By Lee Mielke

The U.S. milk “deficit” appears to have ended. Preliminary data indicates June ended seven months of output trailing that of a year ago, coming in at 18.975 billion pounds, up 0.17% from June 2021, first gain since last October, and follows a 0.5% drop in May. 

June output in the top 24 states totaled 18.13 billion pounds, up 0.3%. Revisions raised the 50-State May estimate by 40 million pounds to 19.755 billion, 0.5% below a year ago, instead of the 0.7% originally announced.

June cow numbers totaled 9.423 million, up 4,000 from May numbers which were revised up 14,000 head, but were 78,000 head below June 2021. There were 56,000 more cows in the June milking string than on January 31. Cow numbers peaked in May a year ago at 9.507 million, 88,000 more than May of this year.

Output per cow averaged 2,014 pounds, up 20 pounds or 1.0% from June 2021. 

Second Quarter output totaled 57.9 billion pounds, down 0.5% from a year ago, with cow numbers at 9.42 million, up 32,000 from First Quarter, but 87,000 below a year ago.

Eyes are watching milk output carefully as dairy demand slows. The July 15 Dairy and Food Market Analyst warned; “Break-even milk prices in California are around $23.50 per cwt, which, while down $1.50 from the 2022 high, is above current August Class III milk futures of around $20.30.”

This week’s Livestock, Dairy, and Poultry Outlook mirrored milk price and production projections in the July 12 World Agricultural Supply and Demand Estimates. It also reported that 2023 milk cow numbers are expected to remain steady at 9.4 million. 

Meanwhile, the dairy market focus will likely shift back to the milk supply, especially in Europe, says StoneX. “Recent EU milk production data continues to disappoint, but dairy products in the region seem available. A credible theory is sellers have been conservative in their volumes of forward sales given the up-trend in prices and the weak milk production. Now that prices are coming down, there is a scramble to sell uncommitted product even if production is still weak. Buyers everywhere seem to be playing coy in this environment,” says StoneX.

Director of Market Intelligence, Nate Donnay, points out that while consumer prices for all items are up 9.1% year over year, cheese is only up 7.3% while butter was up 22.3%. He warned that consumers will either move to cheaper product or do without, and with the average price for a pound of butter at a record high $4.39 per pound, “What does that mean for baking season? 

StoneX Dairy Group says the GDT 80% butterfat butter price equates to $2.4470 per pound U.S., down 5.2 cents, after losing 25 cents in the last event, and compares to CME butter which closed Friday at $2.9075. GDT Cheddar, at $2.1886, was down 3.8 cents, after gaining 1.5 cents last time, and compares to Friday’s CME block Cheddar at $1.91. GDT skim milk powder averaged $1.6824 per pound, down 16 cents. Whole milk powder averaged $1.7043 per pound, down 9.2 cents. CME Grade A nonfat closed Friday at $1.6850 per pound.

Most analysts point to China’s lack of buying for the GDT weakness, although New Zealand-based Fonterra added product to be sold in this event as well as in future events in August and September. 

China’s latest data showed June combined whole milk and skim milk powder imports totaled 131 million pounds, down 41.8% from June 2021 and are down 11.2% year to date. Whey products, at 113.1 million pounds, were down 6.8% and down 36.9% YTD. Butter amounted to 13.2 million pounds, down 30.3%.

Cheese imports totaled 21.2 million pounds, down 34.9% and the lowest for the month since 2018, according to HighGround Dairy. HighGround’s Lucas Fuess blamed China’s lockdowns and economic concerns as contributing factors for the downturn in the July 25 Dairy Radio Now broadcast. 

Speaking of trade; the Dairy and Food Market Analyst reports “West Coast port congestion has more than doubled since the contract between the International Longshore and Warehouse Union and the Pacific Maritime Association expired on July 1. On the Wednesday before the labor contract expired, the number of backed-up containerships reached the lowest level since December 2020 of 14 container ships. By Friday, that number had risen to 29,” according to the DFMA.

Cash butter closed at $2.9075 per pound, down 2.25 cents on the week but $1.2125 above a year ago, with 50 sales reported on the week.

Central butter demand continues seasonally steady to quiet. Cream remains available, but there are signs of potential drawdowns as offers have quieted.

Cream inventories are tightening in the West as higher temperatures reduce milk and cream output. Demand is strong from butter and ice cream makers. Retail butter demand is steady to lower due to higher store prices while food service demand is steady, but below some expectations, according to DMN.

Grade A nonfat dry milk fell to $1.6450 per pound Tuesday, lowest since Dec.14, 2021, but closed Friday at $1.6850, up 2.50 cents on the week and 43.25 cents above a year ago, on 17 sales for the week.

CME dry whey finished Friday at 45.50 cents per pound, unchanged on the week and 8.25 cents below a year ago, with 8 sales reported for the week.

The August Federal order Class I base milk price is $25.13 per hundredweight, down 74 cents from July but $8.23 above August 2021 and the lowest Class I since April. It equates to $2.16 per gallon, up from $1.45 a year ago. The eight month average stands at $23.87, up from $16.39 a year ago and $16.42 in 2020.

Commodity and Ingredient Hedging LLC’s latest Margin Watch says “Dairy margins weakened significantly over the first half of July as a continued selloff in the milk market more than offset projected feed costs that were at best flat to slightly lower. The corn market continued to decline despite forecasts trending warmer and drier in the Corn Belt as a deal being brokered by Turkey between Russia and Ukraine to allow grain shipments to resume.”

 “The milk market has succumbed to the general pressure that commodities have been under recently as market participants have become increasingly concerned with soaring inflation,” the MW stated. “The Bureau of Labor Statistics reported that the broader food index increased 10.4% during June from a year ago, the largest increase since February 1981. The average price for a variety of dairy goods increased 11.8%, and there are signs that consumers are adjusting spending and trading down to cheaper alternatives to save money.”

“On a positive note, dairy exports posted another record month in May with 579.2 million pounds of total product shipped. This was up 4.8% from 2021and the highest total for May ever. Cumulative year-to-date dairy product exports at 2.6 billion pounds are up 1.3% from the same period last year, the MW concluded.

The July 18 Daily Dairy Report says economics have resulted in a growing share of dairy producers who “crossbreed some of their cows with beef genetics to produce more valuable calves and avoid the expense of raising unwanted dairy heifers. Widespread crossbreeding pushed dairy heifer numbers to a 17-year low in January at 2.84 million, a drop of 9% from 2016’s peak. The lower heifer supply has slowed the potential for growth in the U.S. dairy herd,” says the DDR.

The International Dairy Foods Association has opened registration for its 2023 Dairy Forum. The annual gathering will take place January 22-25 at the JW Marriott Orlando, Grande Lakes, in Orlando. For complete details and to register, log on to www.dairyforum.com.