Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Sarina@DailyDairyReport.com


Milk & Dairy Markets

Rising costs and waning milk output pushed the U.S. dairy markets higher once again this week. Cheese led the way. CME spot Cheddar barrels leapt 22ȼ to $2.25 per pound, the highest price – by far – since November 2020. Blocks climbed 14.5ȼ to $2.275, also a 16-month high. Butter rallied 7ȼ to $2.795. The powders slipped. CME spot nonfat dry milk (NDM) fell a fraction of a cent to $1.8525, a value that is still historically high. Spot whey powder fell 4ȼ to 72ȼ.

Strong cheese and butter prices propelled the futures to new highs. Even after a Friday setback, Class III contracts finished between 14ȼ and 94ȼ higher than they began the week. May Class III settled at $25.01 per cwt. The June and July contracts peaked briefly above the $25 mark as well. Most Class IV contracts added 30 to 50ȼ this week. The April through August contracts all stand comfortably above $25.


U.S. milk output dropped to just over 17.5 billion pounds in February, 1% less than the year before and the fourth straight year-over-year decline. While some individual states posted strong growth, the Northern Plains is the only region that reported higher milk output than last year. The January and February milk production shortfalls represent the steepest U.S. deficits since 2009.

High milk prices prompted dairy producers to add a few cows. After contracting for eight months, the U.S. dairy herd grew by 3,000 head in February and reached 9.37 million. That is still 96,000 head smaller than it was in February 2021. $25 milk will surely incentivize dairy producers to step up milk output as much as possible. But high feed prices and low heifer inventories will likely forestall runaway growth.


Milk production continues to decline overseas as well. New Zealand milk output was shockingly low in February, down 8.2% from a year ago. Kiwi milk solids collections are down 4% for the season to date. New Zealand’s milk cooperatives keep raising pay prices to encourage greater milk output, but the weather has worked against them in the 2021-22 season. And it’s too late to significantly add to the dairy herd for the upcoming season, which begins in June. Dairy producers bred their cows five or six months ago, when the pay-price forecast was 13% lower than it is today. High feed costs suggest that Kiwi dairy producers won’t use a lot of supplemental feeds to boost milk yields, but better weather could at least help New Zealand’s 2022-23 milk output to recover to prior-year volumes.

Lower milk output among the world’s major exporters is the primary driver behind today’s unprecedented milk and dairy product prices. But demand matters too. Falling sales of whey products have spurred a modest selloff in what was once one of the strongest dairy markets. Chinese whey powder imports plummeted in January and February, as lower profit margins for pork producers left China’s pork industry with less appetite to pay up for feed whey.


On the other hand, Chinese imports of consumer-facing goods like ultra-high temperature (UHT) fresh milk, cheese, and butter remain healthy, although they fell short of the record-smashing volumes set in January and February 2021. Chinese skim milk powder (SMP) imports in January and February fell 12.6% below prior-year levels, but they were still historically high. More importantly, China continues to import more whole milk powder (WMP) than ever before. Typically, Chinese WMP imports are three to four times as large as Chinese SMP imports, and Chinese milk powder imports dwarf its purchases of other dairy products. China’s appetite for foreign WMP is helping to keep a firm bid under the milk powder markets and assuage fears about a sudden decline in Chinese demand.

U.S. dairy products are priced to move, and exports remain strong despite the ongoing struggles in the global supply chain. Robust cheese exports incentivized processors to make more cheese for foreign buyers and less commodity Cheddar. That likely contributed to modest month-to-month declines in U.S. stocks of American cheeses in both January and February. However, inventories of all varieties of cheese grew seasonally to just shy of 1.47 billion pounds, up 2.3% from the already large stockpile on hand in February 2021. Butter inventories grew at a lively clip in February, but, at 263 million pounds, they are 26% below year-ago levels.

Grain Markets

The feed markets climbed once again this week as the brutal war in Europe’s bread basket entered its second month. With Russia and Ukraine at a stalemate, the prospect of a drawn-out fight grows increasingly likely. Despite daunting obstacles, Ukrainian farmers have sown the first 150,000 hectares of spring crops. But Ukraine’s agricultural minister told Reuters that spring sowing could drop by more than half this year, to around 7 million hectares, or 17.3 million acres. If his estimate is correct, farmers may leave around 8 million hectares, or 19.7 million acres, unplanted, an area equal to the farmland of Nebraska or Minnesota. The Kyiv Independent reported that Russian forces are “chaotically” mining Ukrainian territory to deter farmers, and that they “deliberately destroy agricultural machinery… to undermine Ukraine’s sowing campaign.” Farmers who can access their fields and have the diesel to get crops in the ground are likely to focus on small grains with short growing seasons that require few inputs. They will sacrifice bumper corn yields to ensure a quicker boost to the national food supply. The world has relied on Ukrainian grain exports in the past, but it isn’t counting on any this year. Perhaps the trade is too pessimistic. Ukraine’s government has suspended exports of most small grains and meat, but it gave the green light to corn and sunflower oil exports because stocks are “very high.”


Closer to home, U.S. farmers are getting ready to roll. High grain prices might encourage an increase to corn acres, but pricey – and scarce – inputs argues for a shift to soybeans. USDA will publish its much-anticipated Prospective Plantings Report next week. Prices continued to climb ahead of the report. May corn closed today at $7.54 per bushel, up another 12.25ȼ. Beans closed at $17.1025, up 42.25ȼ. Soybean meal added more than $10 and reached $487.90 per ton.