Overall U.S. dairy-product demand appears headed back to pre-pandemic levels. U.S. dairy exports have so far during 2021 achieved near-record numbers as a percent of U.S. milk-solids production. Meanwhile wholesale prices for butter, nonfat-dry milk and dry whey in May were all more than before the pandemic began. But cheese prices continue to struggle.
Capturing the state of dairy through data is unusually difficult at this moment and will be for several months. The industry is entering a series of months during which year-over-year comparisons are affected by the COVID-19 pandemic’s disruptions to dairy markets one year ago at this time. For example U.S. milk production has been increasing, pressuring milk prices since early May. But year-over-year growth comparisons are somewhat misleading due to 2020’s atypical seasonal production patterns. Similarly year-over-year domestic fluid-milk sales decreased sharply this March and April, while commercial cheese use increased sharply in April.
Commercial Use of Dairy Products
Larger-than-usual measured decreases in domestic fluid-milk sales during March and April decreased year-over-year fluid sales by almost 4 percent during February through April. But the comparison was against greater-than-usual fluid sales during the first months of the pandemic in March and April 2020 – despite supply-chain disruptions during those months. By contrast domestic commercial use of both American-type and other cheese was considerably greater during February through April than during the same months in 2020. That was due in large part to year-over-year increases of more than 20 percent for both types of cheese in April. That was due, in turn, largely to a base effect because domestic use of all cheese was significantly depressed in April 2020. The pandemic registered its first full month of demand destruction in food service, and supply chains had not yet had time to redirect enough cheese to retail outlets. Allowing for that, the large April numbers for cheese indicate a recovery to close to normal consumption this year.
As a broader indicator of the recovery, commercial use of milk in all products – both domestic and total – was generally more during 2021 than during comparable periods two years earlier, prior to the pandemic. Domestic use of dry-skim-dairy ingredients, including the whey complex, largely decreased during the pandemic months as strong export demand competed aggressively with domestic users for the available supply.
U.S. Dairy Trade
U.S. dairy exports surged during the first third of 2021, in spite of continued shipping difficulties. Exports of all major product categories during February through April increased compared to a year earlier by mostly double-digit percentages. Even more significantly, as a percentage of U.S. milk solids, April exports were 18.7 percent – the second best for any month. March exports were 18.4 percent, the third-best. January and February exports also reached increased points for their particular months.
Dairy imports into the United States were more during February through April than a year earlier for many of the major imported product categories. But total imports as a percent of domestic milk-solids production decreased slightly during the period.
April milk production was 3.3 percent more than it was during April 2020. That followed a string of months during which year-over-year production had been declining – from 3.5 percent in November 2020 to 1.9 percent in March. But milk production has indeed been increasing somewhat more rapidly than total consumption. Comparisons to a year ago have become misleading because production during April through December 2020 was skewed by the pandemic.
April and May production a year ago was sharply less than usual as cooperatives established base-excess plans in response to the sharp disruptions that supply chains experienced at the beginning of the pandemic. Production from July through December did not decrease as rapidly as had been typical going into the summer and fall. Had April 2020 production followed typical seasonal patterns, production during April 2021 would have increased by about 2.2 percent year-over-year. Should 2021 production follow typical seasonal patterns, May production could show an increase of more than 5 percent as compared to actual May 2020. Production will not likely decrease less than 1 percent compared to a year earlier until the last few months of the year.
Although also affected by the same base-effect comparison, U.S. milk-solids production growth compared to a year earlier exceeded growth of liquid milk production during February through April by almost a full percentage point, according to data from the U.S. Department of Agriculture’s Economic Research Service.
Cheddar-cheese production growth decreased sharply in April. But Mozzarella and overall Italian-cheese production growth increased that month, presumably reflecting increased use in food service. The net result is that total cheese production increased when compared to a year earlier by almost 6 percent during February through April. Butter production decreased by more than 7 percent during the period after being flat during the first quarter. Total production of dry-skim-milk and dry-whey products was greater.
Dairy Product Inventories
Month-ending inventories didn’t increase from March to April for American-type cheese and decreased for other cheese. That was somewhat surprising given the strong production growth of American-type cheese in recent months and the weakness of Cheddar-cheese prices. Butter stocks have returned to the general levels of the first several months following the onset of the pandemic a year ago. Stocks of dry-skim-milk and whey products were smaller, reflecting strong export demand.
Dairy Product and Federal Order Class Prices
Monthly federal-order prices for butter, nonfat-dry milk, dry whey and Class IV milk reached their greatest levels in May – since before the pandemic began to affect the dairy industry in March 2020. By contrast May federal-order prices for cheese as well as Class I and Class III milk were significantly less than at various times during the pandemic months. Retail prices for major dairy products in May all decreased from various points during the pandemic. But retail prices for fluid milk have been increasing during the past two months after dipping temporarily.
Milk and Feed Prices
The U.S. average all-milk price increased by a full dollar per hundredweight from a month earlier, to $18.40 per hundredweight in April. That had been anticipated by the strong increases in April Class III and Class IV prices announced several weeks earlier, together with smaller increases in April Class I and Class II prices. The Dairy Margin Coverage feed-cost calculation increased by $0.52 per hundredweight, mostly from an increased corn price. That produced a monthly net increase of $0.48 per hundredweight in the April Dairy Margin Coverage margin, and an April payment of $2.56 per hundredweight for coverage at $9.50 per hundredweight. The USDA estimated that 2021 Dairy Margin Coverage payments for disbursement reached $446 million as of June 7. Half of those estimated payments were to enrolled producers in the four states of Wisconsin, California, New York and Minnesota.
The USDA’s monthly World Agricultural Supply and Demand Estimates forecast released in early June projects annual U.S. milk production will expand by 2.7 percent year-over-year in 2021, and by a further 1.1 percent in 2022. The department forecasts the all-milk price to average $18.85 per hundredweight in calendar-year 2021 and $18.75 per hundredweight in 2022. At the same time the dairy futures were indicating the 2021 and 2022 all-milk prices would average $19.20 per hundredweight and $20.50 per hundredweight, respectively. The dairy and grain futures continued to indicate that the Dairy Margin Coverage margins would remain at less than $9.50 per hundredweight for the second and third quarters of 2021 but might increase modestly during the fourth quarter.
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