Growth of domestic sales, exports of cheese tempered by rising input costs

DMI & NMPF
Record or near-record levels of the cost of virtually all inputs needed to produce milk are tempering the gains on farmer balance sheets. Meanwhile, retail price inflation has been accelerating for several dairy product categories, including fluid milk and butter, which are significantly outpacing consumer price increases for all food and beverages as well as the overall rate of inflation.

Robust growth of both domestic consumption and exports of all cheese have been bright spots in the overall U.S. dairy situation. Milk prices reached their highest-ever monthly level during March, as measured by the U.S. average all-milk price, and the total export volume of all dairy products recovered markedly that month from the relative doldrums of the prior three months.

However, record or near-record levels of the cost of virtually all inputs needed to produce milk are tempering the gains on farmer balance sheets. Meanwhile, retail price inflation has been accelerating for several dairy product categories, including fluid milk and butter, which are significantly outpacing consumer price increases for all food and beverages as well as the overall rate of inflation. Price inflation for cheese and frozen dairy products continues to be relatively subdued, by comparison.

Commercial Use of Dairy Products

Significant increases in consumption of all cheese was a bright spot in the domestic dairy market during the first quarter. Overall, the U.S. population consumed a full percent less milkfat in all dairy products during the first quarter, while total skim solids consumption was relatively little changed. The drop in milkfat uptake was caused partly by lower butter consumption as well as an estimated 2.5 percent reduction in total milkfat consumed in all fluid milk products.

U.S. Dairy Trade

U.S. dairy exports recovered strongly during the first quarter of 2022 from January’s lowest point in three years to March’s seventh highest-ever month, as measured by monthly percent of U.S. milk solids production. This rise from 13.6 percent to 18.1 percent was the second-highest ever percentage-point increase in this measure over two consecutive months.

A disproportionate number of the largest two-month increases of this type take place during the January through March period in various years. The largest product volume increases over the period this year were in the usual leading categories of milk powders, most whey products and, to a somewhat lesser extent, butter and cheese.

Growth in the major product categories of U.S. dairy imports has moderated considerably from the high levels reached during the last several months of 2021. March imports of butter, MPC and casein were below year-earlier levels, while total cheese imports were up that month by barely in the double-digit percentages.

Milk Production

U.S. dairy cow numbers continued to decline from year-earlier levels in March, but U.S. milk production may be starting to come back, due to increased average milk production per cow. During the first quarter of 2022, milk production was one percent lower than in the first quarter of 2021, almost entirely due to a similar drop in cow numbers, while production per cow was essentially flat.

Indications that the low point of the national milk production pull-back of the past year may have already been reached a few months prior to March are more noticeable in western states than elsewhere in the country.

Milk solids production was essentially unchanged from a year earlier during the quarter, indicating that the average component composition of producer milk continues to expand at a relatively rapid pace.

Dairy Products

Comparing the first quarter change in U.S. milk solids production of 0.1 percent from a year earlier with the corresponding changes in production of the major dairy product categories, it is clear that Italian-type cheese and higher-protein whey products continue to claim a disproportionate share of available milk at the expense of butter and dry skim milk products.

Dairy Product Inventories

The various metrics for evaluating individual dairy product inventories do not yet show indications of demand weakness relative to production except to some extent for whey products, reflecting recent import pullbacks by China.

Dairy Product and Federal Order Class Prices

The monthly survey prices of dairy products used to determine the federal order component and class prices, and the announced class prices themselves, were all higher again in April from a month earlier, except for dry whey, which reflected recent export weakness.

The Bureau of Labor Statistics reported the U.S. average retail price of whole milk in April was just over $4.00 a gallon. This was the highest this monthly price has been reported. BLS reported the annual rate of inflation for fluid milk hit 14.7 percent in April and 16 percent for butter, while the overall April inflation rate eased down slightly to 8.2 percent.

Milk and Feed Prices

The highest-ever monthly U.S. average all-milk price was reported by USDA’s National Agricultural Statistics Service (NASS) for March, at $25.90/cwt. This was 20 cents/cwt higher than the previous record, set in September 2014. The monthly all-milk price has been above $25.00/cwt only four times, and the other two were also in 2014.

The futures-based outlook for the milk price for all of calendar year 2022 halted its steady ascent since last summer during the fourth week of March but hasn’t dropped below $26.00/cwt since then, indicating potentially more monthly records ahead for this key measure of U.S. dairy farmers’ gross incomes from milk sales.

USDA has reported the March margin under the Dairy Margin Coverage program to be $11.55/cwt. Since March 2021, the DMC feed cost has increased by $3.22/cwt, while the all-milk price has risen by $8.50/cwt over the same period.

Looking Ahead

The USDA’s World Agricultural Supply and Demand Estimates (WASDE) forecast update for May raised its estimate of calendar year 2022 U.S. milk production from last month’s estimate of 226.3 to 226.7 billion pounds, an increase of 0.2 percent from 2021 production.

Every May, the WASDE begins reporting estimates for the following year. The 2023 milk production estimate was 229.5 billion pounds, an increase of 1.2 percent from its 2022 estimate. WASDE also lowered its forecast of the 2022 calendar year U.S. average all-milk price slightly, from $25.80 per cwt last month to $25.75 per cwt, which is close to where the dairy futures at the same time indicated it would average.

The WASDE newly reported average price for calendar year 2023 was $23.55 per cwt. Also at the same time, the Dairy Margin Coverage DMC Decision Tool hosted on the USDA website projected the DMC margin would peak this year in May and then steadily drift lower while remaining above $9.50 per cwt through the end of the year.