Recent Developments in Dairy Markets

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Source: USDA, Economic Research Service, Livestock, Dairy, and Poultry Outlook, LDP-M-317, November 17, 2020

From the week ending October 3 to the week ending November 7, most wholesale dairy product prices reported in the USDA National Products Sales Report (NDPSR) increased significantly. The price of 40- pound blocks of Cheddar cheese rose 40.1 cents to $2.7649 per pound, and the price for 500-pound barrels (adjusted to 38-percent moisture) rose 68.9 cents to $2.4087 per pound. The prices of nonfat dry milk (NDM) and dry whey rose to $1.0945 per pound (+5.8 cents) and $0.3686 per pound (+3.1 cents), respectively. The butter price was the exception, falling by 12.3 cents to $1.4566 per pound.

Recent movements of wholesale spot market prices for cheese and butter on the Chicago Mercantile Exchange (CME) have been remarkable. Average prices for 40-pound blocks and 500-pound barrels of Cheddar cheese rose to $2.7745 and $2.4755 per pound, respectively, for the trade week ending October 30. For barrels, this was a record high. The prices of both products fell substantially the following 2 weeks, and for the trade week ending November 13, average prices for blocks and barrels were $2.1505 and $2.0030 per pound, respectively. The block-barrel spread declined from the record high of 93.8 cents for the trade week ending September 25; for the week ending November 6 it was 14.75 cents. The CME weekly average butter price declined to $1.4100 per pound for the trade week ending October 30, the lowest price since May. The butter price rose the following 2 weeks, and for the week ending November 6 it was $1.4330 per pound.

U.S. dairy product prices for NDM and dry whey have continued to be competitive in foreign markets, and the U.S. price for butter has become competitive as well. For the month of October, Oceania and Western Europe skim milk powder (SMP) export prices averaged $1.32 and $1.17 per pound, respectively.1 The dry whey price for Western Europe averaged $0.42 per pound. Oceania and Western Europe butter export prices averaged $1.67 and $1.84 per pound, respectively. The Oceania export price for Cheddar cheese averaged $1.73 per pound in October, substantially lower than U.S. domestic Cheddar cheese prices. Milk production growth was substantial in September. At 18.008 billion pounds, it was 2.3 percent higher than September 2019. Average milk per cow was 1,923 pounds per head, 38 pounds higher than September 2019.

Milk cows averaged 9.366 million head in September, an increase of 5,000 from August. Relatively low slaughter rates have contributed to the increase in milk cows. Weekly Federally inspected dairy cow slaughter has been lower than the corresponding week in 2019 from the week ending May 9, 2020, through the week ending October 31.

Dairy exports on a milk-fat milk-equivalent basis totaled 747 million pounds in September, 46 million lower than August but 7 million higher than September 2019. On a skim-solids milk-equivalent basis, September exports totaled 3.723 billion pounds, 317 million lower than August but 167 million higher than September 2019. Exports of cheese continued to be substantial in September, totaling 62.7 million pounds, 5.7 lower than August but 2.5 million higher than September 2019. Although we do not have data indicating dates for export orders, it is reasonable to assume that many of the orders for cheese shipped in September were made in August, when U.S. cheese prices dipped to relatively low levels. Exports of dry skim milk products2 weakened to 135.6 million pounds in September, 16.1 million less than August this year and 8.6 million less than September 2019. U.S. exports of dry skim milk products to Mexico totaled 50.2 million pounds in September, 25.0 million less than September 2019. Increased exports of dry skim milk products to Southeast Asian countries have made up for some of the loss in exports to Mexico.

U.S. dairy imports on a milk-fat basis were 627 million pounds in September, 54 million higher than August but 71 million lower than September 2019. On a skim-solids basis, September imports totaled 422 million pounds, 13 million higher than August but 2 million lower than September 2019. Notably, imports of butterfat products3 totaled 15.1 million pounds in September, 2.3 million higher than August. Imports of low-fat milk powders4 fell from 0.8 million pounds in August to 0.4 million pounds in September.

Ending stocks on a milk-fat basis totaled 17.753 billion pounds at the end of September, 750 million higher than September 2019. On a skim-solids basis, ending stocks totaled 10.380 billion pounds at the end of September, 356 million less than September 2019. Notably, butter stocks continued to be relatively high, totaling 343.9 million pounds at the end of September, 53.3 million higher than September 2019.

Domestic commercial use for the third quarter of 2020 was 55.759 million pounds on a milk-fat basis, 1.011 billion higher than the third quarter of 2019. On a skim-solids basis, domestic use for the third quarter totaled 45.462 billion pounds, 32 million less than the third quarter of 2019. High demand for Cheddar cheese contributed to the recent increase in Cheddar cheese prices. Of all the products for which USDA Economic Research Service publishes commercial disappearance numbers, Americantype cheese5 is the only product category that had year-over-year growth in the third quarter—a 3.6 percent increase. Cheddar accounted for 71.5 percent of American-type cheese production in the third quarter.

The largest year-over-year percentage declines in commercial use for the third quarter were for dry skim milk products (-16.6 percent), dry whey (-29.2 percent), and whey protein concentrate (-20.6 percent). Fluid milk sales declined by 1.6 percent from the previous year in the third quarter. Low inperson school attendance due to the pandemic likely contributed to the decline.

1 The source for Oceania and Western Europe prices is USDA Dairy Market News. Prices listed in this report are at the midpoints of the ranges.

2 Dry skim milk products include NDM, SMP, and dry skim milk for animal use. Export data aggregate these products as milk powders with less than 1.5 percent milk fat.

3 Butterfat products include butter, anhydrous milkfat, butteroil, butter substitutes with high milk-fat content, and certain dairy spreads.

4 Low-fat milk powders include those containing milk fat of 3 percent or less.

5 American-type cheese includes Cheddar, Colby, Monterey, and Jack.