The Agriculture Department again lowered its milk production forecasts for 2023 and 2024 in the latest World Agriculture Supply and Demand Estimates report. The 2023 forecast was reduced from last month due to slower expected growth in milk per cow. Production in 2024 was lowered due to lower milk cow numbers and reduced milk per cow.

2023 production and marketings were estimated at 226.9 and 225.9 billion pounds respectively, down 200 million pounds on both from a month ago. If realized, both would be up 400 million pounds or 0.2 percent from 2022.

2024 production and marketings were projected at 229.0 and 228.0 billion pounds respectively, down 1 million pounds on production and 1.1 million pounds lower on marketings. If realized, 2024 production would be up 2.1 billion pounds or 0.9 percent from 2023.

The fat basis import forecast for 2023 was raised due to higher imports of cheese. Skim solids imports were lowered due to fewer shipments of milk protein products. The fat basis export forecast was lowered due to lower butter exports. The skim-solids export forecast was raised due to higher whey product shipments which more than offset the lower expected nonfat/skim powder.

The 2024 import forecast was raised on a fat basis but lowered on a skim-solids basis. Fat basis exports were lowered for 2024 on lower expected butter shipments, while a higher skim-solids basis forecast reflects higher nonfat/skim powder and whey product exports.

Cheese and butter price forecasts for 2023 were lowered while the nonfat dry milk price was raised. Whey was unchanged.

The Class III and Class IV milk price forecasts were lowered due to lower expected cheese and butter prices. The 2024 cheese price forecast was lowered, while butter, NDM, and whey prices were raised. The Class III price forecast was lowered due lower cheese prices. The Class IV price forecast was raised due to higher butter and NDM price forecasts, according to the WASDE.

The Class III price is expected to average $17.05 per hundredweight in 2023, down a nickel from last month’s estimate, and compares to $21.96 in 2022 and $17.08 in 2021. The 2024 average was estimated at $16.85, down 85 cents from last month’s estimate.

The 2023 Class IV was projected to average $19.10, down a dime from a month ago, and compares to $24.47 in 2022 and $16.09 in 2021. The 2024 average was projected at $18.90, up a nickel from last month’s estimate.

Checking Chicago as traders anticipated Monday’s November Milk Production report, CME block Cheddar closed the third Friday of December at $1.52 per pound, down 6 cents on the week, lowest since Dec. 1, and 45.75 cents below a year ago when it dropped almost 12 cents.

The barrels finished Friday at $1.45, 10.50 cents lower, 29 cents below a year ago when they plunged 21 cents and are 7 cents below the blocks. CME sales totaled nine loads of block on the week and 27 of barrel, 11 on Friday alone.

Midwest cheesemakers tell Dairy Market News that milk is available, allowing them to run steady production. Spot milk prices ranged from $4-under to $1-over Class. Volumes are not excessive, but some sellers are offering milk at below Class ahead of the end of year holidays. Demand is seasonally steady for American and Italian type cheeses. Softening demand has contributed to a steeper decline in CME prices for barrels than blocks, according to DMN.

Western retail cheese demand remains steady while food service remains steady to moderate. Price competitiveness of domestic cheese has improved but still has not manifested into strengthening moderate export demand.

StoneX says, “Supply remains constrained with milk production running weak. U.S. production was much weaker than forecast in October, down 0.5 percent. The biggest surprise was production per cow which is below trend by a record amount. Milk production, and production per cow, remain well below a year ago in California and there isn’t any sign that they are improving quickly, so that will be a drag on total U.S. production even if the rest of the country does improve in coming months.” That said, schools are closing for the holidays and thus pushing more milk into manufacturing.

Milk production also slowed more than expected in Europe during September and October, says StoneX, and should remain at, or below year ago levels, through the first quarter. Production in Argentina is also down.

“U.S. Cheese inventory in November was up 1.3 percent, and the market was about 18 cents lower than you would expect with inventories up that much,” says StoneX. “Either inventories for November are bigger than expected or the market was really undervalued in November. To fully justify a $1.60 block price for December, inventory would need to be up about 3.3 percent. It is possible that inventory isn’t up that much and the market is still just running weak relative to the fundamentals for other commercial reasons. Whichever way you cut it, at present it seems that U.S. spot cheese prices are undervalued.”

CME butter fell to $2.46 per pound Wednesday, lowest since June 30, but it closed Friday at $2.49, down 18 cents on the week, ending three weeks of gain, and is 36.50 cents below a year ago. There were eight loads sold on the week.

Central cream is “looser,” says DMN, and some butter makers say it’s plentiful. Some anticipate heavy Class I milk orders will largely slow down as schools close for the holidays. Churning and micro-fixing will keep pace with much of the past month. Plants report strong to steady production, says DMN.

Western cream volumes have improved along with strengthened average butterfat levels in milk. Butter makers anticipate more milk clearing to Class IV in coming weeks as bottling demand declines with breaks at educational institutions. Although this has strengthened bulk butter production schedules, bulk butter availability is on the tight end, says DMN. Domestic demand remains strong to steady while demand from international buyers remains moderate.

Grade A nonfat dry milk closed Friday at $1.16 per pound, a half-cent lower on the week and 19 cents below a year ago, on six sales put on the board.

Dry whey saw a Friday close at 39.50 cents per pound, unchanged on the week but 6 cents below a year ago, with two sales for the week at the CME.

The Federal Reserve announced that it will leave its benchmark interest rate unchanged. Meanwhile, retail dairy prices continue to improve for consumers, particularly for cheese. The U.S. retail price of Cheddar in November was $5.65 per pound, down 20 cents from October and down 4.8 percent from a year ago. Butter was down 3 cents from October and 2.6 percent below last year.

Checking the demand side of the equation, the USDA’s latest data shows cheese utilization is sputtering. October usage totaled 1.2 billion pounds, up 0.8 percent from October 2022, following two months of loss, and year to date was up just 0.1 percent.

The increase was led by strong domestic consumption, according to HighGround Dairy economist Betty Berning in the Dec. 18 “Dairy Radio Now” broadcast, up 1.1 percent, and led by other than American type cheese.