Milk production stronger than expected

The “Mielke” Market Weekly

U.S. milk production is slowly recovering, though it remained below a year ago for the second month in a row in December, primarily due to the impact of bird flu in California. 

The U.S. Department of Agriculture’s latest preliminary data put December output at 18.7 billion pounds, down 0.5% from December 2023, following a 0.4% drop in November. December output in the top 24 states totaled 18.0 billion pounds, down 0.4%, after slipping 0.3% in November. 

November output was revised up a hefty 110 million pounds from last month’s estimate, resulting in a 0.4% decline instead of the 1% drop originally reported. Revisions added 89 million pounds to the 24-state count, resulting in November output being down 0.3% instead of a 0.8% decline.

December cow numbers fell to 9.351 million, down 9,000 head from November, though the November count was lowered 5,000. The December herd was only up 3,000 from a year ago and was 28,000 more than in January. The 24-state December count, at 8.91 million, was down 8,000 from November, which was revised 4,000 head lower, but numbered 17,000 more than a year ago.

December output per cow in the 50 states averaged 2,005 pounds, down 10 pounds or 0.5% from a year ago. The November average was revised up 12 pounds. The 24-state December average, at 2,020 pounds, was down 11 pounds or 0.5% from a year ago. The November average was revised up 11 pounds from last month’s report.

Preliminary data for the 50 states for all of 2024 showed milk output at 225.854 billion pounds, down 0.2% from 2023, in line with USDA’s latest World Agricultural Supply and Demand Estimates report, and was the second year in a row to fall short of the previous year. Cows numbered 9.339 million head in 2024, down 47,000 from 2023. Output per cow averaged 24,184 pounds, up 67 pounds. The 2025 forecast is for 227.2 billion pounds, which would be a 1.3-billion-pound increase, or 0.6%, from 2024.

HighGround Dairy said that 2024 saw the most significant annual decrease since 2001, and, “It has been over 50 years since milk production fell for two consecutive years. However, the tide seems to be turning as milk cow numbers improve versus the prior year. Further, component levels will most likely not be down annually, and those are the most important when making dairy products.”

California fared a little better than thought in November and December, considering its ongoing battle with bird flu. 

November output, while down a hefty 259 million pounds from a year ago, was revised up 42 million from last month’s report and resulted in a 7.9% drop for the Golden State, instead of the 9.2% reported.

December output was down 233 million pounds or 6.8% from a year ago. That was due to a 135-pound drop per cow while cow numbers were down 1,000 head. Output per cow was down 150 pounds in November.

Wisconsin’s December output hit 2.69 billion pounds, up 2 million or 0.1% from a year ago, on 5,000 fewer cows, and output per cow was up 10 pounds.

Idaho was up 3.5%, thanks to 17,000 more cows and a 20-pound gain per cow. Michigan was up 1.4% on a 25-pound gain per cow and 1,000 more cows milked.

Minnesota was off 0.7%, due to a loss of 10,000 cows, though output per cow was up 30 pounds. New Mexico was down 3.3%, on 10,000 fewer cows. Output per cow was up 15 pounds. 

New York was up 0.7% on a 15-pound increase per cow. Cow numbers were unchanged. Oregon showed the biggest percentage decline in the country, down 8.2% on 9,000 fewer cows, and a 15-pound drop per cow. 

Pennsylvania was unchanged across the board. South Dakota was up 6.4% on a 45-pound gain per cow and 8,000 more cows. Texas again had the biggest gain in the U.S., up 7.5% thanks to 40,000 more cows and 25 pounds more per cow.

Vermont was down 0.5%, on 3,000 fewer cows, although output per cow was up 40 pounds. Washington State was down 2.1%, on a 30-pound drop per cow, and 2,000 fewer cows. The report is considered mostly neutral to the market.

StoneX said December milk components were strong, “partly due to lapping over some weakness in the previous year. So even with headline production down 0.4%, component adjusted production would be up about 1.5% for the month.”

Dairy culling rose above year ago levels the week ending January 18, first time since September 2023. The USDA reported 58,000 dairy cows went to slaughter, up 2,600 from the previous week, and 6,900 or 13.5% above a year ago. Year to date, 157,500 head had been culled, up 1,900 or 1.2% from a year ago. 

Culling data for 2024 shows just 2.7 million dairy cows were sent to slaughter, down 367,400 head or 11.9% from 2023, and lowest since 2008.

Meanwhile, butter and cheese stocks grew December. The USDA’s latest cold storage report showed Dec. 31 butter holdings climbed to 222.4 million pounds, up 8.7 million pounds or 4.1% from November, and up 22.8 million or 11.4% from December 2023. Butter stocks mirrored those a year ago in November.  

American type stocks grew to 772.6 million pounds, up 7.1 million or 0.9% from November’s level, but were down 65.1 million pounds or 7.8% from a year ago.

The “other” cheese holdings climbed to just under 559 million pounds, up 15.8 million or 2.9% from November, but down 24.7 million or 4.2% from a year ago.

Total cheese stocks grew for the first time in nine consecutive months, with the Dec. 31 inventory at 1.355 billion pounds, up 23 million pounds or 1.7% from November. Stocks were down 87.1 million pounds or 6.0% from a year ago, however. The report is viewed as somewhat bearish to the market.

Dairy processors met this week in San Antonio, Texas, for the International Dairy Foods Association’s annual Dairy Forum. One of the key take-aways of the forum was the strong demand for high value whey protein, according to StoneX broker Dave Kurzawski in the February 3 “Dairy Radio Now” broadcast. 

The bearish side is fat and butter, he said, and while not widely spoken about at the forum, the downside risk is for the butter market. He blamed the shortfall in U.S. milk output to California’s battle with bird flu, where milk production was down 6.8%, while output elsewhere in the country was up about 1%. 

He also reported that organic milk is extremely tight right now. One of the reasons may be a switch by consumers away from plant-based beverages to animal-based milk in the past 12 months, particularly to organic product, he said.

USDA’s latest fluid milk sales data showed organic sales were up 7.7% in November and up 6.9% year to date and represented 7.1% of total sales.

The quest to meet the rising demand won’t come quickly. Kurzawski explained that few conventional farmers want to make the switch to organic, and even if they did, it could take several years to do so. He said he thinks consumers will embrace conventional milk again, which he believes is just as healthy and satisfying as organic. “It’s a first step in the right direction,” he said. 

As I have written in the past, consumers need to read the ingredients on the labels of plant-based products and ask themselves if that is what they want to put into their bodies, when compared to natural, nutrient-laden milk from the cow.

Chicago Mercantile Exchange block Cheddar climbed to $1.9350 per pound Thursday, highest since Jan. 6, but it closed the last Friday of January at $1.8775 per pound, still 4.50 cents higher on the week, but 3.50 cents below its Jan. 2 closing, and 22.75 cents above a year ago when it jumped 11.25 cents to $1.65. 

The barrels hit $1.8650 Tuesday, highest since Jan. 17, but closed Friday at $1.81, down a penny on the week, down 1.50 cents from the Jan. 2 post, 26 cents above a year ago, and a wider than normal 6.75 cents below the blocks.

Block sales totaled 17 loads for the week and 67 for the month of January, up from 47 in December. There were 13 sales of barrel on the week and 36 for the month, down from 49 in December.

Dairy Market News reported that cheese demand, for the most part, continues to be bullish, according to a number of Midwest cheesemakers. Many who had some availability in December are now saying they’re not able to offer any on the spot market. Italian style cheesemakers say demand, except for mozzarella, is markedly strong. Barrel makers said early demand needs are setting a positive tone for 2025 so far. Milk availability remains in balance. Mid-week spot milk prices were reported as low as $1-under up to flat Class. Late last week and early this week, cheesemakers were relaying bottlers to continue to pull milk from planned cheese manufacturing. Cheese markets are steady to slightly bullish.

Western cheese production is steady to strong. Milk production is generally strengthening in the region, but bottling demand is strong as well, creating some tug of war between Class I bottling and Class III cheese manufacturing. Milk demand from cheese manufacturers is strong. Cheese demand is steady, while spot demand is more mixed. A few cheesemakers indicate their stocks for spot purchases are very snug, according to DMN.

Cash butter felt the pressure of heavier cream supplies this week and fell to a Friday finish at $1.4325 per pound, lowest since June 27, 2023, down 9.75 cents on the week, down 11.25 cents on the month, and 31.25 cents below a year ago. CME sales totaled 20 for the week and 97 for January, up from 94 in December.

Central butter makers continue to say demand is progressing and meeting seasonal expectations. Demand is not robust, but not slower than normal during the first month of the year. Cream remains widely abundant. Cream handlers say the Upper Midwest was one of the most cream-laden areas in the country this week. Cream multiples were reported as low as .90. Butter demand is seasonally quiet, but churns are running heavy amounts of cream as plants build inventories for upcoming seasonal needs, according to DMN.

Plenty of cream is available in the West and multiples were comfortably below flat market in the final week of January. Manufacturers said that more than ample amounts of cream are finding their way to churns. Butter production is generally strong. Unsalted butter spot loads are tighter than salted, but both are comfortably available in the region. Butter demand varies from moderate to strong, according to DMN, but sentiment is mostly bearish or neutral.

Grade A nonfat dry milk closed Friday at $1.3450 per pound, down a quarter-cent on the week, lowest since Sept. 3, 2024, 2.50 cents lower on the month, but 12 cents above a year ago. Powder sales for the week amounted to nine lots and 60 for the month, down from 81 in December.

Dry whey closed the week and the month at 64 cents per pound, down 5.75 cents on the week, lowest since Nov. 20, 2024, 11 cents below its Jan. 2 posting, but still 13.25 cents above a year ago. CME sales totaled two for the week and 17 for the month of January, down from 29 in December.

StoneX warned in its Jan. 28 “Early Morning Update,” “The market is expecting more whey to show up in second quarter with cheese production increasing but we can’t deny the strength of high protein demand which has kept whey production and inventories at bay.”

Tuesday’s Global Dairy Trade Pulse saw 4.3 million pounds of product sold, down from 4.4 million in the Jan. 14 Pulse. The total sold represents 96.9% of what was offered. Prices on both skim milk powder and whole milk powder were up from the last Pulse. 

In other global dairy news, President Trump stated in an informal press conference Thursday that he will impose 25% tariffs on imports from Canada and Mexico beginning Feb. 1. He had threatened to do so previously because both countries had not done more to secure their borders from the flow of undocumented migrants, illegal drugs and large trade deficits.

StoneX warned in its Jan. 31 “Early Morning Update” that “If the tariffs are implemented, Mexico is planning to respond with their own tariffs which includes cheese. It was something that loomed over the market since (Trump) was elected but did little to deter dairy futures prices up until Thursday. On Wednesday, Mexico’s president mentioned that she believed these tariffs would be unlikely and that they could come to an agreement.”

“There’s likely still time to negotiate but the market is now being more precautious,” StoneX said Friday morning. “When the news broke, the Mexican peso weakened from 20.40 to about 20.70 and was holding steady at those levels. Class III and cheese sold off as well and were holding those prices, down 40-50 cents in nearby months. Although nonfat dry milk was not included in Mexico’s tariffs on the U.S., it did not take the news lightly either and traded lower,” StoneX said.