Dairy Market Report - Aug. 2022

Dairy Market R

Dairy Management Inc.

Vol u m e 2 5 | N o. 8

Overview

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August 2022

D MI | NMP F

Overseas demand for U.S. dairy products continues at a blistering pace this year, even as higher prices domestically are taking a toll on consumption closer to home.

The U.S. dairy industry achieved another record export volume in June, shipping 19.6 percent, or almost one-fifth, of its total milk solids production to foreign countries. It also set a new record for the dairy trade balance (exports minus imports) of 16.2 percent in terms of milk solids production.

Meanwhile, domestic dairy product prices have softened in the past few months, but remain at historically high levels. High dairy product wholesale prices continue to drive rapid retail price inflation, which is taking a toll on domestic consumption at both retail and food service. The retail price index for all dairy products was almost 15 percent higher in July than a year earlier, while total food and beverage price inflation was up by 10.5 percent and overall inflation by 8.5 percent, its lowest annual increase in three months. U.S. milk production is showing signs of resuming growth following months of decline.

Commercial Use of Dairy Products Total domestic dairy product use during the second quarter was again lower for most of the major dairy products, as well as for total milk equivalent, compared to a year earlier.

Consumer reaction to the recent, substantial retail dairy product price inflation continues to be the primary explanation for this drop.

U.S. Dairy Trade U.S. dairy exports achieved another record volume level in June of 19.6 percent of U.S. milk solids production, topping

the previous month’s short-lived record of 19.4 percent.

June also set a new record for the U.S. dairy trade balance (exports minus imports) by the same measure: 16.2 percent of total U.S. milk solids production. This topped the previous trade balance record of 15.9 percent, also set the month before. Almost three quarters of the milk solids exported in June was in the form of dry skim milk, lactose and dry whey products, but gains have been across the board. Almost all exported dairy products, representing 95 percent of milk solids exported so far this year, have experienced increased volumes over the course of the year to date. continued on page 2

Domestic Commercial Use

Apr–Jun 2022

Apr–Jun 2021

Total Fluid Milk Products Yogurt Butter American–type Cheese All Other Cheese Total Cheese Dry Skim Milk All Products (milk equiv., milkfat basis) All Products (milk equiv., skim solids basis) All Products (milk equiv., total solids basis)

10,546 1,174 467 1,324 1,940 3,264 159 53,715 44,214 47,144

10,745 1,198 463 1,404 1,920 3,324 163 54,619 44,841 47,824

2021–2022 Change

Percent Change

(million pounds)

-199 -23 4 -80 20 -60 -4 -905 -628 -680

-1.9% -1.9% 0.8% -5.7% 1.0% -1.8% -2.3% -1.7% -1.4% -1.4%

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U.S. Dairy Trade from page 1

The domestic-world price situation that has made the United States competitive in the world market in recent months, together with constrained production among all major dairy-exporters, has also limited U.S. dairy import growth.

Milk Production U.S. milk production eked out a small year-over-year gain of 0.2 percent in June, the first increase since last October.

National milk production lost almost 0.6 percent from a year earlier during the 10 months of September 2021 through June 2022, the largest such annual loss over 10 consecutive months since the end of 2001, twenty and a half years ago.

Total U.S. dairy cow numbers are still almost one percent lower in June compared with a year earlier, although monthly shortfalls from a year ago have been dwindling. A majority of states showed signs of recovering milk production in June compared with May. Milk solids production grew almost a

full percentage point faster relative to liquid milk production during the second quarter.

Dairy Products While cheddar cheese production declined by 2.8 percent from a year earlier during the second quarter, production of other American types of cheese, representing 30 percent of the American cheese category, grew by 5.4 percent.

Conversely, production of Italian cheese types other than mozzarella, representing 20.6 percent of the Italian cheese category, was 2.4 percent lower than a year earlier during the second quarter, while mozzarella production was up by 4.3 percent. Whey product production rose several times more on a percentage basis than total cheese production, while butter and dried skim milk continued to decline.

Dairy Product Inventories End of June stocks of American-type and total cheese receded modestly from the record levels they reached a continued on page 3

U.S. Dairy Exports

Apr–Jun 2022

Apr–Jun 2021

2021–2022 Change

Percent Change

(metric tons)

Butter Anhydrous Milk Fat / Butteroil Cheddar Cheese American–type Cheese All Other Cheese Total Cheese Dry Skim Milk Whole Milk Powder Dry Whey Whey Protein Concentrate / Isolate Lactose Percent of U.S. Milk Solids Exported

14,380 4,837 25,815 26,007 99,666 125,672 223,136 12,930 51,914 62,171 128,860 19.2%

13,032 2,067 11,914 11,966 92,744 104,710 248,659 11,131 59,981 49,790 110,543 18.6%

1,348 2,770 13,901 14,041 6,922 20,963 -25,524 1,800 -8,068 12,381 18,317 0.7%

10% 134% 117% 117% 7% 20% -10% 16% -13% 25% 17% 4%

U.S. Dairy Imports

Apr–Jun 2022

Apr–Jun 2021

2021–2022 Change

Percent Change

Butter Cheese Dry Skim Milk MPC (all protein levels) Casein Percent of U.S. Milk Solids Imported

11,765 47,631 140 13,147 17,771 3.4%

12,620 46,240 108 14,208 17,338 3.3%

-855 1,392 32 -1,061 433 0.1%

-7% 3% 29% -7% 2% 4%

(metric tons)

2 – Dairy Market Report | August 2022

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Dairy Product Inventories from page 2

month earlier, but stocks of all other than American-type cheese slightly topped end-of-May stocks to set another new record. Dry skim milk stocks were below a year earlier, while dry whey stocks receded from a month earlier by the end of June.

Dairy Product and Federal Order Class Prices Following two steep drops, the July Class III price was down by almost $2.70/cwt from the record level it reached two months earlier. The July Class IV price, by contrast, was $0.80/cwt

higher than it was in May and just 4 cents below the record it achieved in June. The disproportionate share of available milk solids production continuing to go to cheese production at the expense of butter and dried skim milk has kept Class IV prices mostly well above Class III prices so far this year. The difference has been sufficient to keep the current Class I mover mostly below the previous higher-of mover during that time.

The general inflation rate fell in July, to 8.5 percent over a year ago from 9.1 percent a month earlier. However, dairy product price inflation is still high by this consumer-focused measure, partly because it hadn’t begun to grow a year ago.

Still, fluid milk and frozen product retail price inflation rates continued on page 4

Milk and Dairy Products Production

Apr–Jun 2022

Apr–Jun 2021

2021–2022 Change

Percent Change

Milk Production Cows (1,000 head) Per Cow (pounds) Total Milk (million pounds) Total Milk Solids (million pounds)

9,416 6,147 57,883 7,521

9,503 6,119 58,147 7,488

-87 28 -264 33

-0.9% 0.5% -0.5% 0.4%

Dairy Products Production Cheese American Types Cheddar Italian Types Mozzarella Total Cheese

(million pounds)

1,411 988 1,461 1,160 3,500

1,417 1,016 1,421 1,113 3,445

-6 -28 40 48 56

-0.5% -2.8% 2.8% 4.3% 1.6%

Butter

522

523

-1

-0.2%

Dry Milk Products Nonfat Dry Milk Skim Milk Powder Dry Whey Whey Protein Concentrate

558 119 249 134

585 159 231 129

-26 -39 18 5

-4.5% -24.8% 7.8% 3.6%

Dairy Product Inventories

Jun 2022

May 2022

332 848 658 325 69

322 858 655 325 72

Jun 2021

2021– 2022 Change

(million pounds)

Butter American Cheese Other Cheese Dry Skim Milk Dry Whey

415 810 625 359 62

-20% 5% 5% -9% 12%

Dairy Market Report | August 2022 – 3

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Dairy Product and Federal Order Class Prices from page 3

Milk and Feed Prices

dropped slightly in July, while those for cheese and butter were higher. Retail butter prices had the highest rate of change from a year ago among all reported dairy products last month, with a rise of 22.2 percent from July 2021.

The average milk price in the United States dropped by $0.40/ cwt in June from May’s all-time record level to $26.90/cwt.

The Dairy Margin Coverage margin also fell by $0.59/cwt

Dairy Product and Federal Order Prices

Jul 2022

continued on page 5

Jun 2022

Jul 2021

2021–2022 Change

NDPSR Dairy Product Prices Butter Cheddar Cheese 40-Pound Blocks 500-Pound Barrels Nonfat Dry Milk Dry Whey

$2.946 $2.202 $2.162 $2.205 $1.800 $0.548

$2.923 $2.350 $2.321 $2.347 $1.816 $0.616

Federal Order Class Prices for Milk Class I Mover Class II Class III Class IV

$25.87 $26.66 $22.52 $25.79

$25.87 $26.65 $24.33 $25.83

$17.42 $16.83 $16.49 $16.00

$8.45 $9.83 $6.03 $9.79

Retail Dairy Product Prices Fluid Whole Milk (per gallon) Lowfat Fluid Milk (per gallon) Cheddar Cheese (per pound) Butter (per pound)

$4.156 $3.874 $5.855 $4.552

$4.153 $3.869 $5.777 $4.386

$3.627 $3.168 $5.392 $3.599

$0.529 $0.706 $0.463 $0.953

Jun 2022

May 2022

Jun 2021

2021–2022 Change

$26.90

$27.30

$18.20

$8.70

Feed Prices Corn (per bushel) Soybean Meal (per ton) Premium Alfalfa Hay (per ton)

$7.37 $446 $277

$7.26 $441 $274

$6.00 $378 $230

$1.37 $68 $47

Feed Prices (per cwt of milk) Corn Soybean Meal Premium Alfalfa Hay

$7.91 $3.28 $3.79

$7.79 $3.24 $3.75

$6.44 $2.78 $3.15

$1.47 $0.50 $0.64

DMC Feed Cost* (per cwt.)

$14.98

$14.79

$12.37

$2.61

DMC Margin* (per cwt.)

$11.92

$12.51

$6.03

$5.89

Milk and Feed Prices Producer Prices All Milk (per cwt.)

*DMC calculations are not revised

4 – Dairy Market Report | August 2022

(per pound)

$1.740 $1.596 $1.595 $1.566 $1.255 $0.605

$1.206 $0.606 $0.567 $0.639 $0.545 -$0.057

(per hundredweight)

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Milk and Feed Prices from page 4

from May’s record since the January 2019 start of the program to $11.92/cwt in June, driven by a June feed cost that rose $0.19/cwt from the month before. On a per hundredweight of milk basis, the feed cost increase was mostly due to a higher corn price, but soybean meal and premium alfalfa prices rose as well.

Looking Ahead The milk price outlook for the remainder of 2022 has weakened in recent weeks, as dairy product price inflation has taken a toll on both retail and food service consumption. USDA’s World Agricultural Supply and Demand Estimates (WASDE) monthly update Aug. 12 significantly reduced its estimates of the annual U.S. average all-milk prices for both the 2022 and 2023 calendar years, to $25.20/cwt and $22.50/cwt, respectively. Both estimates were very close to what the CME dairy futures were indicating that day.

Despite the lower milk price outlook, the current futures prices do not indicate the DMC margins will drop below $10.50/cwt anytime during the remaining months of 2022.

The DMC Decision Tool on the USDA/FSA website, on the other hand, is currently showing a much lower price forecast

Peter Vitaliano National Milk Producers Federation pvitaliano@nmpf.org www.nmpf.org

Dairy Management Inc.

and a higher feed cost outlook, with margins falling below $9.50/cwt from August through the end of the year. The current futures also indicate the large differences between the advanced Class III and Class IV skim milk pricing factors that have emerged recently will continue over the next few months, and therefore reduce the Class I mover below the previous higher-of mover during those months.

The August USDA WASDE report raised its estimates for calendar year 2022 and 2023 milk production, following several months of reducing both. The department now expects total U.S. milk production to be 0.2 percent higher in 2022 compared to 2021 and to increase another 1.2 percent over the current year in 2023. Its forecast for 2022 implies it expects the country’s milk production to expand by 1.2 percent during the second half of this year, compared with a drop of 0.7 percent during the first half.

Dairy markets currently are in the process of trying to determine a definitive direction going forward through the end of summer.

As of mid-August, prices have found some support from their recent inflation and demand-related pullback, encouraged by current strong export sales and as yet no clear indication of definite milk production growth in the near future. The next few months should provide more clarity, particularly with respect to the trajectories of price inflation and milk production.

Dairy Management Inc.™ and state, regional, and international organizations work together to drive demand for dairy products on behalf of America's dairy farmers, through the programs of the American Dairy Association ®, the National Dairy Council ®, and the U.S. Dairy Export Council ®.

The National Milk Producers Federation (NMPF) is a farm commodity organization representing most of the dairy marketing cooperatives serving the U.S.

Dairy Market Report | August 2022 – 5