Dairy Skim – May 2024 US Dairy Products Report

Dairy Skim is a bite-size episode series where HighGround’s top analysts break down the latest dairy data release. Today, Betty Berning discusses the May 2024 US Dairy Products Report. Customers can view the snapshot report here. Subscribe so that you never miss an episode!

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Transcript:

(0:12) Betty Berning:
Hello everyone, and welcome back to the Dairy Skim, HighGround Dairy’s bite-sized podcast intended to give the dairy industry some flavor into recent reports or events that can impact global commodity pricing. This is Betty Berning, HighGround’s Contributing Dairy Economist, and happy 4th of July one day early to all of you here stateside. USDA issued its May Dairy Products Report just ahead of the holiday, and I am here pouring over the data.

(0:47)
Let’s start with cheese. Again, this month, the devil was in the details. Total cheese production was up 0.7% year-over-year, but it really was a tale of Italian versus American style cheese, or even cheddar versus mozzarella. Cheddar volumes of 318.4 million pounds fell 9.7% versus prior year, and this was the 7th consecutive month of a loss. This was also the lowest total for the month since 2020. With cheese prices beginning to rise in late March, we anticipated that some milk would flow back to the cheddar vats in May to bring the market into balance, but that wasn’t the case. And, USDA made a big revision to April’s cheddar totals, taking them down by over 5 million pounds and increasing the other-than-American cheese totals by 4 million pounds. Milk, though, did flow into mozzarella and gouda, two items that are pretty heavily exported. Mozzarella production climbed 7.1% relative to May 2023, and logged the third month in a row of an increase. Like I said, mozzarella is exported, and we also got May’s Trade Data today, and that showed another month of big gains in cheese exports, probably some mozzarella in there, and that does help to explain the big production number. Additionally, gouda increased by double digits from May 2023, and it’s another product that’s heavily exported. So as we analyzed the data, cheese was slightly bearish to our expectations, and that was simply because less cheddar than we expected was produced in May.

(2:33)
Moving on to the seemingly unbreakable butter market, a lot of butter was made in May, on a 30-day adjusted basis, it summed to 197.7 million pounds, and that’s the most ever for May. Wow. Output did fall seasonally from April, but our year-to-date is pretty darn impressive. Over 1 billion pounds of butter have been churned since the start of the year, and this is the first year that the 1 billion pound mark has been broken before June. Butter exports continue to languish, I got to see that data today too, meaning international demand did not absorb much of this big butter production number. So knowing that in our Cold Storage Report, butter stocks increased by less than the five-year average, this all implies that quite a bit of May’s product was likely utilized domestically, and this most likely strong stateside demand made today’s production result neutral to our expectations.

(3:39)
Dry whey was bullish to expectations though, production yearly and monthly fell, and this was likely due to the waste stream being shunted to other high-protein whey products like WPC80% and WPI. Stocks fell 7.4 million pounds from April to May, sizable, and total days of inventory sits at 26.4 days, that’s smaller than last month’s total too. So the smaller inventories against lower production suggest prices may have some room to go higher.

(4:12)
Looking at some of the higher-protein whey products, WPC34% and 80% were neutral to expectations. WPC34% gets slumped into WPC25-49.9%, and that production fell on a year-over-year basis but, compared to April, was up a modest 1 million pounds. When I look at the stocks data, stocks grew by 2 million pounds from April to May, indicating that more than enough product was made to keep up with demand. However, prices have come down slightly as of late and been trending lower, suggesting that some of this is already priced in, and hence the neutral expectation. WPC50-89.9% was similar in terms of dynamics to the WPC34% markets. Volumes rose year-over-year and month-on-month as processors worked to keep up with strong demand for product. It seems, though, like this month manufacturers got real close to getting it right. Stocks increased by 1.7 million pounds, which was really not too far off from the monthly production increase of just under a million pounds.

(5:24)
The final piece of the whey complex puzzle, whey protein isolate, and that’s 90% whey protein or more, this was bearish to our expectations. Like I said, it’s the most expensive product in the complex and prices have been ticking upward as of late. But manufacturers have taken note that it’s in demand, that it commands a premium, and they have greatly increased production. May’s total of over 15.6 million pounds rose over 70% from May 2023 and was up 1.1% from April. That 1.1% equates to about 172,000 pounds. So now if I look over at the WPI inventories, they are beginning to build, and from April to May they climbed over 2 million pounds, indicating that supply may be greater than demand.

(6:18)
Alright, closing this out, let’s talk nonfat dry milk and skim milk powder. Combined skim milk powder and nonfat dry milk were down for the 12th month in a row. And if I look specifically at nonfat dry milk production, that was down 5% from April to May, or about 8.7 million pounds. But stocks of nonfat built by nearly 3 million pounds month on month. And in looking at today’s trade data, I know exports were down 24% in May, all of this indicating that international demand is pretty poor for US product, and that made nonfat dry milk slightly bearish to our expectations. Prices have backed down a couple of cents from the recent highs, so the market may already be pricing in some of this smaller demand. Alright, that’ll put a bow on all of this for now.

I will have more detailed analysis to complete tonight (view here). Subscribers, watch your inbox for more information and a full report. The team at HighGround wishes all of you a happy US Independence Day tomorrow, and we will be back in the office, back in action again on Friday. Take care, and have a great night.