Dairy Skim – February 2023 USDA Dairy Products Report

Dairy Skim is a bite-size episode series where HighGround’s top analysts break down the latest dairy data release. Today, Eric Meyer and Betty Berning discussed the February 2023 USDA Dairy Products Report. You can view the snapshot report here. Subscribe so that you never miss an episode!

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Transcription:

[00:04] Eric: Hello everyone and welcome back to the Dairy Skim, HighGround’s bite-sized podcast intended to give the dairy industry some flavor into recent reports or events that can impact global commodity pricing. Today is Monday, April 3rd, the official start of 2023’s 2nd quarter, my name is Eric Meyer, President and Founder of HighGround, and USDA just issued the February 2023 Dairy Products Production & Dry Stocks report, giving the industry a plethora of data to chew on.

I’m joined today by Betty Berning, HighGround’s esteemed contributing dairy economist and our heads officially hurt as we poured through the data looking for that quick story.

Betty, we settled on you taking a nose dive into both cheese and butter, what did you find?

[00:51] Betty:  Thanks, Eric. Both of these commodities wound up being neutral to HG’s expectations.

Total cheese production improved 0.4% in February 2023 compared to February 2022 and that production totaled over 1.1 billion pounds. We’ve been hearing that lots of milk is headed to the vats and the increase is not much of a surprise to us. The Central Region of the country led the charge, experiencing 2.5% annual growth. On the other hand, the Atlantic and Western regions experienced slower cheese production than in February 2022.

[01:37] Within the cheese complex, cheddar production was 5.6% stronger relative to year-ago levels, equaling 325.4 million pounds, and was running ahead of the five-year average. Mozzarella production also increased year over year. However, other less common cheeses like Romano, Feta, blue and gorgonzola fell from prior year levels which suggests that the higher cheese prices that we had in February and into March may have softened demand or resulted in more imports of cheaper cheese from abroad.

[02:14] Moving over to butter, production there was also up, 1.6%. Production weighed in at 186 million pounds and was the fourth month in a row of gains, but this year-over-year growth was smaller than previous months. Butter production rose in all three regions of the country.

[02:39] Cream cheese production grew almost 10% from February 2022, and we suspect that is pulling some fat away from the butter complex. Eric, I will hand it back to you to talk about some of the other commodities in today’s report.

[02:54] Eric: Awesome, thanks, Betty. Looking forward to reading more about what you find within the data after that more in-depth look.

As far as the other commodities, two things stuck out to me as I looked at the powders. February ’23 nonfat dry milk and skim milk powder look quite bearish, both from a production and ending stock standpoint. February nonfat dry milk production topped 178 million pounds, was up 8.2 million pounds year-over-year when calculating on a daily average basis, or up 4.5%—the strongest annual percentage growth since last August. The monthly production build was up 13% from January, exceeding last year’s 11% monthly increase and way over the 2.4% five-year average January to February build. Skim milk powder also saw exceptional year-over-year growth, up nearly 29% from February 2022 or an increase of more than 9 million pounds when calculated on a daily average basis. Last year’s production figures were pretty poor, so not completely unsurprising for this kind of increase on SMP, but what really stuck out was that inventories grew more than typical for this time of year. Nonfat dry milk ending stocks for February came in at 310 million pounds, a monthly build of nearly 40 million pounds, a 14.6% increase from January and year-over-year stocks grew by 21.6 million pounds or a gain of 7.5%. That increase was better than expected which suggests demand is not keeping up with the pace of production.

[04:31] Regarding whey, we won’t get into too many specifics but we remain surprised at how low overall whey production is, with the dry whey category down 10% versus prior year, overall whey protein concentrate down 9.3% and whey protein isolates down nearly 20% from the prior year.

However, inventories, particularly of the high proteins remain in the stratosphere, with WPC stocks closing in on 85 million pounds, up nearly 30% versus prior year, WPI stocks at 24 million pounds, or up 76% from February of last year. The only inventory category showing a lower trending gain is dry whey, at nearly 66 million pounds is just 6.6% above the prior year. We’ll try and dig into the details in our comprehensive written analysis that will be published by tomorrow morning.

Well, that does it for today’s Skim of the February ’22 US Dairy Products Report, we’ll be back with you tomorrow afternoon after the completion of the first April Global Dairy Trade auction and will be joined by Stu Davison digging into the results. Talk soon!