The Agriculture Department lowered its 2023 and 2024 milk production forecasts in the latest World Agricultural Supply and Demand Estimate (WASDE) report stating “The cow inventory is lowered for both years based on the July 1 dairy cow inventory and heifer retention data provided in the recent Cattle report, as well as the average cow inventory data in the latest Milk Production report. Output per cow was reduced for 2023 but unchanged for 2024.”

2023 production and marketings were estimated at 227.9 and 226.9 billion pounds respectively, down 500 million pounds on both from a month ago. If realized, production would be up 1.4 billion pounds or 0.6% from 2022. 

2024 production and marketings were projected at 230.5 and 229.5 billion pounds respectively, down 100 million pounds on both. If realized, 2024 production and marketings would be up 2.6 billion pounds or 1.1% from 2023.

The Class III milk price forecast was raised as expected higher cheese prices more than offsetting lower whey. The 2023 average was projected at $16.90 per hundredweight, up 85 cents from last month’s estimate, and compares to $21.96 in 2022 and $17.08 in 2021. The 2024 average was projected at $16.55, up 60 cents from last month’s estimate.

The 2023 Class IV price forecast was raised due to higher butter and nonfat dry milk prices. The 2023 average was projected at $18.50, up 30 cents from a month ago, and compares to $24.47 in 2022 and $16.09 in 2021. The 2024 Class IV is expected to average $17.80, up 35 cents from last month’s estimate.

The week ending August 5 saw 60,500 dairy cows go to slaughter, up 400 head from the previous week, and 3,100 or 5.4% more than a year ago. Year to date 1,912,300 have been culled, up 104,400 head or 5.8% from a year ago. Dairy cows surpassed beef cow volume for the first time since April.

StoneX stated in its August 14 ‘Early Morning Update;’ the high culling rate is due to “The impact of margins versus what beef prices offer dairy farmers. We are hearing reports of more farms closing their doors and a $70 per cwt. premium in cull cow prices is no doubt an impact on that decision. Total cattle slaughter in the U.S. continues to be weak with a contracted herd, meaning that dairy cows are a driving factor in lean beef production.”

 Meanwhile, the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. says “Dairy margins traded on either side of unchanged in the first half of August as the complex benefited from a fall in corn and soybean meal futures. Spot milk prices have increased and in the Upper Midwest marked their highest level since October 2020. Weekly milk cow slaughter continues to track at or near 10-year highs, about 7% ahead of year ago levels.” 

The MW reported highlights from the WASDE’s milk production, cow numbers, and export data and warned; “High butter prices continue to keep U.S. product off the world market while cheese exports rebounded compared to May. Mexico’s demand for milk powders has held steady. Through the first half of the year, total dairy export volume is 5% lower. Internationally, GDT demand appears to be waning for the largest importer of dairy products is reducing demand as China faces its own flurry of economic uncertainty. This product must find a home elsewhere and will continue to serve as a headwind to dairy product pricing.”

Recent rainfall and lack of exports have taken risk premium out of the feed market after a spike early last month, the MW concluded. The focus is “monitor forward opportunities to add margin coverage with flexible price strategies and look to higher delta positions to secure feed needs throughout this crop year.”

Central butter producers say cream is hard to find and some are taking loads from Western states. Butter supplies are, and have been, somewhat snug and producers and traders say availability has been on a downward trajectory. School district and seasonal retail ordering upticks have drained the butter supply.

Grade A nonfat dry milk sunk to $1.0850 per pound Wednesday, lowest since July 12, but closed at $1.1050, down a half-cent on the week and 41.50 cents below a year ago. There were 12 loads traded on the week. 

Dry whey closed at 27 cents per pound, unchanged on the week but 18 cents below a year ago, with 16 sales put on the board at the CME.

Looking at dairy demand, the USDA reports that June cheese consumption was down 2.0% from June 2022, primarily due to exports being down 19%.

Butter disappearance, on the other hand, was up 20.1% from a year ago, thanks to domestic use being up 27.3%, fifth month in a row, according to HighGround Dairy. Butter exports were down 60.5% and less than half of those a year ago.

Nonfat-skim milk powder usage was down 4.0% from a year ago, with domestic use down 14.6%, first time since January, according to HGD, while exports were up 2.0%, thanks to big shipments to Mexico. HGD says “Usually, domestic NFDM usage increases from May to June, so the 1.2% month over month loss was counter to the five-year mean of plus 84.9%, likely due to manufacturers making big powder sales in June.”

Dry whey disappearance fell for the second time in 2023, driven by abysmal export sales, says HGD, down nearly 34% from June 2022. Domestic use however was up 28.4%.

Abundant powder offerings in Tuesday’s Global Dairy Trade auction resulted in the biggest drop in the weighted average since May 3, 2022. Down 7.4%, the drop follows a 4.3% decline August 1, a 1.0% decline on July 18, and a 3.3% decline on July 4. Traders brought 74 million pounds of product to market, up from 71.9 million on August 1, and the most since Nov. 17, 2020. The average metric ton price fell to $2,875 U.S., down from $3,100 on August 1.

Analyst Dustin Winston says market share of North Asia, which includes China, was “back to being the largest purchaser. North Asia recovered this standing in the last auction. SE Asia volume once again fell from both last year and the last event. Total WMP sales this year are close to year-ago levels, but North Asia has taken a larger percentage this year indicating poor demand in SE Asia.”

The August 15 Daily Dairy Report stated “Strong increases in Chinese milk production boosted the supply of fresh milk in China and reduced the need for imported milk powders. There were also signs of faltering overall milk powder consumption. Last week, the South China Morning Post reported that Chinese women may give birth to fewer than 8 million babies this year, down from 9.56 million last year and 40% fewer than in 2018.”

Speaking in the August 21 ‘Dairy Radio Now’ broadcast, StoneX broker Dave Kurzawski blamed sluggish purchases from China for the GDT’s downfall on powder, although its purchases were up a bit. He focused on the differences between the global cheese market and the U.S market, and said a lot of cheese is being made and consumed on U.S. soil right now, so the loss of exports is not as big a factor. CME fresh Cheddar is tight, he explained, and that’s what sets the price for 80-85% of U.S. cheese. Production hick-ups, both at the farm and processor level, high cull rates, falling milk output, and schools reopening resulted in almost a 70-cent rally on the blocks in seven weeks, he concluded.

Fonterra Co-operative reduced its 2023/24 season forecast Farmgate Milk Price range Thursday, from $6.25-$7.75 per kilograms of milk solids with a midpoint of $7.00, down to $6.00-$7.50 per kgMS, with a midpoint of $6.75. Fonterra CEO Miles Hurrell says GDT prices have continued to fall since the coop revised its milk price earlier this month, requiring the further reduction.

Back home, the Federal Milk Marketing Order Pricing Formula Hearing takes place this week in Carmel, Indiana. The hearing will consider and gather evidence on proposed amendments to pricing formulas in U.S. market orders.