More milk is on the way. The Agriculture Department raised its 2020 milk production forecast for the fourth consecutive month in the latest World Agricultural Supply and Demand Estimates report, citing higher projected cow numbers. Ditto for the 2021 estimate. 

2020 production and marketings were estimated at 222.7 and 221.7 billion pounds respectively, up 200 million pounds on both from the November estimate. If realized, 2020 production would be up 4.3 billion pounds or 2.0 percent from 2019. 

2021 production and marketings were estimated at 226.3 and 225.3 billion pounds respectively, up 400 million pounds on both. If realized, 2021 production would be up 3.6 billion pounds or 1.6 percent from 2020. 

The 2020 fat basis import forecast was reduced on lower imports of butterfat products while the fat basis export forecast was lowered on weaker foreign cheese demand. The 2020 skim-solids basis import forecast was unchanged, but the export forecast was raised on strong global demand for whey and whey products. 

The 2021 fat basis import forecast was reduced on lower expected imports of a number of dairy products, but the export forecast was raised. The skim-solids basis import forecast was unchanged, but the export forecast was raised on larger shipments of nonfat dry milk powder and dry whey products. 

Based on recent price movements, 2020 cheese and butter price forecasts were lowered, but the whey price was raised. Nonfat dry milk (NDM) was unchanged. Cheese and butter price forecasts for 2021 were reduced on weaker expected demand and larger supplies, but NDM and whey prices were raised. 

The 2020 Class III milk price forecast was lowered, due to the weaker cheese price more than offsetting higher whey price projections. The 2020 Class III average was projected at $18.20, down 35 cents from last month’s estimate, and compares to $16.96 in 2019 and $14.61 in 2018. The 2021 average was projected at $15.60, down $1.65 from what was anticipated a month ago.

The Class IV price was also lowered from last month on the lower butter price. Look for the 2020 Class IV to average $13.45, down a nickel from last month’s estimate, and compares to $16.30 in 2019 and $14.23 in 2018. The 2021 average was projected at $13.60, down 40 cents from last month’s estimate.

U.S. dairy exports reached a four-month high of 17 percent of U.S. milk production in October, according to the December 4 Dairy and Food Market Analyst (DFMA), up from 15.3 percent of milk solids exported in September and 14.9 percent one year earlier. 

Topping the gains was dry whey, which totaled 53 million pounds, up 145 percent from October 2019. China took just over 29 million pounds of that total, up from just 2.6 million a year ago. HighGround Dairy (HGD) reported that the U.S. also exported an all-time high amount of whey to Vietnam.

“October was an exceptional month for nonfat dry milk/skim milk powder,” says HGD, totaling 169.3 million pounds, second-highest ever, up 8.6 percent from a year ago. But “it was not a result of any gains derived from the number one U.S. customer, Mexico,” says HGD. “Instead, gains were reported to Southeast Asia for the 14th consecutive month.”

Mexico may soon be back up to par as the DFMA reports that the Peso has strengthened against the dollar, giving Mexican buyers more purchasing power.

 U.S. fat exports reached the highest levels since August 2018, according to HGD, and “while Canada remained the top destination, the growth was derived from the Middle East, most notably Bahrain.” 

Butter exports only totaled 5.1 million pounds, but that’s up 30.7 percent from a year ago, while cheese exports totaled 54.4 million, down 12.8 percent from a year ago.

The December 7 Daily Dairy Report says “South Korea’s demand for both cheese and butter is building, and “The U.S. dairy industry has a solid foothold in the Korean market, according to two recent Global Agricultural Information Network reports. Since 2000, the country’s cheese imports have more than tripled, and 80 percent of South Korea’s cheese needs are imported. The United States supplies nearly half, or 47 percent, of those needs,” according to the DDR.

Exports will be badly needed in a troubled domestic market as more restaurants are shutting down again. The National Restaurant Association reports that since the COVID-19 pandemic began in March, 17 percent or about 110,000 restaurants, have closed either permanently or long-term, and 10,000 have closed in the last three months alone. That has huge ramifications for the crop and livestock industries, including dairy, and that with the spring flush not too far away.

But, the thinking is changing on Capitol Hill despite the current political logjam, according to StoneX Dairy Group broker Dave Kurzawski. Speaking in the December 14 ‘Dairy Radio Now’ broadcast, Kurzawski said there are increasing expectations that more government aid will be forthcoming, including renewed Food Box programs in 2021 because there are a lot of people unemployed.

“The U.S. government is going to look at this, much the same way they looked at it back in March and April,” he said, “and they’re going to say, we have to pull out the stops here and do something.” 

That will surely be needed for dairy, according to Kurzawski, because we already have spring flush like milk production in December in certain parts of the country. 

Meanwhile, the USDA announced that it will purchase $110 million worth of butter and fluid milk in 2021, using Section 32 funds. $50 million will be spent on butter and $60 million for fluid milk.

The DFMA says “This purchase could remove nearly half of the butter stock overhang and, at $2.00 per pound, the purchase works out to 25 million pounds of butter or about 4.5 days-worth of U.S. consumption.”

Milk availability is nearing the overwhelming mark in the Midwest, according to Dairy Market News. Cheese demand is mixed. Barrel producers say broker interest is intermittent. Curd makers are seeing notable slowdowns with more COVID restaurant/bar restrictions. Pizza cheese and specialty cheesemakers have seen steady to returning sales. Plant COVID staffing concerns remain.

Western cheese output remains active, as there are no issues getting milk, but processors are closely watching inventory. Demand from the pizza sector is strong. Retail and some international buyers are engaging more as prices have relaxed. Both are good signs for cheese but food service demand is still a concern. With many sit-down restaurants restricted in capacity and schools in a mixture of in person and virtual learning, institutional use is “less than normal.” Fast food and carryout service are using healthy amounts of cheese, says DMN, but that does not make up the difference.

The abundance of milk is causing moderate bumps in western cream for butter making, according to DMN. Ice cream demand has narrowed and is expected to coast through the remainder of the year, likely increasing surplus cream. Retail print butter sales are strong as stores restock but sources note there is a generous amount of butter in inventory. Export demand is stable and the butter market undertone is “conditionally bullish in the near term,” according to DMN.

The December 9 Daily Dairy Reports says “China has been scrambling to procure enough whey to feed its growing pig herd, which the country has been racing to repopulate after the herd was decimated by African swine flu. At the same time, a pull for dry whey from both animal and human applications in the United States has amplified pressure on the market.”

The National Milk Producers Federation called on USDA to extend signup for the 2021 Dairy Margin Coverage to January 30, allowing dairy farmers to make better-informed choices. The current signup deadline was December 11. 

“Extending the deadline to the end of next month will allow farmers to better focus on the turbulent marketing environment we now expect to see in 2021, once we are through the upcoming holiday season,” says NMPF’s Jim Mulhern. 

 The U.S. Trade Representative (USTR) announced this week that it will initiate official consultations with Canada to examine the administration of its dairy Tariff Rate Quota (TRQ) obligations under the U.S. Mexico Canadian trade agreement.