Dairy Market Report - December 2022

Dairy Market R

Dairy Management Inc.

Vol u m e 2 5 | N o. 1 2

Overview

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D ecember 2022

D MI | NMP F

Domestic commercial use of milk in all products continued to strengthen during the August–October period, providing some support for prices even as production is

increasing as well. U.S. milk production has increased year-over-year each month from July through October, at generally diminishing rates, while U.S. dairy cow numbers have increased steadily relative to a year earlier, indicating potentially greater increases in milk production in upcoming months.

Meanwhile, total U.S. dairy exports have exceeded the equivalent of 18 percent of U.S. milk solids each month since February this year, keeping the industry on track to surpass last year’s current record of 17.3 percent by this measure. Milk prices this year will set a new record for an entire calendar year, projected at to be at least $25.50 per cwt, well above 2014’s record of $24.00 per cwt. The Dairy Margin Coverage program margin may dip back below $9.50 per cwt in December and likely will remain below that level well into 2023.

Commercial Use of Dairy Products

U.S. Dairy Trade

Domestic commercial use of milk in all products continued to strengthen during the August–October period, increasing by over one percent compared to a year earlier, as measured by total milk solids. Aggregate domestic consumption had been negative during much of 2022 until the third quarter. Part of the reason for this change is that USDA’s aggregate measures of commercial use are based on milk production, adjusted for net trade and changes in stocks, and milk production has turned positive at about the same time as commercial use.

Growing cheese consumption has been a major contributor to this trend, while fluid milk, yogurt and butter consumption has continued to lag in the U.S. domestic market.

After a slow start, total U.S. dairy exports have exceeded the equivalent of 18 percent of U.S. milk solids each month since February this year. The year-to-date total through October is 18 percent, making it very likely this year will surpass last year’s current record of 17.3 percent by this measure.

Increased imports of casein and milk protein concentrate were the main factors that boosted total October U.S. dairy imports to the equivalent of 3.9 percent of U.S. milk solids production from the 3.4%–3.5% percent levels they had maintained since the prior May.

Domestic Commercial Use

Aug–Oct 2022

Aug–Oct 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)

10,889 1,198 510 1,338 2,039 3,377 198 57,517 45,613 49,299

11,032 1,208 579 1,305 1,988 3,293 230 57,091 45,048 48,740

2021–2022 Change

Percent Change

-143 -10 -69 33 51 84 -31 425 564 559

-1.3% -0.9% -11.9% 2.5% 2.6% 2.6% -13.7% 0.7% 1.3% 1.1%

(million pounds)

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Milk Production

Dairy Products

The USDA/NASS October milk production report showed U.S. milk production rising over the prior year during the past four months, but at generally diminishing rates: 0.51% in July, 1.68% in August, 1.39% in September, and 1.13% in October. However, U.S. cow numbers have been increasing steadily relative to a year earlier throughout these months, from 69,000 fewer in July to 32,000 more in October. Based on past experience, this trend will likely continue, raising expectations of greater increases in milk production in the coming months. Major milk-producing states that bucked this trend and expanded production at a relatively growing rate during these recent months are mostly in the Corn Belt and immediately adjacent areas to the south and northeast.

Farmers raising much of their own feed may well be a common denominator for this pattern. Total U.S. milk solids production continues to grow more rapidly than total raw milk production.

It was up over a year ago during August–October at an 0.8 percent higher rate than liquid milk growth.

Increased milk production continues to show up primarily in greater production of other than American types of cheese as well as whey products. These product increases are still relatively small and reflect the, so far, less than robust growth in milk production. Among products in the dry skim milk category, skim milk powder production has dropped significantly this year, reflecting the drop in exports of the category. By contrast, relative changes in production of American versus other varieties of cheese have been almost opposite to those of U.S. exports, and therefore reflect changes in the U.S. domestic market instead. During August–October, exports represented more than two-thirds of total U.S. dried skim milk use compared to less than seven percent for cheese.

U.S. Dairy Exports

Dairy Product Inventories Cold storage stocks of cheese continued to fall in October from the decades-long high levels they attained at the end

Aug–Oct 2022

continued on page 3

Aug–Oct 2021

2021–2022 Change

Percent Change

(metric tons)

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

18,333 3,789 19,950 19,718 91,122 111,072 202,651 7,689 68,301 59,389 115,811 18.5%

10,705 5,796 16,729 16,624 89,564 106,294 215,871 7,833 55,283 49,516 97,623 17.6%

7,628 -2,007 3,221 3,094 1,557 4,779 -13,221 -145 13,018 9,873 18,188 0.9%

71% -35% 19% 19% 2% 4% -6% -2% 24% 20% 19% 5%

U.S. Dairy Imports

Aug–Oct 2022

Aug–Oct 2021

2021–2022 Change

Percent Change

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

13,408 53,554 156 10,342 19,505 3.6%

13,290 52,445 165 9,508 14,158 3.2%

118 1,109 -9 834 5,347 0.4%

1% 2% -5% 9% 38% 12%

(metric tons)

2 – Dairy Market Report | December 2022

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Dairy Product Inventories from page 2

of this past July, while butter did the same with respect to its similar record from June 2021. Manufacturers’ stocks of dry skim milk followed suit from its record the same month as butter’s. Ending October stocks of dry whey were again effectively stable for the month.

Dairy Product and Federal Order Class Prices The Federal Order announced price of butter in November was $0.235 lower than in September, reflecting the steady erosion in the weekly NDPSR price in late October and a sharper drop

during the second week of November. The weekly price has risen slightly since then. The weekly NDPSR price of barrel cheese has followed a somewhat similar trend, while the weekly block cheddar price has been relatively stable throughout most of October and November before ticking up at the end of the latter month. Monthly changes in the nonfat dry milk and dry whey survey prices between the two months were more modest. The overall result has been a smaller drop in the Class III price than for Class IV, further narrowing the gap between the two.

While overall inflation and overall food retail price inflation is slowly dropping, as measured by annual percentage changes continued on page 4

Milk and Dairy Products Production

Aug–Oct 2022

Aug–Oct 2021

2021–2022 Change

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

9,416 5,962 56,138 7,307

9,410 5,884 55,362 7,151

6 78 776 156

0.1% 1.3% 1.4% 2.2%

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

Percent Change

(million pounds)

1,361 950 1,478 1,157 3,458

1,378 955 1,444 1,123 3,435

-16 -5 34 34 23

-1.2% -0.5% 2.3% 3.0% 0.7%

Butter

445

455

-10

-2.2%

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

382 171 234 136

382 222 232 133

0 -52 1 3

0.0% -23.2% 0.6% 2.2%

Dairy Product Inventories

Oct 2022

Sept 2022

240 831 617 255 68

267 843 627 282 67

Oct 2021

2021– 2022 Change

(million pounds)

Butter American Cheese Other Cheese Dry Skim Milk Dry Whey

279 843 605 228 58

-14% -1% 2% 12% 17%

Dairy Market Report | December 2022 – 3

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Dairy Product and Federal Order Class Prices from page 3

in their respective monthly Consumer Price Indices, that trend is not yet true for dairy products, which began to increase more steeply as much as a year later than other products and will likely follow the same pattern as inflation ebbs.

Dairy Product and Federal Order Prices

Nov 2022

Fluid milk has been the major exception; its inflation trajectory has been a few months earlier than those of most other dairy products. Cheese has been on the same schedule as most dairy products, but it looks like it may come away with the lowest peak level of any major dairy product category. continued on page 5

Oct 2022

Nov 2021

2021–2022 Change

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

$2.956 $2.090 $2.075 $2.074 $1.505 $0.475

$3.191 $2.156 $2.045 $2.221 $1.582 $0.486

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

$24.09 $24.67 $21.01 $23.30

$22.71 $25.73 $21.81 $24.96

$17.98 $18.40 $18.03 $18.79

$6.11 $6.27 $2.98 $4.51

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

$4.218 $3.842 $5.933 $4.639

$4.184 $3.836 $5.960 $4.847

$3.671 $3.288 $5.326 $3.477

$0.547 $0.554 $0.607 $1.162

Oct 2022

Sept 2022

Oct 2021

2021–2022 Change

$25.90

$24.40

$19.60

$6.30

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

$6.50 $469 $348

$7.09 $474 $342

$5.02 $325 $254

$1.48 $143 $94

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

$6.97 $3.44 $4.77

$7.61 $3.48 $4.69

$5.39 $2.39 $3.48

$1.59 $1.05 $1.29

DMC Feed Cost* (per cwt.)

$15.19

$15.78

$11.16

$4.02

DMC Margin* (per cwt.)

$10.71

$8.62

$8.54

$2.18

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

*DMC calculations are not revised

4 – Dairy Market Report | December 2022

(per pound)

$1.950 $1.759 $1.761 $1.727 $1.477 $0.583

$1.006 $0.331 $0.314 $0.347 $0.028 -$0.108

(per hundredweight)

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Dairy Product and Federal Order Class Prices from page 4

Frozen was looking similarly until last month. The overall Consumer Price Index was up by 7.1 percent from a year ago in November, down from a 9.1 percent year-over-year increase last June. Similar numbers for inflation in all food and beverages were 10.3 percent in November, down from 10.9 percent in August. Dairy products that receded in November from previous highs by this measure included fluid milk and cheese, while butter and frozen dairy products, as well as the overall CPI for all dairy products, hit new highs in November.

Milk and Feed Prices The U.S. average all-milk price rose $1.50 per cwt in October from a month earlier, boosting the month’s DMC margin well above the $9.50 per cwt maximum coverage level for program payments. The October margin was $10.71 per cwt, $2.09 per cwt higher than September’s. The DMC feed cost dropped by $0.59 per cwt in October, driven entirely by a $0.59 per bushel drop in the price of corn, equivalent to a drop of $0.64 per cwt of milk in the DMC feed cost formula – the corn price component of the formula, per hundredweight of milk, is 1.0728 times its per bushel price.

Looking Ahead In its December World Agricultural Supply and Demand Estimates (WASDE) report, USDA maintained its milk production forecast for 2022 from the month before but raised its 2023 production forecast slightly on the basis of “both higher expected cow numbers and slightly more rapid growth in output per cow.”

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

Dairy Management Inc.

These forecasts imply that 2022 production will exceed 2021’s by 0.3 percent, that November and December 2022 will together exceed year-earlier levels by 1.8 percent, and 2023 milk production will be 1.1 percent greater than 2022’s. In light of the recent buildup in total U.S. dairy cow numbers, USDA may raise its 2023 milk production forecasts in coming months.

Early December futures prices indicated that the U.S. average all-milk price for calendar year 2022 will be about $25.50 per cwt. This would be $1.50 per cwt higher than the current calendar year all-milk price record set in 2014. USDA’s December WASDE report raised its 2022 all-milk price forecast from November’s $25.50 to $25.65 per cwt. The dairy futures and USDA’s WASDE were in close agreement at the time of the latter’s December report on the 2023 calendar year all-milk price outlook, at $22.75 per cwt and $22.70 per cwt, respectively. These forecasts are also anticipated to recede somewhat, to the extent that the 2023 milk production outlook is increased.

Another small payment for $9.50 per cwt Tier 1 coverage under the DMC may be triggered in December. Payments so far this year under the program, for August and September, together total the equivalent of about $0.19 per cwt on an annualized basis. As of mid-December, the Decision Tool on the USDA Farm Service Agency’s website was showing DMC margin forecasts below $9.50 per cwt for the first nine months of 2023. Other forecasts based on the futures markets at the time were basically consistent with this projection.

USDA recently extended the enrollment period for both calendar year 2023 DMC and Supplemental DMC until next Jan. 31.

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 | December 2022 – 5