Global milk output continues to decrease. That’s not to say it’s decreasing everywhere. Compared to the prior year, milk production has sharply increased in several key milk sheds, including Texas and Ireland. And it’s on the mend in Germany.
Despite a continued decline in its dairy herd, California boosted April milk output by 2.6 percent year-over-year, an increase of 89 million pounds. But those gains are more than offset by slumps in other regions such as Pennsylvania, the Netherlands, New Zealand and Australia.
U.S. milk output was close to prior-year levels in April. Production totaled 18.4 billion pounds, an increase of 0.1 percent from April 2018. The gain is particularly slight coming on the heels of relatively small growth in 2018, when the weather hampered milk yields.
The U.S. Department of Agriculture decreased its estimate of March milk output, pushing the year-over-year deficit from an initial 0.4 percent decrease to a more sizeable 0.6 percent decline. U.S. milk output grew just 0.1 percent in the first quarter. Regional trends persist, with less production in the Southeast, Midwest and now in parts of the Southwest. That counters growth in Texas, California, Idaho and New York.
The USDA decreased its estimate of the dairy herd in March by 15,000 head, and reported a further 1,000-head decline in April. Dairy producers culled 268,400 cows in April, the most for the month since the 1986 cow-kill program. It’s likely the USDA will need to decrease its April estimate as well. For now the agency puts the milk cow herd at 9.328 million head, a decrease of 90,000 from April 2018. Fewer milk cows in the United States will set the stage for several months of contraction and much slower growth in milk output in the years to come.
Across the pond milk production is starting to bounce back. Assuming continued growth in Poland, European milk collections were in the neighborhood of 30.6 billion pounds in March. When all the data is available, Europe is likely to report year-over-year growth between 1.3 percent and 1.5 percent. That represents a significant boost to the global milk supply, with Europe providing at least 400 million pounds more milk than it did in March 2018. But the combined deficits in the rest of the major dairy nations are greater than the European increase.
Dry pastures in New Zealand have made for a disappointing close to an otherwise strong season. Kiwi milk-solids collections decreased 7.7 percent in April from the prior year. With one month to go, season-to-date collections are 2.6 percent more than the 2017-2018 season. Compared to a year ago, milk output in New Zealand decreased 340 million pounds in March and another 276 million pounds in April.
Across the Tasman Sea, Australia’s dairy sector has been devastated by a multi-year drought. Milk production decreased 13.7 percent in April, with season-to-date collections decreasing 7.3 percent. Aussie milk output decreased 150 million pounds from a year ago in March and plummeted more than 200 million pounds year-over-year in April.
Meanwhile demand continues to grow. Firm demand and decreased milk production is translating into waning Cheddar stocks in the United States. Inventories of American-style cheese shrank 2.1 million pounds from March to April, a decline of 0.3 percent. While the decline was modest, the direction was monumental. Cheese stocks typically grow in the spring. This year marks the first time American-cheese stocks have waned in April since 1993. While inventories of other cheese varieties grew, the overall increase was the smallest in eight years. Total cheese stocks grew 1.1 percent from March to April, to 1.4 billion pounds. Inventories are still 4 percent greater than they were a year ago.
There were 290.8 million pounds of butter in cold-storage warehouses as of April 30. That’s 5.4 percent less than the prior year. Inventories increased 21.1 million pounds from March to April, a smaller-than-typical stock build. But in years when Easter falls late in April, as it did this year, butter stocks typically grow by above-average margins in March and then grow more slowly in April. On its own the “Cold Storage” report does not necessarily signal robust demand for butter. But anecdotal reports suggest that American appetite for butter remains hearty. According to the USDA, butter demand remains at or slightly more than expectations. Buyers who are seeking additional bulk butter find availability limited.
The dairy markets have come a long way in the past few months. But while lesser milk output and firm demand are clearly underpinning prices, the bulls must be fed with fresh news every day. In the absence of additional fodder, the rally will quickly lose steam. This past week the bulls exhibited bursts of energy but a lack of stamina.
Prices were mixed at the Global Dairy Trade auction, and the index suffered its first decline since November. Butterfat-product prices decreased, with whole-milk powder decreasing 2.1 percent from the previous event. Skim-milk powder eked out a 0.5 percent increase, rising to the equivalent of nonfat-dry milk at $1.22 per pound. Chicago Mercantile Exchange spot nonfat-dry milk rallied on the heels of the Global Dairy Auction, but the strength didn’t last. This past Friday it faded back to $1.045, a decrease of 0.25 cents for the week.
Cheddar surged at the Global Dairy Auction, increasing 15.2 percent to the best price since February 2014. The Global Dairy Auction is hardly a benchmark for global cheese pricing, and volume was light, so the astounding increase should be interpreted with caution. In Chicago the markets were not nearly so exuberant. CME spot Cheddar blocks climbed a penny to $1.6825. Barrels decreased 4.5 cents to $1.58. Spot whey powder added 2 cents, reaching 36 cents. That wasn’t enough to stem the red ink in Class III futures. Most contracts ended 15 cents to 30 cents in the red.
The U.S. butter market remains immune to weakness from abroad. CME spot butter climbed 4.75 cents to a fresh 2019 best at $2.3875. That helped most Class IV contracts gain ground this past week, although the May and July contracts slipped a little. Class III contracts are all comfortably at more than $16 per hundredweight, and most Class IV contracts stand at $17 or better.
The nation’s corn planters are stranded in the shed, while farmers mumble a ceaseless rendition of “Rain, Rain Go Away.” Planting progress was already the worst in decades when the wet week began. It has since come to a standstill. Those who were able to plant their crops are cheering the rally but cursing the rain. Shallow-rooted crops will not fare well if it turns hot and dry this summer. Corn acreage is likely to be well short of intentions, and potential yields are decreasing as well.
There may be a stretch of drier – but not completely dry – days this week, but it’s going to be difficult to maneuver heavy equipment through muddy fields. Initially the market assumed farmers would shift corn acreage into soybeans, but the weather may not cooperate. Farmers are likely to collect prevented-planting insurance and let millions of acres lay fallow. Grains prices increased sharply, and soybeans are following somewhat reluctantly. July corn settled this past Friday at $4.0425 per bushel, an increase of 21 cents from the previous Friday. July soybeans climbed to $8.2975, an increase of 8 cents this past week.