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Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Milk, Dairy & Grain Markets

The U.S. dairy industry continues to shrink. In the latest Milk Production report, USDA trimmed its estimates of 2023 milk production, and it cut its assessment of the milk cow herd for every month last year. According to the latest figures, the milk-cow herd contracted nearly 50,000 head in 2023 and declined another 23,000 head from December to January. The agency pegged January’s milk-cow herd at 9.325 million head, down 76,000 head from 2023 and the smallest tally since August 2019. The recent decline is the most astounding, because it coincides with a dramatic decline in dairy cow slaughter. From September to January, the milk-cow herd contracted by 41,000 head even as dairy producers sent 140,000 fewer cows to the packer. Inadequate Class III prices and steep discounts on milk revenue have pushed some dairy producers out of the business. But the heifer shortage has throttled the flow of dairy cows sent to slaughter. 


According to USDA’s latest estimates, U.S. milk output was 0.04% smaller in 2023 than it was in 2022, the first annual decline since 2009. In January, milk output totaled 19.1 billion pounds, down 1.1% from the year before. That’s the seventh straight monthly decline in milk output, and it marks the steepest year-over-year deficit in two years. Production failed to exceed year-ago volumes in 18 of the 24 largest dairy states.


Dairy producers are also struggling across the pond. Milk output in Europe and the United Kingdom fell 0.7% year-over-year in December. Poland was the only country in the bloc’s seven largest dairy nations with greater milk output in December 2023 than in the final month of 2022. Tractors have blocked traffic in cities around Europe as the farm sector protests the red tape in the bloc’s Green Deal. Farmers are also angry about rising fuel costs and competition from imports that are not subject to similarly onerous regulations. In a sign of agriculture’s growing political power, this week the EU Commission simplified or reduced some of the requirements in the bloc’s Common Agricultural Policy, gave farmers some flexibility from government mandates to fallow farmland, and withdrew a plan that would have halved pesticide use by 2030. Still, European dairy producers feel beleaguered, as they face higher costs and a stricter regulatory environment than their peers across the Atlantic. Growth may continue in places like Poland, but Europe’s dairy industry is not likely to attract a lot of new investment.


Producers are more optimistic in New Zealand, as forecasted pay prices are climbing along with the global milk powder price. Kiwi milk output fell 1.2% below year-ago volumes in January. For the season to date, milk output is down 0.6% on a fluid basis, but milk solids production is up 0.8% thanks to stronger components.


Slower milk output has helped to lift dairy product values, but further upside will require more robust demand. Prices were mixed at this week’s Global Dairy Trade auction. Anhydrous milkfat had a strong showing, with values up 8.6% from the previous auction. Butter prices rallied 0.1% and skim milk powder (SMP) climbed 1.3%. But whole milk powder (WMP), which accounts for more than half the auction’s volume, retreated 1.8%, its first decline since November.


Closer to home, CME spot nonfat dry milk (NDM) rallied 2.75ȼ this week to $1.1975 per pound. CME spot whey powder added a quarter-cent and reached 52.25ȼ. Spot butter leapt a dime higher to $2.85. Cheddar blocks rebounded 7ȼ to $1.55. Barrels added 0.75ȼ and reached $1.615.


USDA delayed publishing the much-anticipated Cold Storage report until Monday afternoon, citing technical issues. The industry will have to wait until next week to get a better handle on butter and cheese supplies. But, by all accounts, there is plenty of cheese to be had. Cheap, plentiful cheese pushed January Class III prices down to $15.17 per cwt. February will be marginally better. The futures currently stand at $16.14. But that’s before accounting for discounts that are becoming steeper and more widespread. Although feed costs are dropping, many dairy producers are in financial trouble, and there is a growing list of dairies on the auction docket.


Thankfully, gains at the spot market and confirmation of contraction lifted milk futures this week. March Class III advanced 47ȼ to $17.31 per cwt. The April and May contracts added roughly 70ȼ. Class IV futures posted 10ȼ to 30ȼ gains, which was enough to push March through June futures above $20. The futures promise $21 Class IV milk throughout the second half of the year.


Grain Markets

March corn futures closed today at $3.9975 per bushel, their first foray below the $4 mark since November 2020. Corn prices dropped 16.75ȼ this week as the market grew more and more confident that South America will harvest a large crop. Soybean meal prices continue to plummet. The March contract closed today at $331.50 per ton, down another $14.10 in just four trading sessions.


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