Dairy farmers and the industry as a whole continue to face an environment of high prices and costs not seen for at least a decade, and in many ways not for the past four decades. March and April set back-to-back all-time highs for the average monthly price for all U.S. milk, while prices for all four federal order categories set a collective record in May.
Monthly retail prices for whole and low-fat milk, butter, ice cream and yogurt also hit all-time highs. Meanwhile, monthly U.S. dairy exports posted a strong recovery in April after a recent low in January, rising to 18.7% of U.S. milk solids production, the third highest on record for a single month by this measure.
The combination of continued declines in U.S. cow numbers, milk production, and record retail milk and dairy prices are beginning to show signs of impacting domestic retail dairy consumption and in the restaurant business. However, since retail price inflation occurs for all food and beverages, and across the economy as a whole, it is unclear how or if this will play out differently than if higher commodity prices dairy products were an exception in a non-inflationary global economy.
Commercial use of dairy products
Growth in domestic yogurt consumption was almost entirely robust in the first two years of the COVID pandemic, but turned negative in 2022. Consumption of non-American-type cheeses was generally stronger than that of American types over the past year. Year-to-year changes in domestic consumption of most skim milk ingredients, including skim milk powder, whey powder and lactose, were mostly negative during the pandemic months, with the exception of whey protein concentrate. Domestic use of milk in all products was about 2 percent lower than a year earlier in February-April.
American dairy trade
An estimated 18.71 percent of U.S. milk solids production was exported in April, the third-highest on record for a single month by this measure, potentially positioning the industry for another strong calendar year of exports. after an uncertain start and a sign of how export demand may be structurally higher than in the past, as strength is occurring despite high prices. April exports represented an increase of more than 5 percentage points from the recent low of 13.63% in January this year. More than half of this net volume recovery was attributable to lactose, skim milk powder, dry and modified whey.
U.S. dairy imports were slightly higher than a year ago between February and April, with the main product categories of cheese and dairy protein mostly up 6-8% year-on-year. the other.
U.S. milk production for April reported by the USDA shows production continuing in contraction territory, with little indication of when it might resume growth. The total number of dairy cows in the country also continued to decline from levels a year ago in April. Very modest growth occurred from February to April in milk production per cow as well as in the production of total milk solids. The only real supply-side expansion to have taken place during this period was total milkfat production in the United States, which was 1.3% higher in those three months than the previous year.
Butter production was close to flat from February to April, indicating some recovery from several previous months of annual reductions. The continuous decline in the production of skimmed milk powder would indicate that the reduction in milk production is still claimed preferentially by the production of cheese to the detriment of butter powder.
However, higher milkfat production would suggest that cream supply was not necessarily the main cause of the earlier tightness in butter production. The growth in cheese supply is still significantly greater for non-American types of cheese, which are widely used in restaurants. Increases in the use of American-style cheese in summer grills had not yet appeared in production data in April.
Dairy Product Inventories
Cold storage inventories of non-American type cheeses and inventories of all types of cheeses reached record highs for one month at the end of April. Manufacturers’ inventories of skim milk powder and whey powder also showed some trends at excessive, but not record high levels at this time.
Dairy Prices and Federal Ordinance Categories
None of the four dairy prices reported by the NDPSR hit a record high in May, but prices for all four classes of federal orders fell short of setting such a record collectively. It was widely expected, based on the futures markets, that May prices for Classes I, II, III and IV, quoted at the standard level of 3.5% butterfat, would each exceed $25.00/cwt for the very first time. However, May’s Class IV price just missed that mark reaching $24.99/cwt. Nevertheless, this was still the highest minimum level ever reached for the prices of the four classes.
Average U.S. retail prices reported by the Bureau of Labor Statistics for May were the highest on record, in nominal terms, for whole milk and ice cream. And while there were some gaps in their BLS data, it was also likely the highest on record for low-fat milk, butter and yogurt.
The annual rate of retail price inflation has accelerated rapidly in recent months to double-digit percentages across the entire range of dairy products, including whole milk, low-fat milk, butter and the dairy category as a whole. By comparison, the headline inflation rate in May was 8.6%. Among dairy products reported by the BLS, cheese has consistently had the slowest rate of retail price inflation, at 8.7% in May.
Milk and feed prices
The average price of all milk in the United States reported by USDA/NASS is setting records. First in March, beating the previous high monthly price in 2014 of $0.20/cwt, then shattering that short-lived record a month later when it jumped $1.20/cwt above March to reach $27.10/cwt in April.
April DMC margin was $12.29/cwt, $0.74/cwt higher than March, as April DMC feed cost increased $0.46/cwt this month -the. This increase was entirely attributable to the increase in the price of corn, while the price of soybean meal fell and the price of premium alfalfa showed a very small increase.
The USDA’s monthly World Agricultural Supply and Demand Estimates (WASDE) update for June lowered the U.S. Dairy Department’s estimate for calendar year 2022 from to its May estimate, which it had raised from the previous month. This illustrates the difficulty of predicting how much longer U.S. dairy production will be constrained in today’s unique environment of record high milk prices coupled with extremely high production costs and supply chain disruptions.
The Ministry’s forecast for June CY 2022 is slightly higher than the actual production for CY 2021. Production for January to April is down this year from 2021 by 1.0%. Together, this indicates that the USDA expects US dairy production to increase by about 0.5% year-on-year in the last eight months of the year.
The USDA also expects demand for dairy products to remain strong and has therefore raised its outlook for 2022 for most dairy products and milk prices from May to June, with the exception of dry whey. In particular, the Department raised its forecast for calendar year 2022 of the average price of all milk in the United States from May to June by $0.45/cwt, to $26.20/cwt. It was still about $0.40/cwt below the level where dairy futures indicated this yearly price would arrive, but it was also about $0.15/cwt above what the DMC decision tool on the USDA website was projecting at the same time. All forecasts currently indicate that the DMC margin will not fall below $9.50/cwt in any month of 2022.