Dairy Market Report - August 2023

Dairy Market R

Dairy Management Inc.

Vol u m e 2 6 | No. 8

Overview

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August 2023

DMI | NMP F

A restrained supply and expanding demand is offering some hope that the current dire milk-price situation may improve, potentially offering a rapid recovery in dairy

margins that are currently at punishing levels for dairy farmers.

The past year’s relatively modest increase in U.S. milk production that faltered in the spring came to a full stop in June, when production and U.S. dairy cow numbers were both essentially unchanged from a year earlier. In July, the recent bout of intense dairy product retail price inflation also came back to Earth, with retail prices of fluid milk, cheese and butter all lower than a year earlier and retail prices of all dairy products up an average of just 1.3 percent. With that, dairy futures markets have been signalling for some weeks now that milk prices will rapidly improve in the remaining months of 2023, as will the DMC margins, which hit a record low of $3.65/cwt in June. But a third key driver of milk prices, namely U.S. dairy exports, continues to languish relative to the last two years of consecutive record-setting export volumes, potentially limiting the upside of price recovery.

Commercial Use of Dairy Products

U.S. Dairy Trade

USDA’s analysis of domestic milk use in all products shows much larger increases in all milk equivalent measures than those in its reports of milk and milk solids production. All major product categories except fluid milk and other than American-type cheese contributed to this second quarter U.S. demand growth. However, significant shortfalls in exports compared with last year’s record-setting volumes are pulling total use expansion down to levels comparable to production growth in the second quarter.

U.S. dairy exports in all major product categories were well below year-earlier levels during the second quarter of 2023, by at least double-digit percentages in most cases. Collectively, the U.S. dairy industry shipped about two and a half percent less of its total milk solids production out of the country to overseas markets during the quarter compared to a year earlier. On average, losses were greater for the more consumer products, including butter and cheese, than dry skim ingredient products. U.S. exporters are facing stiffer competition and continued on page 2

Domestic Commercial Use

Apr–Jun 2023

Apr–Jun 2022

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)

10,270 1,193 528 1,404 1,927 3,332 240 54,948 46,152 48,887

10,546 1,170 466 1,345 1,961 3,306 195 53,748 44,230 47,166

2022–2023 Change

Percent Change

-276 23 61 59 -33 25 45 1,200 1,922 1,721

-2.6% 1.9% 13.1% 4.4% -1.7% 0.8% 23.1% 2.2% 4.3% 3.6%

(million pounds)

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U.S. Dairy Trade from page 1

aggressive pricing from traditional competitors in Europe and Oceania, while import demand, particularly by China, has softened.

The United States joined many other countries in reducing its dairy imports year-over-year during the third quarter.

Milk Production Following up a slight uptick to 0.65 percent in May, from April’s 0.38 percent, the annual growth rate of U.S. milk production dropped to flat: -0.02 percent, according to preliminary USDA numbers for June. The May increase was driven primarily by increased production in the larger milk producing states.

The drop in June production was led by Texas and New Mexico, but California was also down more than 1 percent.

However, many of the larger and mid-sized of the 24 states that report monthly production still showed increased production.

Nationwide cow numbers were essentially unchanged from a year earlier in June, as was national average production per cow. USDA data on growth of U.S. total milk solids production has not yet reflected as strong a downturn as has liquid milk production. It indicated that almost 7 percent more milk solids were produced in June than a year earlier.

Dairy Products American-type cheese and butter continue to show the most pronounced gains in production during the second quarter of 2023. Unlike butter, total dry skim milk production, of all forms, was lower year-over-year, although bulk condensed skim milk production was 9 percent higher than a year earlier during the quarter.

Dairy Product Inventories Stocks of all cheese, as well as all American-type and all other types of cheese were little changed from a year earlier continued on page 3

U.S. Dairy Exports

Apr–Jun 2023

Apr–Jun 2022

2022–2023 Change

Percent Change

(metric tons)

7,237 1,398 16,905 16,764 88,509 105,414 215,317 8,170 43,940 56,647 120,862 16.7%

14,380 4,837 26,007 25,815 99,666 125,672 223,136 12,930 51,914 62,171 128,860 19.3%

-7,143 -3,439 -9,101 -9,050 -11,157 -20,258 -7,819 -4,760 -7,973 -5,523 -7,998 -2.6%

-50% -71% -35% -35% -11% -16% -4% -37% -15% -9% -6% -13%

U.S. Dairy Imports

Apr–Jun 2023

Apr–Jun 2022

2022–2023 Change

Percent Change

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

12,409 44,306 301 10,590 11,902 3.0%

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

644 -3,326 161 -2,557 -5,869 -0.4%

5% -7% 116% -19% -33% -13%

Butter Anhydrous Milk Fat / Butteroil American–type Cheese Cheddar 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

(metric tons)

2 – Dairy Market Report | August 2023

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Dairy Product Inventories from page 2

in June, but all were just a few million pounds short of their respective all-time high levels since 2000, which occurred in July last year. June-ending butter stocks were down from May’s but were 5 percent above a year earlier. June-ending manufacturers’ stocks of nonfat dry milk were close to their average over the past half-decade, while dry whey stocks have increased steadily since hitting a half-decade low of 56 million pounds at the beginning of 2022.

Dairy Product and Federal Order Class Prices The recent strength in the daily CME cash markets for cheese began in July but not in time to prevent the July monthly NDPSR cheese prices from dropping below June. Butter was the only NDPSR-reported product that showed a price gain from June to July. The July Class III price reflected a corresponding drop, while offsetting product price moves kept the Class IV price constant during the two months.

The Bureau of Labor Statistics-reported U.S. average retail prices of fluid milk products, both whole milk and all other continued on page 4

Milk and Dairy Products Production

Apr–Jun 2023

Apr–Jun 2022

2022–2023 Change

Percent Change

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

9,419 6,160 58,019 7,579

9,411 6,144 57,822 7,513

8 16 197 66

0.1% 0.3% 0.3% 0.9%

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

(million pounds)

1,474 1,040 1,441 1,141 3,544

1,432 1,009 1,474 1,151 3,544

43 32 -33 -10 0

3.0% 3.1% -2.2% -0.9% 0.0%

Butter

554

520

34

6.5%

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

590 107 245 126

557 150 239 109

32 -43 6 16

5.8% -28.6% 2.6% 14.8%

Dairy Product Inventories

Jun 2023

May 2023

347 853 657 303 82

368 857 641 307 78

Jun 2022

2022– 2023 Change

(million pounds)

Butter American Cheese Other Cheese Dry Skim Milk Dry Whey

331 847 660 316 72

5% 1% 0% -4% 15%

Dairy Market Report | August 2023 – 3

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Dairy Product and Federal Order Class Prices from page 3

types, were lower in July than both a month and a year earlier.

The BLS retail price indices for both cheese and butter were lower in July than a year earlier. Retail prices for almost all

Dairy Product and Federal Order Prices

Jul 2023

dairy products have dropped from their peak levels, reached mostly during the last few months of 2022 and are also down considerably in their more commonly-reported year-over-year retail price increases from their peaks attained mostly during the second half of 2022.

Jun 2023

Jul 2022

2022–2023 Change

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

$2.483 $1.487 $1.461 $1.479 $1.152 $0.266

$2.451 $1.572 $1.557 $1.556 $1.167 $0.322

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

$17.32 $19.12 $13.77 $18.26

$18.01 $18.83 $14.91 $18.26

$25.87 $26.66 $22.52 $25.79

-$8.55 -$7.54 -$8.75 -$7.53

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

$3.971 $3.633 $5.911 $4.465

$3.985 $3.682 $5.681 $4.452

$4.156 $3.874 $5.855 $4.552

-$0.185 -$0.241 $0.056 -$0.087

Jun 2023

May 2023

Jun 2022

2022–2023 Change

Producer Prices All Milk (per cwt.)

$17.90

$19.30

$26.70

-$8.80

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

$6.49 $413 $310

$6.54 $424 $317

$7.38 $446 $277

-$0.89 -$32 $33

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

$6.96 $3.04 $4.25

$7.02 $3.11 $4.34

$7.92 $3.28 $3.79

-$0.95 -$0.24 $0.45

DMC Feed Cost* (per cwt.)

$14.25

$14.47

$14.98

-$0.73

DMC Margin* (per cwt.)

$3.65

$4.83

$11.92

-$8.27

Milk and Feed Prices

*DMC calculations are not revised

4 – Dairy Market Report | August 2023

(per pound)

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

-$0.464 -$0.715 -$0.701 -$0.727 -$0.648 -$0.282

(per hundredweight)

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Milk and Feed Prices

Looking Ahead

The June Dairy Margin Coverage (DMC) margin dropped by $1.18/cwt from a month earlier to $3.65/cwt, the first time it’s been below $4/cwt since margin protection became the basic federal safety net mechanism for dairy in 2014. It will generate a lot of $0.35/cwt payments for Tier 2 coverage at the free $4/cwt level, as well as payments of $5.85/cwt for Tier 1 coverage at the maximum $9.50/cwt level. The June all-milk price was $1.40/cwt lower than in May, the same as the April to May drop a month earlier, while the DMC June feed cost was only $0.22/cwt of milk lower than May’s, due to relatively similar slight drops in the prices of all three feed cost formula components.

USDA’s World Agricultural Supply and Demand Estimates (WASDE) report for August reduced its forecast of this year’s U.S. milk production growth from its July estimate of 0.9 percent to 0.6 percent over 2022 production. The department also halted its steady reductions over the past several months of this year’s predicted average milk price for the year, and instead raised it to $19.95/cwt from July’s low of $19.55/cwt. The CME dairy futures markets indicated a 2023 average milk price of $20.45/cwt at the same time. USDA also raised its 2024 average milk price forecast to $19.35/cwt, while the CME futures were indicating $21.25/cwt.

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

Dairy Management Inc.

Available forecasts indicate the DMC margin will improve slightly in July from the June level and then increase rapidly from August through October and reach $9.50/cwt

by December.

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 2023 – 5