The USDA lowered its estimate on 2021 milk production in the latest World Agricultural Supply and Demand Estimates report “as a higher expected cow inventory was more than offset by slower growth in milk per cow.”

2020 production and marketings were finalized and estimated at 223.2 and 222.2 billion pounds respectively, up 100 million pounds on production from February’s estimate. 2020 production was up 4.8 billion pounds or 2.2 percent from 2019.

2021 production and marketings were estimated at 227.3 and 226.3 billion pounds respectively, down 100 million pounds on production. If realized, 2021 production would still be up 4.1 billion pounds or 1.8 percent from 2020.

The annual cheese price forecast was unchanged from last month as weaker prices in the first part of 2021 were offset by expected improved demand later in the year. That resulted in the 2021 Class III milk price average being projected at $16.75 per cwt., up 15 cents from the February estimate, and compares to $18.16 in 2020 and $16.96 in 2019.

Butter, nonfat dry milk and whey price forecasts were raised from last month with expected improvements in both domestic and export demand. Thus the Class IV price was pegged at $14.45, up 75 cents from last month’s estimate, and compares to a $13.49 average in 2020 and $16.30 in 2019.

This month’s 2020/21 U.S. corn U.S. corn supply and use outlook was unchanged from last month. The projected season-average farm price was unchanged at $4.30 per bushel.

U.S. soybean supply and use projections were mostly unchanged. Soybean crush and exports were projected at 2.2 billion bushels and 2.25 billion bushels, respectively. Ending stocks remain at 120 million bushels, down 405 million from last year’s record. The U.S. season-average soybean price was projected at $11.15 per bushel, unchanged from last month.

The March 9 Daily Dairy Report (DDR) stated: “While China failed to buy as much corn in February as it did in January, export bookings for U.S. corn and soybeans have been setting a record pace for the 2020-21 marketing year.”

The DDR warned that feed costs have climbed to their highest levels since 2014 and “continue to squeeze dairy producer margins and even record or near-record large crops this year will likely not be big enough to provide much price reprieve.”

Uncertainty seems to never end in the dairy industry and right now dairy farmers face some challenging contrasts. U.S. milk output is rising as we enter the spring flush, but will rising demand and exports offset that? U.S. milk prices are strengthening but will rising feed costs offset that, and what will government food purchases look like in COVID relief under the new administration?

StoneX dairy broker Dave Kurzawski pointed out in the March 15 “Dairy Radio Now” broadcast that rising demand is the key point because “Demand is primarily responsible whenever we see $2 cheese or $2 butter.”

He said that we have seen stronger than normal retail demand for the past 12 months or so and that will come up against stronger food service demand as cities and states reduce restaurant restrictions due to COVID. But, “We don’t know what that reopening will mean,” he cautioned, though he believes it will be “a shock to the supply chain across the country and even globally.”

Grocery stores and foodservice will be fighting for the same stomach space, he explained, and “In the fog of war you can have higher prices.” That will settle down in the next year or two, he said, “But for the next six months, you’re in the fog of war on the demand side.”

It underscores the need to lock in milk prices, he concluded. “With the higher feed costs, it’s about profit margin. But it will be a tough year for dairy farmers on the buy side.”

Butter exports totaled 6.2 million pounds, up 81.9 percent, primarily due to demand from Canada, Egypt and Bahrain. HGD says this was the strongest January for U.S. butter shipments in seven years. Butter imports were up 7.7 percent and cheese imports were up 8.5 percent.

Cheese exports totaled 55.6 million pounds, down 9.9 percent from a year ago, though Cheddar exports were up 1.9 percent.

CME block Cheddar climbed to $1.7950 per pound Thursday, highest since Jan. 19, but closed Friday at $1.79, up 5.75 cents on the week, after gaining 11.5 cents the previous week, but 8.25 cents below a year ago.

The barrels finished at $1.5525, 4.50 cents higher, 5.25 cents above a year ago, but 23.75 cents below the blocks. Only three cars of barrel were sold on the week at the CME.

Midwestern cheesemakers are reporting stronger cheese sales, says Dairy Market News. Positive food service demand has been rare the past 12 months, but there has been a notable shift in March. Spot milk availability varies but there were some flat Class prices reported for the first time in 2021. Cheese production rates are reflecting the increased orders and, for the most part, cheese market tones have “regained some bullish vigor recently,” said DMN, though inventories are reportedly growing, as well.

Retail cheese demand in the west remains steady, though some contacts believe it may decrease due to loosening COVID restrictions on eating out. Contacts have seen a slight uptick in food service demand. Mozzarella cheese continues to move well but cheese inventories remain heavy and buyers are receiving a lot of offers from manufacturers, especially for Cheddar-style cheeses. Milk is plentiful and cheese production is running at or near capacity, according to DMN.

Butter closed Friday at $1.7150 per pound, up 2.50 cents on the week, following its 22 cent leap the previous week, but was 9.75 cents below a year ago, with 14 sales reported on the week.

Midwestern butter producers report stronger food service demand in recent weeks and are hopeful the trend continues deeper into second quarter, as bullish food service demand tones have seldom been positive since the onset of COVID. Butter churning is at a brisk clip, as demand has strengthened and export demand reports are notably rising. Butter market tones have steadied since the unexpected surge following the “new crop” rule on the CME, DMN said.

Grade A nonfat dry milk finished the week at $1.17 per pound, down 0.75 cents, but 11.75 cents above a year ago, on eight sales for the week.

In the week ending Feb.27, 71,600 dairy cows were sent to slaughter, up 12,000 from the previous week and 8,000 or 12.6 percent more than that week a year ago.

Checking demand on the home front; the USDA’s January data showed a lot of positive news. Total cheese disappearance, at 1.14 billion pounds, was up from a year ago for the first time since September, topped January 2020 by 3.3 percent.

HGD points out that American-style cheese did the heavy lifting, with both domestic and export demand stronger versus prior year.

Butter disappearance totaled 155.2 million pounds, up 12 percent, and topped the year ago level for the third consecutive month, according to HGD, “an encouraging sign as production and stocks remain burdensome.”

Nonfat dry milk disappearance increased for the third consecutive month, hitting 215.6 million pounds, including skim milk powder, strongest January since 2018.