear connection between economic wellbeing and dairy consumption. With so many markets battling inflation and reduced purchasing power this past year, global dairy demand suffered. Conversely, those markets that had strong economies and currencies, like Mexico, dramatically overperformed expectations.

The good news is that brighter days ahead are expected for the global economy, even though obstacles remain. For instance, the IMF is forecasting global GDP to grow by 3.1%, which is below average (3.8% on average between 2000-2019), but still up from earlier forecasts. The upward revision reflects growing, albeit tentative and moderated, optimism.

One of the leading factors supporting modest optimism is easing inflation, which in many cases has cooled faster than anticipated. One of the major concerns with high inflation levels is entering a wage-price spiral (a vicious cycle of competing wage and price escalations often resulting in higher inflation) – which, positively, we seem to have avoided in most major economies. Inflation peaked globally in 2022 at roughly 8.7%, eased to 6.8% in 2023 and is expected to fall to 5.8% in 2024. That continued easing alleviates economic pressure and supports increased consumer demand.

With inflation retreating, many banks have hinted at easing restrictive monetary policies this year which should support economic growth. But lowering interest rates too quickly risks a resurgence in inflation, meaning that central banks will likely take a conservative approach in lowering rates in the near-term, thus limiting some of the economic upside in 2024. Overall, achieving a “soft landing” appears within reach for many major economies, but how countries handle their monetary policies in the coming year will determine their success.

Unfortunately, cooling inflation does not mean the global economy is without risk. The war in Ukraine, the war in Gaza and conflicts in the Red Sea threaten both the supply of commodities, energy availability and the reliability of the global supply chain. At the same time, China’s economic instability poses spillover risks to other economies in Asia. On top of that, the prevalence and number of trade restrictions increased over the last two years. Countries imposed roughly 3,200 new restrictions on trade in 2022 and around 3,000 in 2023 – up from roughly 1,100 imposed in 2019 according to the IMF.

Still, despite the obstacles, the global economy as we move into 2024 is not looking quite as bad as we thought. While the obstacles to growth are real, the global economy is weathering inflation better than anticipated, and inflation is expected to continue easing with nearly 80% of global economies anticipating lower inflation this year. Global dairy trade is unlikely to rebound to its pre-inflation level overnight, but growing incomes are a prerequisite to demand getting back on track.

Milk production in Europe and New Zealand

Even if Chinese demand improves, Mexico’s appetite remains strong, and the global economy picks up, the U.S. will still have to compete with well-established competitors – as we did in 2023. Adjusted for components, EU27+UK milk production grew by 1.2% and New Zealand expanded by 2% through November 2023. That rise in milk production combined with weakness in China increased competition with U.S. exporters in many key markets and products. As such, milk production in both Europe and New Zealand will be a critical variable to U.S. export performance next year.

Looking first at Europe, the bloc’s rapid milk production expansion and more recent contraction is primarily caused by volatility in farmer margins. European farmers benefited from sky-high milk prices in late 2022 and early 2023, with the average EU milk price reaching nearly 60 € cents per liter in December 2022 (just below $28/cwt). The rapid rise in prices created the incentive to increase production, especially through better feed quality, which dramatically boosted components. When milk prices returned to a more normal level in the middle part of the year, European milk production growth quickly slowed, most noticeably in Germany, the Netherlands and Ireland.

New Zealand output, on the other hand, remains primarily driven by weather. Given that the dairy herd in New Zealand has been on the decline since 2015, milk production relies on improved genetics and good weather to grow. With exceptionally supportive weather to finish the previous season and relatively minor effects from El Niño in the current season, milk production in the country was robust in 2023.

Looking to 2024, the growth outlook is relatively modest. EU milk prices are in a more balanced position, but with the late-year weakness in milk production, payouts have started to rise again, suggesting the cycle could begin again if demand doesn’t materialize to support a price enhancement. However, with the dramatic rise last year in component tests, it remains unclear if such gains can be repeated as European milkfat and protein levels do not grow nearly as consistently as in the U.S. By contrast, in New Zealand, forecast farmgate payouts are the lowest in four years, with concerns over drought as New Zealand moves into autumn, which could potentially be an even bigger obstacle than reduced margins.

On top of the near-term challenges, policy uncertainty is likely to hamper significant growth potential for both the European Union and New Zealand by tempering on-farm investment and moderating output in 2024 and beyond. All told, we expect slight gains for EU27+UK milk deliveries in 2024 (around +0.5%) and New Zealand holding steady with weather as the ever-present variable. For the U.S., this modest growth from the EU and New Zealand is likely to mean continued competition with the two largest dairy exporters in key markets around the world, but the two are unlikely to be as aggressive on price as they were in 2023 to clear excess milk. That could potentially open the door to U.S. export growth, provided that global demand and U.S. milk supply are conducive to expansion.

U.S. dairy’s expansion appetite

Regardless of the external factors, the financial well-being of the U.S. dairy farmer will be critical to U.S. export success in 2024. For the past several years, farmers’ margins have tightened as input costs have remained elevated, limiting milk production expansion in 2022 and 2023. Higher feed, energy and labor costs led many farmers to make tough management decisions, one of which was culling herds as record-high beef prices competed with depressed milk prices. Though feed prices have recently started easing and cull numbers are tapering off, costs are likely to remain high and may limit farm expansion.

On the feed side, USDA is projecting global coarse grains production, which includes feedstuffs like corn and sorghum, to increase to over 1.5 billion MT, up 4% from the previous season. Similarly, global oilseed production is also projected to increase by 3.5% in the coming season. These higher projections have resulted in a recent price drop in corn and soybeans. Though input costs are still elevated compared to pre-2021 levels, margins are not expected to be as tight in 2024 as they were in 2023, which is good news for U.S. dairy farmers and would normally suggest expansion may be on the way.

However, while costs are expected to stabilize, building a new farm or expanding an existing facility is likely to be a challenge. For one, replacement heifers are hard to find. Feeder cattle prices reached record highs in 2023 and breeding beef on dairy crosses was an attractive management decision for many farmers facing tight margins. Additionally, high interest rates and an uncertain market environment have cooled some of the appetite for expansion in the U.S.

With on-farm costs staying elevated, a smaller replacement heifer herd and a volatile investment landscape, 2024 is not expected to see significant milk production expansion until perhaps later in the year as several new processing facilities across the country come online. The level of milk production in the U.S. will have significant impact on U.S. export performance in 2024 as another tight year on the farm will likely limit exportable supplies – even as the United States’ long-term trajectory remains clear.

Milk prices and the Dairy Margin Coverage Program margin both ended four-month streaks of improvement in December, with DMC finishing the year with its lowest calendar-year margin since the present dairy safety net system was established over a decade ago. Meanwhile, U.S. dairy exports in 2023 saw the third-highest proportion of U.S. milk solids output shipped ever for the whole year – a notable achievement, but at a slower pace than its record-breaking first quarter export percentage. Stocks of most key dairy products fell in December, as milk and milk solids production growth remained lower than demand increase.

View Report

The USDA Milk Production Report shows a significant decline in US milk production for the seventh consecutive month, with January’s production of 19.1 billion lbs., a 1.1% decrease from last year. This decline is due to a sharp drop in milk production in New Mexico, Texas, Idaho, and South Dakota. New Mexico saw the steepest decline, with 97 million fewer pounds and 42,000 fewer cows. Texas also lost 56 million pounds of milk and 15,000 cows, owing in part to a large barn fire at South Fork Dairy Farm in Dimmit. Idaho also saw a decrease of 29 million pounds and 1,000 fewer heads. South Dakota saw a positive performance, increasing 39 million pounds with 21,000 more cows, adding nearly $4 billion to the state’s annual revenue. Wisconsin gained 25 million pounds with unchanged cow numbers, while Florida gained 10 million pounds with 6,000 more cows. Phil Plourd, president of Ever.Ag Insights, believes the report represents mediocre performance at best, as on-farm financial performance continues to weigh on overall output.

Milk futures on the Chicago Mercantile Exchange were up Thursday, boosted by a positive milk output report and a weaker currency.

February Class III milks a cent at $16.19. March ended 15 cents higher at $17.13. April closed 46 cents higher at $17.66. May rose 41 cents to $17.95. June through August futures are 16 to 31 cents higher.

Dry whey is up $0.0050 to $0.5150.

Blocks down $0.0150 to $1.50. Two deals were executed at that price.

Barrels rose $0.0025 to $1.61. There was just one transaction at that price.

Butter up $0.0375 for $2.8125. Six deals were executed at that price.

Nonfat dried milk is up $0.0025 to $1.1975. Nine transactions were made between $1.1950 and $1.1975.

U.S. milk production fell slightly in January. According to the USDA, production in the top 24 states was 18.3 billion pounds, down nine tenths of a percent from the previous year, due to fewer cows (8.873 million head) and lower average production (2,062 pounds per cow).

California ranked first in production and number of cows, followed by Wisconsin and Idaho, while Michigan led the way in average production.

According to the USDA, milk production in 2023 totaled 226.364 billion pounds, slightly less than in 2022, with a decrease in dairy cows canceling out an increase in the average.

The USDA’s next annual milk production projection is due March 8th.

The cheese market appeared to be turning a corner, but Class III futures’ weakness indicates otherwise. Class IV futures have performed better as butter prices remain supportive. The USDA’s annual Agricultural Outlook Forum, held on February 15th and 16th, provided an outlook for the US dairy industry, indicating that Class IV prices will remain significantly higher than Class III prices. The average Class IV price this year is expected to be $20.20, up $1.08 per cwt from 2023, while the Class III price is expected to be $17.10 this year, up $0.08 per cwt from 2023.

The butter price is expected to remain strong and trend higher, with recent increases in international butter prices improving the potential for US butter to become more competitive on the international market and increasing demand. Butter exports for 2023 were significantly lower than the previous year, and if export demand improves significantly, butter prices will rise above current levels, potentially returning to 2023 highs or higher.

Traders anticipate higher prices as more premium is added to butter futures contracts through the end of the year. The October butter futures contract anticipates an average price of $2.92 per pound. However, the USDA was less optimistic about cheese prices, forecasting an average price of $1.69, or nearly $0.07 per pound less than in 2023. Whey demand has increased, both globally and domestically, providing some support to the Class III milk price.

The USDA also released grain production and price forecasts for the 2024/25 crop year, indicating lower grain prices and higher ending stocks. Corn planted acres are expected to be 91.0 million, with a yield of 181.0 bushels per acre, and ending stocks are estimated to be 2.532 billion bushels, with an average price of $4.40 per bushel, $0.40 per bushel less than last year. Soybean planted acres are expected to reach 87.5 million, with a yield of 52.0 bushels per acre, up from 83.6 million this year and 50.6 bushels per acre.

On Thursday, the Chicago Mercantile Exchange saw mixed milk futures and cash dairy markets.

• February Class III milk went up $0.02 to $16.18. March was down $0.22 to $16.80. April was down $0.17 to $17.13. May was down $0.16 to $17.50.
• Contracts from June to December varied from seven cents lower in June to thirteen cents higher in October, with prices increasing each month following June. Thursday’s Class III transaction volume was little over 2300 contracts.
• Dry whey went up $0.01, to $0.53. There were no sales registered.
• 40-pound cheese blocks were down $0.0225 to $1.4925. Three transactions were reported, with prices ranging from $1.4925 to $1.50.
• Cheese barrels were down $0.02 at $1.5550. There was one sale at that price. Thursday was the third consecutive trading day in which barrels were valued higher than blocks.
• Butter was up $0.01, at $2.7275. Fifteen transactions were registered, with prices ranging from $2.7125 to $2.7325.
• Nonfat dried milk was down $0.0050, to $1.1750. There was one sale at that price.

• Milk supply is scarce and demand for spot milk is steady, leading to weak demand.
• US exporters delivered 5.806 billion pounds of dairy goods in 2023, totaling less than $8 billion.
• Cheese exports grew 0.6% to 80.5 million pounds in December, the largest number ever observed.
• Nonfat dry milk (NDM) exports increased by 0.9% compared to December 2022.
• US whey product exports fell 14.9% year on year, while butter exports dropped 42%.
• The GDT Price Index increased by 4.2% at the Global Dairy Trade (GDT) auction, reaching levels not seen since late 2022.
• The CME butter market fell from its highs in January.
• The spot dry whey market increased by 1.25¢ this week, closing the week at 52¢ per pound, the most since mid-2022.
• Milk powder output fell 15.9% year on year to 194.8 million pounds, including NDM and skim milk powder.
• Manufacturer stockpiles on NDM were 203.3 million pounds, a 20.5% decrease from the previous year and the lowest stock level since 2015.

The dairy markets have encountered resistance this week, with milk supply being scarce and demand for spot milk steady. This has resulted in a weak demand picture, with little motivation to drive the markets higher. According to December export figures, US exporters delivered 5.806 billion pounds of dairy goods in 2023, totaling little more than $8 billion. However, shipments to China and Canada dropped compared to the previous year, while exports to Mexico, the United States’ biggest trading partner, increased 12.8% to a new all-time high of 1.589 billion pounds.

Despite sluggish worldwide demand and competition from alternative providers, certain items saw moderate year-over-year growth in December. Cheese exports grew 0.6% to 80.5 million pounds in December, the biggest number ever observed, thanks to a particularly robust hunger among Mexican purchasers. Nonfat dry milk (NDM) exports increased by 0.9% compared to December 2022, as shipments to certain Asian destinations improved. Other product exports were under pressure due to negative international dynamics. In December, US whey product exports fell 14.9% year on year, while butter exports dropped 42%.

At this week’s Global Dairy Trade (GDT) auction, the GDT Price Index increased by 4.2%, with price increases noted in almost every commodity. This is the sixth straight auction in which the index has climbed, reaching levels not seen since late 2022. Butter, whole milk powder, and anhydrous milkfat prices increased by 10.3%, 3.4%, and 3.3%, respectively, as compared to the previous event.

Back home, the fat markets fell, and the CME butter market continued to fall from its highs reached in the closing weeks of January. According to the USDA’s Dairy Products report, butter output increased 4.4% year on year in December to 196.3 million pounds, a remarkable outcome considering the 0.3% decrease in milk production during the month and the significant draw from other manufacturers. Lower cheddar output may have boosted spot markets, which rebounded from late-December lows to surge steadily through the first few days of February.

The spot dry whey market increased by 1.25¢ this week, maintaining its upward trend. Prices closed the week at 52¢ per pound, the most since mid-2022. Participants report that the market for dry whey has tightened significantly, owing to increased domestic demand but also decreased output. December dry whey output declined 9.2% year on year to 66.062 million pounds.

In December, milk powder output fell 15.9% year on year to 194.8 million pounds, including NDM and skim milk powder. NDM prices have remained firmly entrenched in a small range, with no evidence that the market is eager to go beyond these limitations. At the end of December, manufacturer stockpiles on NDM were 203.3 million pounds, a 20.5% decrease from the previous year and the lowest stock level since 2015.

Original Report At: https://www.jacoby.com/market-report/after-period-of-exuberance-dairy-markets-run-into-resistance/

Weak demand and increased competition limit U.S. dairy export growth in 2023 to high-protein whey and lactose. 

Subdued demand, coupled with increased competition from the EU and New Zealand, translated into a U.S. dairy export decline of 7% in milk solids equivalent terms (MSE) in 2023. The factors complicating U.S. dairy export growth have been consistent most of the year: elevated inflation, disappointing economic growth in key export markets (particularly China), reduced demand for feed whey from China’s struggling pig sector, increased milk output from the EU and New Zealand, and reduced whole milk powder (WMP) purchasing from China causing New Zealand to shift its product mix and redirect exports to key U.S. markets.

U.S. export value finished the year at $8.11 billion. That is the second largest value of all time but down 16% from the record year of 2022 as both volume and prices eased.

U.S. suppliers posted volume gains in only two major product categories in 2023: high-protein whey (WPC80+) and lactose. Full-year U.S. WPC80+ export volume jumped 18% (+11,619 MT) compared to 2022, rising to a record 75,848 MT. Fueled by strong gains in the first quarter, lactose shipments rose 5% (+20,890 MT) to a record 471,918 MT.

But beyond WPC80+ and lactose, positive year-end numbers were nowhere to be seen. Nonfat dry milk/skim milk powder (NFDM/SMP) fell 3% (-24,570 MT); cheese dipped 4% (- 15,313 MT); low-protein whey dropped 20% (-125,165 MT); butterfat slid 44% (-44,795 MT). Milk protein concentrate, fluid milk and cream and whole milk powder fell 10%, 7% and 33%, respectively, for the year.

For more detailed information, as well as interactive charts and data, visit USDEC’s Data Hub.

That said, we started to see some positive signal to close out the year. U.S. cheese exports recorded gains in November (+4%) and December (+1%), with solid volume increases to Mexico, China, Central America and the Caribbean. 

U.S. NFDM/SMP shipments rose 1% in December, its first YOY increase since August 2023. December shipments to Southeast Asia jumped 23% (+3,634 MT) and volume to the Middle East/North Africa more than tripled (+1,868 MT). For Southeast Asia, it was the second straight monthly increase and an optimistic sign that demand in the No. 2 U.S. market is on the road to recovery.

Fluid milk and cream finished the year with four straight months of YOY gains. Volume rose 15% (+6 million liters) from September to December compared to the same period the previous year.

For a product-by-product breakdown of 2023 U.S. export performance, see below.

NFDM/SMP
U.S. NFDM/SMP exports saw slight growth (+1%, 582 MT) in December—the first monthly increase since August. Overall NFDM/SMP exports for the year have been lackluster, with 2023 exports down 3% (-24,570 MT), but the decline only tells a portion of the story. U.S. NFDM exports to Mexico this year have boomed (+16%, 57,040 MT) although largely frontloaded in the year. NFDM exports to Mexico in H1 were up 39% (+62,842 MT). They eased in the back half of the year (-3%, -5,801 MT), but volumes were still large and up against strong exports in H2 of 2022. The Mexican economy has been very strong at a time when economies around the world mostly struggled. In addition to the strong economy, the peso has consistently strengthened against the dollar since Covid, making U.S. imports more attractive.

At the same time, exports to Southeast Asia suffered (-20%, -60,637 MT). 2023 for Southeast Asia was marked by high inflation and challenging domestic economics. Even with lower prices this past year, demand has been weaker. December did build on the slight growth seen in November with NFDM/SMP exports to the region up 23% (+3,634 MT) in the final month of the year.

Looking to 2024, we expect export volumes to Mexico to remain robust, but may not match the record volumes we saw in early 2023. In Southeast Asia, with easing inflation, lower NFDM/SMP prices and after a prolonged period of low import volumes, we expect demand to rebound in 2024. Overall U.S. NFDM/SMP exports should see some growth in the year ahead as the global economy continues to recover.

Cheese
While YOY U.S. cheese exports fell in 2023, it was (at 435,569 MT) the second highest volume we ever shipped in a single year. Volume was driven primarily by a 41% jump (+39,959 MT) in shredded cheese sales to meet foodservice demand, mostly to our top market, Mexico, but also to China. U.S. exports of shredded cheese to Mexico soared 162% (+39,131 MT) last year, while shipments of shredded cheese to China increased more than eight-fold (+5,612 MT).

However, those impressive gains were still insufficient to offset a decline in overall U.S. volume. Inflation-related consumption headwinds in Korea and Japan combined with heightened competition from the EU and New Zealand in South Korea to undercut U.S. cheese sales to both East Asian countries. U.S. cheese exports to Japan fell 15% (-7,155 MT) in 2023 and shipments to South Korea plunged 40% (-30,175 MT). Looking forward, more competitive pricing, European milk production struggling and expectations that Japanese and Korean demand for U.S. cheese may be poised to turn a corner paint a more hopeful picture for the coming year. 

WPC80+
High-value U.S. WPC80+ exports crushed the previous volume record by more than 10,000 MT in 2023. Ongoing demand growth for high-protein foods in key markets coupled with lower WPC80+ prices in 2023 created a banner year for U.S. suppliers.

Gains were geographically broad-based. U.S. WPC80+ sales to Japan have risen now for nine consecutive years (+11%, +1,513 MT in 2023). The country took over as the top U.S. WPC80+ market from China in 2022, and despite erosion in YOY monthly growth at the end of 2023, Japan remains our No. 1 buyer. U.S. shipments to China rebounded last year (+47%, +4,520 MT) after higher prices weakened 2022 demand. And, driven by one of the biggest sports nutrition markets in the world, Brazil staked a claim as the fastest growing U.S. WPC80+ buyer in 2023. U.S. shipments of WPC80+ to Brazil are up now for four straight years and more than doubled to 8,462 MT last year. An even more encouraging sign is the ample room for growth. Demand for U.S. WPC80+rose in several developed and emerging markets last year, including Canada (+28%), Mexico (+35%) and India (+36%),while markets like South Korea and Southeast Asia are primed for demand rebounds.

Lower-protein whey (0404.10)
As we have noted in this column throughout the year, the U.S. low-protein whey export shortfall in 2023 is mostly about China. U.S. shipments of 0404.10 whey to China plunged 27% (-79,357 MT) as ongoing troubles in the nation’s pork industry severely curtailed demand. But China can’t be completely to blame for the decline. YOY U.S. export volume fell by a total of 125,165 MT in 2023, so the U.S. declined by more than 45,000 MT to other destinations.

Low-protein whey demand eroded across several geographies last year. In fact, U.S. shipments fell to eight of our top 10 markets in 2023. And exports declined for other suppliers as well. EU27+UK whey exports, for example, were down 10% (-62,429 MT) through November. 

The challenges within China appear likely to persist, but our analysts are optimistic that demand in Southeast Asia, where a large portion of the dry whey is used for food applications, will rebound with an improved economic outlook. Given low-protein whey accounted for over 70% of the U.S. dairy’s export decline in 2023, any improvement in demand would put exports on better footing for 2024. 

Lactose
YOY U.S. lactose exports fell 3% (-960 MT) in December, but overall lactose exports for the year were up 5% (+20,890 MT)—largely driven by gains to China. U.S. lactose exports to China in 2023 grew 23% (+26,813 MT). Likely supporting the increased exports were lower prices last year and increased usage for standardization within China—as detailed in our October write-up. U.S. lactose prices over the summer reached the lowest levels in nearly a decade. Prices have firmed since then, up 48% since July, which may impact export volumes moving into 2024, but prices are still roughly 30% below the average price since 2020.

Overall, U.S. lactose exports over the last few months have somewhat plateaued after robust growth in 2022 and much of 2023. Looking to 2024, it’s hard to get overly excited about strong growth as demand remains uninspiring.

Source

• Class III average milk price is predicted to be $17.30, similar to 2023.
• Class IV milk price could be closer to $21, over $2 more than 2023.
•  On-farm feed prices are predicted to fall by 15% by 2024, potentially boosting Class II and Class I profits.
• Heifers and cheese are the most optimistic aspects of the forecast.
• Milk output in the second half of 2023 is expected to decrease by 0.6% from last year.
• Heifers are in short supply, with a projected 1.1% decrease in calving in 2024.
• New cheese production capacity is expected to increase cheese output by 5.5% between Q4 and mid-2025.
• Dry whey, whey protein concentrate, and whey protein isolate are expected to see considerable demand and prices rise.
• Butter is the most optimistic segment of the market, with domestic disappearance expected to rise by 8.8% in 2023 and production increased by 2.2%.

The Class III average milk price in 2024 is predicted to be approximately $17.30, comparable to 2023, which is bad news for producers. However, the Class IV milk price might be closer to $21, which is over $2 more than 2023. On-farm feed prices are predicted to fall by roughly 15% by 2024, which might boost Class II and Class I profits.

Heifers and cheese are the most optimistic aspects of the forecast, with milk output in the second half of 2023 down 0.6% from last year and a milking herd down 0.4%, or 39,000 head, from the previous year. Heifers are in short supply, with the USDA forecasting that the number of heifers projected to calve in 2024 would be 1.1% lower than in 2023. However, dairy cow slaughter is down more than 20% from last year, so producers are hanging onto cows for another lactation. Despite the scarcity of heifers, the herd may increase somewhat in 2024.

The bearish issue is increased demand and new cheese production capacity coming online. Domestic cheese disappearance is anticipated to increase by just 0.8%, while fluid milk is down 1.4% and nonfat dry milk (NFDM) is down 9.7%. Between the fourth quarter of 2024 and the middle of 2025, at least five new cheese factories or plant expansions are expected to come online, possibly generating an extra 800 million pounds of cheese, representing a 5.5% increase in cheese output.

Dry whey, whey protein concentrate (WPC), and whey protein isolate (WPI) have all seen considerable demand, and their prices have risen over the last six months. While there may be downward pressure on the whey complex once these new cheese facilities open, stocks are projected to remain light until then, and a relatively low dry whey price will support the Class III pricing somewhat.

Butter is the most optimistic segment of the market, with domestic disappearance expected to rise by 8.8% in 2023, while production increased by just 2.2%. With milk supply poor and new cheese facilities absorbing more milk, butter output in 2024 is likely to remain low, making it difficult to replenish supplies and keeping the market tight.

Fonterra has increased its farmgate milk price projection for the 2023/24 season to NZ$7.30-NZ$8.30, while profits remain steady at 50-65 cents per share. The firm has seen an increase in demand for its reference commodity items, especially from the Middle East and South East Asia, as indicated in GDT pricing. Overall, GDT costs have risen 10% since the previous Farmgate Milk Price Report in December, while whole milk powder prices have risen 11.5%. The potential effect of geopolitical instability and supply chain disruption on demand in major importing areas is unknown. Fonterra’s market size and variety give flexibility, and its cooperation with Kotahi guarantees that its goods are delivered to clients on a continuous basis. The business has also upped its farmgate milk price prediction for the third time in five months, by 50 cents, citing improving supply and demand dynamics.

According to the most recent analysis from Zisk, a free software that includes data from producers on their milk contracts, feed prices, and predictors of dairy firm profitability, milk farmers in the United States anticipate a lucrative year in 2024. The study, which has been downloaded by nearly 4,000 farm owners, covers 4.2 million cows, or 45% of the US herd. An overall trend analysis based on data gathered from all farms provides insights into herd size, average basis, and milk output.

The 2024 estimates also suggest that farm size matters; bigger farms will produce more money per cow, but smaller farms, particularly those with less than 250 cows, would be unprofitable. The paper demonstrates how many dairies, particularly major ones, have secured profits by locking in their pricing.

Herd sizes in the United States continue to grow, and according to the Zisk research, farms with more than 5,000 cows will be the most profitable. Even farms with over 1,000 cows are much more lucrative than those with less. In contrast to Zisk’s prior yearly reports, this year’s statistics suggest that larger farms have lower expenses, better pricing, and economies of scale, and they anticipate to earn more per cow.

The Southeast is forecast to be the most prosperous area in the United States by 2024, with an average estimated profit of $857 per cow. Smaller farms (those with less than 250 cows) plan to continue to lose money, although the total profit per cow for the area is expected to remain comparable to last year.

The Midwest will be the second most lucrative overall, with a projected $701 per cow, although smaller herds will earn far less. Wisconsin herds (average size 833 cows) anticipate $1,000 per cow earnings, whereas South Dakota, with almost double the average herd size, predicts $672 per cow.

The Northeast is the least lucrative area for milk production in 2024, although Rhode Island is projected to have the greatest profit per cow in the US despite an average herd size of 35. Massachusetts, New Hampshire, New Jersey, and Kentucky are forecasting among of the lowest average earnings in the United States in 2024.

The Global Dairy Trade index is up for the seventh consecutive trading day. The index gained 4.2% to an average price of $3,571 per metric ton on Tuesday morning. The butter market rose 10.3% to $6,516 per metric ton, or $2.95 per pound. Cheddar cheese prices climbed 6.3% to $4,469 per metric ton, or $2.02 per pound. Skim milk powder rose 4.6% to $2,758 per metric ton, or $1.25 per pound. Whole milk powder was also up 3.4% at $3,463 per metric ton, or $1.57 per pound. Anhydrous milk fat prices increased 3.3% to $6,033 per metric ton, or $2.73 per pound. Lactose prices rose 2.6% to $785 per metric ton, or $0.35 per pound. Buttermilk powder rose 1.2% to $2,412 per metric ton, or $1.09 per pound. The only commodity to lose value during Tuesday’s trading session was mozzarella cheese, which slid 1.8% to $3,760 per metric ton, or $1.70 per pound. Tuesday’s 21 bidding rounds yielded 104 victorious bidders, who sold 24,836 metric tons of dairy goods.

Milk futures have recently increased, prompting dealers to become more open to the market. However, worries about future milk supply may grow as farms depart the dairy industry and the availability of dairy replacement heifers tightens dramatically. Cow slaughter has not risen as expected owing to low milk prices, but a tighter heifer supply will keep cows in demand.

The Bi-Annual Cattle Inventory data stated that the number of milk cows on January 1st was 9.358 million, down 41,000 from the previous year. The heifer-to-milk cow ratio is likely to tighten further in the coming years. Buyers of dairy products may have considered this and purchased supply earlier at cheaper costs, resulting in the subsequent price hike.

The strength of dry whey has given substantial support for the Class III market, with butter and cheese receiving the majority of attention in the cash market. Dry whey has gradually climbed, adding around 62 cents to the Class III pricing in the last three weeks. Butter is predicted to stay stronger than cheese, resulting in Class IV milk prices being much higher than Class III pricing.

Robin Schmahl, a commodities trader with AgDairy, the dairy business of John Stewart & Associates Inc. (JSA), feels that the ideas presented and the underlying facts from which they are derived are regarded to be credible but cannot be guaranteed. Any views presented herein are subject to change without notice, and the simulated performance outcomes have inherent limitations. Trading commodities futures and options on futures has a risk of loss and is not for everyone. Accepting this message means you realize and agree that you will not depend primarily on it to make trading choices.

Both USDA farmer pricing indexes fell in December. The USDA reported a 0.4% drop in prices due to losses in cattle, pigs, milk, and turkeys offsetting increases in maize, broilers, eggs, and onions. According to the USDA’s December 2023 dairy index, all milk prices were $20.60 per hundredweight, down 5.1% from November and 16% from December 2022. The index of prices paid fell 0.5% as feeder cattle, complete feeds, diesel, and gasoline fell while feeder pigs, potash & phosphate, nitrogen, and LP gas rose. Prices received fell 18% and prices paid fell 0.6% in 2023, representing farmers’ and ranchers’ losses.

Milk production growth in the U.S. sputtered at the end of 2023, leaving the full year result nearly unchanged from the previous year. After expanding during the first half of the year, volumes contracted between July and December as milk prices remained under pressure. December milk production totaled 18.843 billion pounds, a decrease of 0.3% compared to the same month last year, with notable declines seen in the western states. A shrinking national dairy herd has driven the production drop, as December’s herd size rang in at 9.357 million cows, 39,000 head less than at the same time last year and representing the smallest herd size since June 2020.

European production has been trending downward, with volumes in the European Union and United Kingdom falling by an estimated 2.5% year over year in November. Many of the bloc’s largest milk producers, including Germany, France, and the Netherlands, saw pronounced declines in November output. Strict environmental regulations in many European countries are likely to interfere with milk production recovery and have sparked high profile protests in the region. In South America, volumes in Argentina recoiled by 7.7% in December as producers confront deep economic and political uncertainty. Oceania, however, is expanding with Australia and New Zealand both posting gains in the most recent month for which data is available.

International demand is also limping along, with China’s December import statistics finalizing a disappointing year for the world’s largest dairy importer. Whole milk powder, China’s most important import in volume terms, had an incredibly weak year with cumulative shipments for 2023 down 38.4% to the lowest volume since 2016. UHT milk, butter, and whey imports were also down on an annual basis while skim milk powder eked out an annual gain despite falling 36.9% year over year in December. Cheese had a standout year as a record 392.8 million pounds were imported, 22.5% more than in 2022.

The CME spot market boasted a week of gains, but prices for most dairy commodities remain weak. Lower prices in the U.S. should help to encourage additional export sales that will help to clear domestic volumes, though his dynamic has been slow to materialize.

Original Report At: https://www.jacoby.com/market-report/u-s-milk-production-growth-sputters-at-the-end-of-2023/

The USDA reports that winter weather has had an influence on several dairy markets during the last week.

According to the Agricultural Marketing Service’s most recent report, winter weather impacted dairy operations in eastern states, and some milk destined for Class III cheese manufacturing was shifted into bottling for grocery stores. According to the USDA, the weather also had an impact in the central area, where milk was plentiful, but some cheesemakers had to change their production schedules.

The USDA reports that milk output is constant in the east, robust in the northeast, and somewhat lower in the Midwest, where winter storms have passed. The Western area has consistently boosted milk output.

Butter demand is consistent throughout the nation, and some factories have increased output, while others have decreased due to weather or scheduled maintenance.

U.S. milk production fell slightly in December 2023. The USDA reported that the 24 main milk-producing states produced 18.1 billion pounds of milk, a one-tenth of a percent decrease from the previous year.

The USDA also reduced November output down by six-tenths of a percent from early estimates to 17.3 billion pounds, 14 million pounds less than the previous year.

There are 8.9 million dairy cows in the 24 main dairy states, and 9.36 million throughout the country.

Production per cow increased in the first half of 2023 but decreased in the final half of the year. Last year, January had the highest milk output and per-cow production rate.

California is the leading total milk producer, producing 3.44 billion pounds, followed by Wisconsin, which produces 2.67 billion pounds. Michigan continues to top the country in milk-per-cow output, with 2,210 pounds per cow.

The Global Dairy Trading Index rose 2.3% in Tuesday’s trading session.

Butter was the biggest gainer, up 5.8% to $5,906 per metric ton ($2.67 per pound).

Anhydrous milk fat rose 4.3% to $5,842 per metric ton, or $2.64 per pound.

Whole milk powder prices increased 1.7% to $3,353 per metric ton, or $1.52 per pound.

Lactose rose 1.3% to $760 per metric ton, or $0.34 per pound.

Skim milk powder prices increased 1.2% to $2,638 per metric ton, or $1.19 per pound.

Cheddar cheese prices were up 1% to $4,217 per metric ton, or $1.91 per pound.

The only product to lose value during Tuesday’s trading session was mozzarella cheese, which fell 3.3% to $3,830 per metric ton, or $1.73 per pound.

During Tuesday’s trading event, 100 buyers out of 167 bidders participated in 15 rounds of bidding. Overall, 24,909 metric tons of dairy products were purchased on Tuesday.