By Stuart Davison, NZX Dairy Insights Manager
US projections of milk production decline again; however, higher prices are driving exports and the milk price. This change is dramatic from what the market has been hearing from the USDA for the last six months.
The USDA has further reduced their milk production forecasts for the season, now with a projected increase of 0.09% to 226.5 billion pounds of milk. This brings the forecast down by 0.13% from August’s projections. The USDA attributes this decline to lower herd numbers with slow growth in cow numbers after higher slaughter numbers in 2021. The July milk production report reported 9.42 million head, a decline of 0.7% from the same time last year. The anticipated increase can be attributed solely to milk production per cow, with 18 of the 24 top-producing states reporting yield, or milk per cow, increases.
The USDA also reports that more product is headed into milk classes II through IV, with US processors chasing higher prices. This can be corroborated in the 39% increase in the national average milk price year-on-year (YoY) for the third quarter, with a projected milk price of US$24.85/cwt.
Despite pressure on milk production in the states, exports continue to ramp up. July total dairy exports out of the states increased 7% from a volume basis YoY, with 210,565mt exported and a 26% increase from a value basis YoY. This brings year-to-date (YTD) volume increases up 6%, compared to the same period last year, while from a value basis there is a 27% increase YTD.
Milk powders continue to take a hit, with export-focused processors chasing classes II through IV for higher returns. Skim milk powder (SMP) exports took a hit with a decline of 10% YoY in July, bringing the YTD number to a decline of 8%. This was driven by declines in exports headed for China, the Middle East and Mexico, with only 64,792mt exported out of the US. Whole milk powder (WMP) exports declined a further 35% in July, led by declines headed North Africa, Asia, China and the Middle East, with only 2758mt exported.
Unlike milk powders, every other major commodity experiences an increase in exports in July. Anhydrous milk fat (AMF) exports increased 19%, with Mexico increasing their purchases by a whopping 2298% YoY, while YTD Mexico’s AMF purchases have increased 638%. Butter had the largest YoY increase for a commodity, with an increase of 77% YoY with the Middle East and Mexico increasing their purchases by 112% and 84% YoY.
Cheese and whey exports have picked up again, with increases of 2% and 17% YoY, and again with increases headed to Mexico. Whey prices have steadied after falling significantly over the last three months, supported at current prices around the US$1100/t price.
Cheese and butter consumption has been bumpy over the last year, but July saw an increase in consumption of both, helping to push US prices higher. Cheese block and barrel prices in the US continue to increase.
And as the States move out of their Infant Formula crisis, infant formula exports have increased 22% YoY, bringing the YTD figure up to 12%.
From a value perspective, WMP and AMF were the only major dairy commodity to experience an export decline YoY, no surprise with declines in global WMP exports and with the excess circulation of AMF in the market currently, helping to push international prices down during July. YTD every US Dairy commodity has significant value increases.
Now that the US milk production for 2022 is pegged at basically flat to the year prior, there is no major dairy-producing region looking to substantially grow milk production in the coming year. The global dairy market has been looking to the US to keep growth occurring; however, this change in signal will provide dairy buyers globally with more concern about securing dairy products. This lack of milk production will help to support dairy prices in the face of economic issues hitting consumers across the world – both supply and demand easing will keep prices supported for the near future.