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More milk… in PA too

The milk supply is growing beyond prior forecasts. USDA’s Oct. 22 report put September U.S. output at 19.44 billion pounds, up 2.6% year-on-year (YoY). Cow numbers were up 169,000 head, while output per cow gained 18 pounds.

New York added 13,000 cows as September production jumped 4.2% and milk per cow rose 45 pounds YoY. Third-quarter production was up 2.4%. Pennsylvania is getting more milk from fewer cows. September production edged 0.5% higher with 3000 fewer cows, as milk per cow gained 20 pounds, which is above the national average gain per cow. Third-quarter production was up 0.4%, a turn after months flat to lower.

Elsewhere, September production rose 3.3% in Wisconsin, 3.5% in Idaho, 4.1% in Texas, 7.4% in Indiana, 7.9% in South Dakota and 14.7% in Kansas. California was essentially unchanged.

More milk is coming — but not necessarily where every new plant wants it. When processors need more milk in a particular place, will they compete its value higher to get it?

Butter mountain is moving, but getting refilled

Butter is moving, but the supply buildup that surfaced in USDA’s August Cold Storage report hasn’t disappeared.

USDA Dairy Market News reports stronger retail butter demand in the West and steady demand elsewhere. Butter production remains steady, cream is meeting manufacturers’ needs, and some spot cream is moving to Mexico.

Weekly cold-storage data show butter stocks in selected centers falling 9%, from 54.23 million pounds Oct. 1 to 49.46 million Oct. 19 as holiday movement builds.

But USDA counted 295.7 million pounds of butter and butterfat products Sept. 30 — down 5% from August, but 41.8 million pounds, or 16%, above a year ago, and the second-highest September inventory of the past five years.

That surplus built fast. USDA’s July revision turned what initially appeared to be a slight YoY deficit into a surplus. The surplus widened to 10% in August and 16% in September, ending 15 months of YoY inventory declines.

August butter production was up 6.3% YoY. More milk and richer milk are producing more butterfat, while more cream is also separated from protein streams going into cheese and high-protein products.

Retail demand is improving and butter is moving. But can disappearance outrun replenishment? For now, the butter mountain is moving — but we’re still putting “snow” back on top.

Cheese stretches its wings as whey slips

After losing a nickel last week, dry whey had just one trade this week, Tuesday at $0.8425/lb. Wednesday brought no bids and one offer at 81 cents. There were no takers, but the offer became the price, pulling the weekly average down to 83 cents.

Cheddar blocks stretched their wings again, gaining 4 cents on the week at $1.7450/lb Wednesday, Oct. 28, after jumping 17 cents the previous week.

A dime on cheese is roughly a dollar on Class III milk, while a dime on whey is worth about 60 cents/cwt. Over two weeks, blocks gained 21 cents while whey lost about 8 cents — roughly $2.10/cwt of Class III value from cheese against less than 50 cents lost to whey.

Butter lost another nickel at $1.28/lb, while NFDM dropped 6 cents to $2.04. Three of the four major CME dairy commodities moved lower while Cheddar moved higher.

That’s narrowing the Class III-IV gap. Cheese is lifting nearby Class III while weaker butter and powder pull Class IV lower. Wednesday’s 3-cent whey drop came from an uncovered offer with no sale, while cheese moved higher through actual trades.

November Class III futures settled at $18.31/cwt Wednesday, up 86 cents from the prior Wednesday. But December through February remain in the $16s, pulling the 12-month Class III average 16 cents lower at $17.10. Class IV fell more, with the 12-month average down 30 cents at $19.28. Nearby Nov. Class III is catching up, but the longer board weakened off the two weeks of gains.

NFDM and the price signal

Nonfat dry milk is retreating, along with the familiar call for U.S. powder to fall far enough below world prices to “be competitive.” At the Oct. 20 Global Dairy Trade auction, standardized skim milk powder averaged $1.8035/lb, compared with CME NFDM at $2.04 Oct. 28 — putting U.S. NFDM about 13% higher. But why should the goal be a U.S. price below global? They aren’t the same product, and they aren’t serving the same market.

Processors already make SMP for export. GDT SMP is protein-standardized to the international Codex benchmark of at least 34% milk protein in milk-solids-not-fat. U.S. NFDM cannot currently have its naturally occurring protein standardized downward that way. Its protein varies with the milk and is commonly around 36% on a dry-matter basis. As cows produce more protein, that protein stays with the NFDM.

Those same protein and nonfat solids can go into cottage cheese, yogurt, ultrafiltered milk, cheese and other products. When those uses bid more for them, they pull solids away from the dryer. The dryer must compete or make less NFDM.

That’s the price signal. Less NFDM against strong domestic demand pushes the price higher. NFDM production has fallen substantially from earlier-decade levels, while domestic disappearance through August was up 38.5% even as exports declined.

So why should U.S. NFDM fall below standardized global SMP when U.S. buyers are competing for its protein and nonfat solids?

The National Milk Producers Federation board has now voted to support changing the NFDM Standard of Identity to allow protein standardization for NFDM. If we first insist NFDM must compete with standardized global SMP, then change NFDM so its protein can also be standardized downward, aren’t we weakening the very domestic competition that is discovering the value of those milk solids for manufacturing?

Processors already make standardized SMP for customers who want it. NFDM’s surveyed price feeds the Federal Order Class IV formula.

The same question extends beyond powder. Processors are adding capacity and seeking more milk, while farmers hear that more demand won’t necessarily raise milk prices because prices are tied to Federal Order formulas interpreting international markets.

Yet USDA reports Central spot Class III milk trading from flat to $4 over Class as Class I and IV uses compete with cheese plants for milk. When processors compete for a limited physical supply, the price rises. Does it get to the farm?

Domestic consumers vote with their dollars, too. More cheese, cottage cheese, yogurt and high-protein dairy creates demand for milk and its components. That demand should be able to compete component values higher through the base commodities and send that value back to the farm.

Otherwise, price discovery becomes price-following with global commodity prices setting the target while processors compete for the physical milk without necessarily competing its value higher. A market needs price signals that are global, national AND regional. Without all of these demand-centers functioning to ‘weigh-in’, the so-called “global competitiveness” constrains true free market competition, and global companies exercise downward price control.