September 8. 2021
Soaring temperatures and accumulated heat stress sapped U.S. milk production in August and early September. At the same time, milk bottlers stepped up production to meet the back-to-school rush. Cheap loads of excess milk dried up. Nonetheless, cheese makers continued to run hard—if they had the labor to fully staff their facilities. That left noticeably less milk for butter churns and driers, accelerating the shift away from Class IV products that began in July.
Tighter milk supplies are also boosting domestic demand for nonfat dry milk (NDM). Cheese processors who had previously topped up their vats with surplus milk are now fortifying with NDM. USDA’s Dairy Market News reports that export demand remains strong, with buyers in Mexico and Asia placing large orders. The combination of lower output and heady demand is tightening stocks, and prices are rising accordingly.
At the CME yesterday, spot NDM reached $1.36/lb., its highest price since 2014. U.S. milk powder output is likely to remain low. Free school milk and expanded cheese production capacity could limit drying activity even as milk production bounces back.
European skim milk powder (SMP) production has lagged, and it’s likely to remain below historical volumes as European manufacturers continue to focus on cheese. That will leave more room for U.S. exports, perhaps paving the way for higher prices.
But there are headwinds. This week the U.S. dollar strengthened relative to other currencies, making milk powder from Europe and Oceania more competitive and reducing importers’ purchasing power. The United States could also lose some export opportunities due to clogged ports. Shipping logistics are a headache around the world, but backups are especially bad in the key U.S. ports of Los Angeles and Long Beach. If exports slow, prices are likely to fall hard. As of July 31, U.S. manufacturers held 323 million pounds of NDM, nearly twice as much as they did seven years ago, the last time prices topped $1.35.