Milk Output Continues to Underwhelm
June 6, 2022
The T.C. Jacoby Weekly Market Report Week Ending June 3, 2022
In Europe the high costs of physical expansions, additional labor, replacement heifers, and feed costs, when coupled with market uncertainty, creates a risk level that prevents widespread expansion. The same factors are hampering milk output on this side of the Atlantic as well.
From Canberra to Chicago, and Wellington to Warsaw, milk output continues to underwhelm. After slight growth in February, European milk collections fell 1% from the prior year in March. Unofficial reports suggest that production remains below year-ago
volumes in most of the bloc, although Poland, Italy, and Spain have managed to grow. High prices have not been sufficient to overcome political and structural barriers that impede investment. Dairy Market News reports, “The high costs of physical expansions, additional labor, replacement heifers, and feed costs, when coupled with market uncertainty, creates a risk level that prevents widespread expansion.” The same factors are hampering milk output on this side of the Atlantic as well.
In Australia, labor is the main issue. The Aussies shut their borders for two years in an attempt to keep Covid-19 at bay. Now they are finally open, but there are fewer entry-level workers in the Land Down Under. The shortage is so acute that some dairy producers are winding down operations or devoting part of their paddocks to beef, which requires less day-to-day labor. After two years of good weather, feed is less expensive in Australia than the rest of the dairy world, and profit margins are stellar. Nonetheless, the industry is shrinking. Milk collections fell 6.6% from the prior year in April, bringing seasonto-date collections down 3.5%. USDA forecasts a 4% decline for the full 2021-22 season. Dairy Australia does not expect a rebound in the upcoming 2022-23 dairy year.
In the U.S., the spring flush is sputtering to an unimpressive finish. There is more than enough milk for Class III users, but Class IV balancing plants are not running as hard as they typically do in early June. According to Dairy Market News, milk powder demand “is outpacing supply. Recent production is moving out of the plant within a relatively short window, and loads produced earlier in the year are scarce.” USDA reported this afternoon that milk powder output totaled just 231 million pounds in April, down 7.4% from a year ago. Milk powder inventories climbed seasonally from March to April. Manufacturers held just shy of 299 million pounds of nonfat dry milk (NDM) on April 30, up 0.4% from a year ago. At the spot market NDM inched up 0.25ȼ to $1.8625 per pound.
Butter output dropped to 181 million pounds in April, down 1% from the prior year and the lowest April production since 2019. Slower churn rates have raised fears that butter supplies will be tight later this year. CME spot butter climbed even with the 2022 high yesterday, but it could not hold. It closed at $2.915, still up 3.75ȼ for the week.
Cheese output totaled 1.156 billion pounds, up almost imperceptibly from April 2021. Cheddar production fell short of year-ago volumes, while Mozzarella output increased. Cheese prices moved lower this week amid relatively heavy supplies. CME spot Cheddar blocks slipped a penny to $2.27 per pound. Barrels dropped a nickel to $2.245.
More cheese meant more whey in April, as production of whey protein concentrates faltered. Commodity whey output jumped 6.8% year over year, and whey stocks ballooned to 72 million pounds, up 21.7% from April 2021. Burdensome inventories dragged the whey market down below 50ȼ in May, but that was clearly low enough. Whey rebounded once again this week, rallying 3.5ȼ to 55.75ȼ. That’s an important advance for dairy producers who depend on Class iii milk revenues. Every penny increase in the whey price adds 6ȼ to Class III milk.
After a strong start, milk futures ran out of steam on Friday, highlighting concerns about demand. But, with supplies constrained, they remain well supported. June Class III futures lost a little ground this week, but July held steady and the other contracts continued to climb. Class IV futures marched relentlessly upward. The July contract topped $26 per cwt.
Farmers remain frustrated in North Dakota, Minnesota, and Pennsylvania, as soggy fields continue to slow planting. But in most of the Corn Belt, the crop is going in on time. As of May 29, farmers had planted 86% of intended corn acreage and 66% of planned soy area, just one point behind the five-year average. With seed in the ground and a friendly mix of sunshine and rain on the horizon, the market sagged in relief. As it passed through one chart point after another, the selling accelerated. Putin’s lackeys added fuel to the fire, promising once again that Russia would happily ship Ukrainian grain for “humanitarian” reasons if the West would just lift those pesky sanctions. That should not inspire much confidence that more grain from Ukraine is forthcoming, but the bears seemed willing to suspend disbelief once again. July corn plummeted more than 50ȼ to $7.27 per bushel. December corn dropped 40ȼ to $6.90. July soybean futures dropped 34.5ȼ to a still-high $16.9775 per bushel. Nearby soybean meal futures retreated $28.40 to $407.90 per ton. Feed costs remain high, but they are considerably less onerous than they were when the week began.