The T.C. Jacoby Weekly Market Report Week Ending November 19, 2021
According to USDA’s Milk Production report, U.S. milk production dropped to 18.5 billion pounds in October, down 0.5% from October 2020. That’s the steepest year-over-year decline in milk output since March 2019.
Milk output is down and prices are up. According to USDA’s Milk Production report, U.S. milk production dropped to 18.5 billion pounds in October, down 0.5% from October 2020. That’s the steepest year-over-year decline in milk output since March 2019. The agency also reported that September milk collections were steady with last year. The new estimate is 0.2% lower than USDA’s initial take.
At long last, U.S. dairy producers are milking fewer cows than they were a year ago. USDA dropped its estimate of the September milk-cow herd by 8,000 head from last month’s report, which already showed a sizeable decline. And producers trimmed the herd by another 14,000 head in October, according to USDA’s preliminary estimates. The US. dairy herd now stands at 9.4 million head, down 14,000 from October 2020 and down 107,000 from the peak in May.
Sky-high Class III prices in part of 2019 and most of 2020 fueled expansion in the cheese states. Combined milk production in Iowa, Minnesota, South Dakota, and Wisconsin topped 4.3 billion pounds last month, up 145 million pounds from October 2020, an increase of 3.5%. Over the past year, dairy producers in these four states have added 57,000 cows, while the dairy herd in the other 46 states has shrunk by 71,000 head. Growth in the cheese states finally seems to be petering out. Dairy producers there added just 1,000 head in September and did not expand in October.
Outside the Upper Midwest, both milk production and cow numbers are in decline. Texas, Georgia, New York, and Idaho did make more milk last month than they did in October 2020, but that is growth of a different sort, as cows have simply moved across state lines, with little impact on regional production.
The market clearly assumes that less milk will mean less dairy products of all varieties. Prices jumped across the board in Chicago. CME spot butter leapt 9.75ȼ this week to a two-year high of $2.0475 per pound. Spot nonfat dry milk (NDM) rebounded to $1.555, up a half-cent. Spot dry whey rallied even before the bullish Milk Production report. It reached 70ȼ on Wednesday and held there. That’s up 3ȼ on the week and within a whisker of the highest price in whey’s nearly four years on the spot market. Spot Cheddar blocks climbed 10.75ȼ to $1.8575. Barrels advanced 2.25ȼ to $1.52.
The bulls are also bellowing in foreign markets too. Prices were higher for all categories once again at the Global Dairy Trade (GDT) auction. Cheddar rose 2.2% to its highest price since it debuted at the auction in 2011. Skim milk powder (SMP) rallied 1.4% to a fresh seven-year high. Benchmark dairy product indices in Europe were steady to higher. However, when converted from euros to dollars, European dairy prices actually moved lower this week, as the strong U.S. dollar made foreign products more competitive.
In both Europe and the United States, milk output is slowing, but cheese output is not. U.S. milk production grew just 0.8% from a year ago in the third quarter, while cheese production jumped 3.8%. Cheese plants are pulling milk away from Class IV manufacturers. In the third quarter, butter output fell 2.8% year over year, and combined production of NDM and SMP plummeted 11.3%. In the
Mideast, milk powder output has reportedly slowed further in October and November. Lower output and robust global demand have helped to lift the milk powder market for months, and prices are likely to stay firm. The fundamentals for butter are similar. Slow production and strong domestic orders have enlivened this once sluggish market.
The improved outlook has lifted Class IV futures above their Class III counterparts for every contract on the board. But this week, Class III gained more ground. December Class III settled at $18.57 per cwt., up 95ȼ from last Friday. January Class III rallied 81ȼ to $18.98, and most other 2022 contracts climbed above $19. Most Class IV contracts gained about 40ȼ and hover around $19.50.
The corn market tested new highs but failed to hold there. December corn settled today at a still-
lofty $5.7075 per bushel, down 6.5ȼ for the week. Soybean meal values pushed sharply higher once again. The January contract closed at $364.60, up $7.80 from last Friday.
Both corn and soybean meal prices are likely to stay high unless demand slows, and that will depend on exports. Closer to home, ethanol makers are using all the corn they can, thanks to lucrative margins. Hog growers are upping the share of soybean meal in the ration, because imports of feed additives like lysine have slowed. Forage is scarce and pricey, especially in the West. Dairy producers are spending more every day to keep their cows fed.