By Lee Mielke

USDA again lowered its milk production estimates for 2022 and 2023 in the latest World Agricultural Supply and Demand Estimates report (WASDE), citing slower expected growth in milk per cow. It adds that the July 22 Cattle report will provide a mid-year estimate of the dairy cow inventory and producer intentions regarding retention of heifers for dairy cow replacement.

2022 production and marketings were estimated at 226.0 and 224.9 billion pounds respectively, down 400 million pounds on production and down 500 million on marketings from last month’s estimates. If realized, 2022 production and marketings would both be down 300 million pounds or 0.1 percent from 2021.

2023 production and marketings were estimated at 228.3 and 227.3 billion pounds respectively, down 1 billion pounds on production and 900,000 pounds less on marketings. If realized, 2023 production would be up 2.3 billion pounds or 1.0 percent from 2022.

The 2022 butter price forecast was raised from last month on firm demand, while the cheese price forecast was lowered on continued large stocks. Forecasts for nonfat dry milk (NDM) and whey prices were unchanged.

With a lower cheese price, the 2022 Class III milk price was lowered while the Class IV price was raised due to higher butter prices. The 2022 Class III average was put at $22.80 per cwt., down a dime from last month’s projection, and compares to $17.08 in 2021 and $18.16 in 2020. The 2023 average is estimated at $20.85, up 20 cents from a month ago.

The 2022 Class IV average was estimated at $24.70, up a nickel from last month’s projection and compares to $16.09 in 2021 and $13.49 in 2020. The 2023 average is estimated at $22.30, up 40 cents from last month’s estimate.

The 2023, price forecasts for cheese, butter and NDM were raised on expected lower production, but whey was lowered on expected weaker international prices.

The 2023 cheese price average was projected at $2.07 per pound, up 2 cents from last month’s estimate, and compares to an expected 2022 average of $2.1850. The 2021 average was $1.6755.

Butter was projected to average $2.44 per pound in 2023, up 5.50 cents from last month’s estimate, and compares to a projected $2.78 average in 2022, and a 2021 average of $1.7325.

Nonfat dry milk will average $1.6450 in 2023, according to USDA, a 2.50 cent higher price than a month ago, up from a projected $1.7550 in 2022, and the 2021 average of $1.2693.

Dry whey will only average 51.50 cents per pound in 2023, down from the projected 64 cent average in 2022, and compares to 57.44 cents in 2021.

StoneX reported that Turkey announced a deal with Russia, Ukraine, and the U.N regarding Turkey ensuring the safety of Black Sea export routes for grain, and joint controls for inspections, to be signed by the parties next week.

The U.S. gave the agreement a thumbs up, stating that Russian food and fertilizer exports would not violate sanctions currently in place.

In the week ending July 2, 51,800 dairy cows were sent to slaughter, up 900 head from the previous week, but 1,100 or 2.1 percent below a year ago.

Lots of butter found its way to Chicago this week, pressuring prices. Block Cheddar sat at $2.11 per pound until Thursday when it dropped 5.25 cents and then lost 6.25 more cents Friday to close at $1.9950, down 11.50 cents on the week, lowest since February 28, but still 38 cents above a year ago.

The barrels closed Friday at $2.07, down 11.25 cents on the week, lowest since March 18, 63 cents above a year ago, and 7.50 cents above the blocks.

Cheese demand remains seasonally stable, reports Dairy Market News, depending on the variety, and expectations are being met. Production is generally unchanged week to week. Spot milk availability is not necessarily tight, but a number of cheese producers in the region say milk offers have quieted, particularly after a couple weeks of $5 and $6 under Class III. Heat is playing a part on milk output but expectations regarding potential supplies are uncertain. “Inventories are meeting needs, as there is a semblance of balance, regionally.”

Milk is available for cheese makers to run busy schedules in the West and output is steady, though labor shortages are preventing some plants from running at capacity. Cheese demand is steady in food service and retail but contacts report that domestic sales are below expectations. Strong export demand remains.

Butter, after revisiting $3 per pound Monday, fell to $2.90 per pound Thursday, but rallied Friday to finish at $2.93, 4 cents lower on the week, but $1.2525 above a year ago. 70 loads traded hands on the week, up from 47 the previous week.

Butter demand is seasonally slowing in retail and food service, according to DMN. Butter output is busy, as regional cream supplies remain available despite the heat and component downturns at the farm. Employee shortages continue prevent plants from keeping up despite the seasonal demand slowdown.

Cream demand is strong throughout the West as butter and ice cream makers pull on supplies. Demand for butter in retail and food service remains below some expectations and the lower July 5 GDT price for butter contributed to softening export demand. Bulk butter demand is steady as some purchasers are concerned that butter inventories are tighter than last year, according to DMN.

Grade A nonfat dry milk fell to its lowest level since Jan. 4, closing Friday at $1.66 per pound, 8.75 cents lower on the week, but 40.75 cents above a year ago. There were 13 sales reported on the week.

CME dry whey tumbled to a 45.50 cent per pound close Friday, down 3.50 cents on the week, and 8.25 cents below a year ago, on 5 sales for the week.

Indications are that dairy product disappearance is faltering. We talked about it with StoneX broker, Dave Kurzawski in the July 18 Dairy Radio Now broadcast. He said it’s a difficult comparison because we’re lapping over last year and last year was lapping over the COVID lockdown year 2020, so the data is skewed.

May cheese disappearance was down 1.4 percent, he said, with American type down 6.4 percent, while butter was up 1.3 percent. “But, looking at 2021, cheese disappearance was up 4.3 percent from 2020,” he said, “So being down 1.4 percent, is that something to write home about?”

The data may reflect a slower demand period in May into June, he reasoned, in response to higher prices, but prices have come down. He believes demand is “chugging along but at a slightly slower rate.” There have been higher prices both at food service and retail, he said, and “While retail has seen the biggest price increases most recently, food service has been dealing with them all year.”

The report of June inflation hitting a 40-year high of 9.1 percent won’t help, though Kurzawski reminded us in closing that dairy is a pretty staple food product. “If we lose some ground in some areas, we may gain some ground in other cheaper areas,” but he believes that “demand remains somewhat intact and, in the next six to eight weeks will likely pick up as buyers gear up for the holiday season.”