Let’s Chat Dairy is a weekly podcast, hosted by HighGround Dairy’s top analysts. At the end of every week, they sit down to recap the week in dairy markets and summarize recent reports and relevant news. The podcast can be found here on our dashboard, or wherever you listen to your podcasts. Subscribe so that you never miss an episode!
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Transcript:
(0:12) Cara Murphy:
Hello, everyone, and thank you so much for tuning into Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today is Friday, October 25th, and you’re hearing from Cara Murphy and Betty Berning. The sun has finally peaked through the clouds in Chicago as the autumn air swiftly cools as winter fast approaches. But as the seasons change, so do the dairy markets, and there is never a dull moment. We’ve got quite a bit to cover this week, so let’s get into it already, starting with the CME spot market recap of the week. Betty?
(0:45) Betty Berning:
Last week, the market saw a whopping 161 butter trades and all-time high weekly volume and monthly volume as well. Things were not so hot this week, though, as only 15 trades in total moved despite the market moving lower from the $2.73 per pound mark on Monday to close today at $2.6950. Cheese has also seen some volatility, but for the most part, seems supported near the $1.90 per pound mark. Blocks closed today at $1.90 per pound, while barrels sank from $2.01 per pound recorded last Friday to $1.87 per pound today. Trading was limited as well, with 5 total trades in blocks and 9 in barrels. The tune is the same in the powder world. Nonfat dry milk is very slowly moving up, closing today at $1.3750 per pound, and trading was more pronounced at $0.32 in total, while the driveway market has held within a tight one-cent range near $0.60 per pound since the start of October. Today, it closed at $0.6050 per pound with 13 trades in all.
(1:59) Cara:
Thanks, Betty. Later this afternoon, we will get September Cold Storage data. Check out the Dairy Skim, where Betty will be back to give us her quick takes when that report is released. But until then, we did get September US Milk Production on Monday. And needless to say, there were some astounding revisions. What did those look like?
(2:16) Betty:
Oh, my goodness, yes. The USDA issued a massive revision to August report, taking milk volume up 0.4% year-over-year, which was a change from the original decline of 0.1%. This was an 89 million pound revision and was primarily due to increased yields. In California, where bird flu is currently taking its toll, August production was actually revised up to a 2.3% increase year-over-year. Idaho added 5,000 head to its herd and milk per cow rose 20 pounds there. Colorado productivity rose by 25 pounds per head and Kansas was up 10 pounds. Wisconsin’s milk output, which was a big loser in August, was actually taken up from a 2.3% year-over-year loss to a 1% loss. And that was a 38 million pound increase. And it’s certainly not uncommon for the USDA to make revisions at the end of a quarter. But these were substantially larger than we initially expected.
(3:27)
On to September, though, this was actually September’s Milk Production report. Milk per cow of 1950 pounds was a record for the month, easily besting the high water mark set last year. The US herd counted to 9.328 million head, unchanged from the previous month, but still down versus prior year by 38,000. California milk production was unchanged from September 2023, and that was surprising given the report of bird flu in the state. Improved yields drove the change overall. Across the rest of the country, milk growth was greater than 1% year-over-year in—get your pencils ready—New York, Colorado, South Dakota, and of course, Texas and Kansas, where new cheese capacity is expected to come online. The bulk of the losses were recorded in the upper Midwest in places like Wisconsin, Iowa, Michigan and Minnesota, plus in the Southwest, Arizona, New Mexico notably, and the Pacific Northwest, Oregon and Washington. Notably, the growth in September, combined with the impressive revisions in August, turned total US milk production positive year-on-year for the second consecutive month, leaving us little else than to call this bearish to our expectations.
(4:52) Cara:
Something that stands out to me here is it sounds like farmers are producing more milk but with less cows. We know heifer inventories are tight and replacement heifer costs are expensive, but feed costs such as grain and hay are relatively cheap right now. And when looking at the math, the income over feed margins are impressive. When margins look this good, farmers typically think about expanding, but interest rates remain relatively high. So, if I’m a producer, what am I to do?
(5:16) Betty:
Very good question, Kara, and that’s one I think we’ve all been asking. You come from a background in livestock production as well. And one thing producers are always doing is looking to improve their efficiency. So, what can I invest in to improve production without having to take out lofty financing costs? The answer is typically—on a dairy farm anyway—comfort and nutrition. Normally, we would also include genetic gains as well. However, as you mentioned, replacement heifers are expensive, so farmers are likely going to see what they can do with the cows they already have. Improving cow comfort can help yield and component levels, and similarly, by investing in better feed quality or feed additives, yields and components can increase, particularly butterfat. We also know as farmers keep cows for longer, older cows into their third and fourth lactation, if they’re healthy, typically provide more milk, which could be a contributing factor as well.
(6:23) Cara:
Thanks, Betty. This is really helpful. With beef on dairy as such a lucrative stream of income, do you think producers will try to grow heifer inventories to reduce those high replacement costs?
(6:33) Betty:
Well, the short answer is maybe. The important thing we need to remember is how long it takes to grow the herd compared to how quick it is to reduce it. To grow the herd, I have to get a cow pregnant, wait nine months gestation period for a cow to have a calf, then raise the calf for roughly a year until it is old enough that it can get pregnant, pay to feed and house the heifer while she gestates for another nine months. Until now, after almost three years, I finally have two milk producing animals. It’s quite the commitment and takes a chunk of time and money. On the other hand, with beef prices so high, a farmer can breed to beef, drop a calf, and depending on when the calf is sold, have a paycheck in hand in half the time it took to raise another milking cow. The important takeaway here is that expanding the herd takes time—nearly three years until impacts can be seen. And if they haven’t started now, it may be longer than that as well. So in the meantime, producers will look to improve how much milk they can get out of the cows they already have.
(7:47) Cara:
Wonderful, Betty. See, this is why I love talking to you, the guru for all my dairy questions. Now, we’ll dive into the international portion of this podcast with a big focus today on Europe and New Zealand.
We covered European Milk Production for the month of August in last week’s podcast, but we did receive a revision out of Eurostat this week that took German milk production for the month from down 5.4% year-over-year to down 1.3%, much more in line with the cumulative weekly milk collections figures reported out of ZMB. This brought total EU-27 + UK Milk Production to down 0.9% year-over-year. Weekly data from the European Energy Exchange continued to show falling prices for dairy commodities, but not at the rates observed in the past weeks. Improved milk collections data out of France and impressive gains out of the UK are raising expectations of greater milk availability in the coming weeks. Keeping buyers in a wait-and-see attitude, while cheaper prices for butter and cheese out of the US and New Zealand are driving interest away from the European markets.
(8:54)
Speaking of New Zealand, last but certainly never least, three consecutive months of strong Milk Production figures perfectly communicate just how good the weather has been for most of New Zealand’s dairy region season to date, which began in June. September’s 5.2% year-on-year gain in milk solids production was again above expectations, but more aligned than the shocking 10% gain recorded in August. Most Kiwi farmers reported great pasture conditions during September, giving away to a strong finish for spring calving. While it’s sunshine and rainbows in the North Island, weather is taking a toll on the Southland, impacting milk production, sentiment, and most importantly, profitability in the region. Conditions improved in August, but the poor start is likely to somewhat scar the entire season’s production potential.
(9:43)
That said, as a whole, strong milk production from the country usually translates into greater exports, and September was no exception. Aggregate New Zealand Exports lifted on larger milk fat shipments, while powder commodities dropped significantly. Skim milk powder sailings fell to the largest September volume since 2020, down 72% year-on-year to China, while a quarter of September volume made its way to Indonesia, up 227% from 2023. On the plus side, butter exports logged a larger September since 2016 on greater volume to China and Saudi Arabia. Infant formula exports were also notable. Although slightly down to China, shipments were up to Hong Kong and Australia. Year-to-date infant formula exports are now larger than the same period over the previous three years, with China and Hong Kong together accounting for 71% of total market share.
Well, that’s all from the HighGround Chicago office this week, but remember, the dairy markets never sleep. While this podcast wraps up what’s been happening this week, there’s always more to learn, so be sure to stay connected with us on our website for the latest and greatest updates and insights. We hope everyone has a very spooky and scary Halloween. Enjoy your tricks and treats, and thanks for tuning in. Don’t forget to subscribe so you won’t miss next week’s discussion on dairy fundamentals. Cheers.
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The post Let’s Chat Dairy – 25 October 2024 appeared first on HighGround Dairy.