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Things are looking good in the dairy market going into holidays

By Lee Mielke

 First indications are that U.S. milk production saw a pretty good jump in August, thanks to big increases in output per cow and cow numbers. The USDA’s latest data shows output at 19.02 billion pounds, up 1.6 percent from August 2021. The 24-state total came in at 18.2 billion pounds, up 1.7 percent.

It is only the second monthly increase since October 2021 but is measured against last year’s small 0.6 percent gain from August 2020. USDA has also lowered its estimates in recent World Agricultural Supply and Demand Estimates (WASDE). However, revisions raised the 50-state July estimate 53 million pounds to 19.2 billion, up 0.5 percent from 2021 instead of the 0.2 percent increase originally reported.

But the 1.6 percent increase should not be ignored. August cow numbers totaled 9.427 million, highest since August 2021, up 8,000 from July numbers, which were revised up 3,000 head. The August herd was only down 11,000 head from July 2021 but is up 60,000 head from January.

Output per cow averaged 2,018 pounds, up 34 pounds or 1.7 percent from August 2021. July output per cow was revised up 5 pounds, to 2,038 pounds.

California put 3.46 billion pounds of milk in the tank, up 69 million or 2.0 percent from a year ago. Cow numbers were up 4,000 and output per cow jumped 35 pounds. Wisconsin produced 2.73 billion pounds, up 31 million or 1.1 percent. Cow numbers were down 6,000 but output per cow was also up 35 pounds from a year ago.

StoneX broker Dave Kurzawski, speaking in the Sept. 26 Dairy Radio Now broadcast, said the takeaway from the report is that “In the midst of the high costs of operating a dairy today, dairy farmers have been fairly resilient.” He said there was a “knee-jerk reaction” in the futures market but “Does it really change my world view of milk supply, both in the U.S. and globally, and the answer is no.

“There’s still a mountain of challenges dairy farmers face,” he said. “The milk supply is still under duress and one report showing output above a year ago, while it has a bearish tone, I don’t think it’s much to worry about.”

Demand is still in the driver’s seat, he said, and the U.S. is in a good position to take market share from Europe over the next few months. Add that to holiday demand here at home, that should keep market prices strong even if butter comes down from its $3 high, he concluded.

The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC., says “Dairy margins improved over the first half of September on stronger milk prices while feed input costs were largely steady but remain firm.”

The MW detailed the August Milk Production report, stating “Although the U.S. dairy herd appears to be stabilizing and showing modest growth, tight margins and labor conditions, high input costs, limited processing capacity and increased regulations will deter significant expansion. Strength in dairy product exports is helping to support milk prices, as U.S. prices remain competitive on the world market despite strength in the U.S. dollar. U.S. dairy exports in July rose to 467.4 million pounds, up 4.5 percent from last year with cheese, butter and whey all increasing export volumes compared to 2021.”

The MW cited crop details from the September WASDE which “confirmed lower yield and production forecasts for corn and soybeans. Both harvested area and yield projections were lowered for corn and soybeans, reducing the production forecasts by 415 million and 152 million bushels, respectively, from August. A hot, dry finish to the summer along with an ongoing drop in crop condition ratings is helping to retain risk premium in the market ahead of harvest, particularly for the soy complex,” the MW concluded.

Dairy cow culling took a jump in August. An estimated 266,100 head were sent to slaughter under federal inspection, according to the latest Livestock Slaughter report, up 36,000 head from July and 4,700 or 1.8 percent above August 2021. Culling in the eight months totaled 2 million head, down 55,700 or 2.7 percent from a year ago.

Dairy culling in the week ending Sept. 3, totaled 55,600 dairy cows, down 4,400 head from the previous week, and 3,200 head or 5.4 percent below a year ago.

Dairy culling has been tracking below last year’s level so expansion is likely occurring, according to StoneX. “Producer margins have gotten much tighter in recent months so we will have to see if the increase in production is enough to keep cows in the herd or will they resort to the cull market.”

Meanwhile, the Agriculture Department’s latest Dairy Outlook, issued Sept. 16, stated: “The 2023 forecast for the average number of milk cows was lowered by 20,000 head to 9.415 million, as the rate of growth in cow numbers is expected to slow in 2023. The 2023 forecast for milk per cow remained at 24,300 pounds.”

U.S. butter and cheese stocks fell in August as consumers chewed through the inventory. The Agriculture Department’s latest Cold Storage report shows the August 31 butter inventory at 282.6 million pounds, down 32.5 million pounds or 10.3 percent from July, and down a hefty 80.1 million pounds or 22.1 percent below a year ago, the 11th consecutive month stocks were below the previous year.

American type cheese stocks fell to 842.4 million pounds, down 17.6 million pounds or 2.1 percent from July, but were 15.3 million or 1.8 percent above a year ago.

The total cheese inventory added up to 1.48 billion pounds, lowest since April but a record high for August, according to the Daily Dairy Report. It was down 38 million pounds or 2.5 percent from July, but still 51 million or 3.6 percent above a year ago.

Recovery continued in the Sept. 20 Global Dairy Trade auction, which saw the weighted average rise 2.0 percent, following the 4.9 percent jump on Sept. 6, reversing five consecutive declines. Traders brought 57.6 million pounds of product to market, down from 59.8 million on Sept. 6, and the average metric ton price inched up to $4,072 U.S., up from $4,007.00.

StoneX says the GDT 80 percent butterfat butter price equates to $2.37 per pound U.S., virtually unchanged from the last event, and compares to CME butter which closed Friday at a pricey $3.1325. GDT Cheddar, at $2.3346, was up 4.6 cents, and compares to Friday’s CME block Cheddar at a bargain $1.96. GDT skim milk powder averaged $1.6089 per pound, down from $1.6215, and whole milk powder averaged $1.6931 per pound, up from $1.6374. CME Grade A nonfat dry milk closed Friday at $1.58 per pound.

StoneX adds: “Overall concerns about New Zealand milk production likely drove the stronger results. North Asia market share, which includes China, bounced back from abysmal levels at the previous event. North Asia’s share of purchases was down slightly from last year, but volume was up. Southeast Asia lost share compared to the last event, but was similar to last year. Middle East share was up, Africa’s was down,” says Nate Donnay Director of Dairy Market Insight.