Dairy Skim – July 2023 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 July 2023 US Dairy Products Report. Customers can view the snapshot report here. Subscribe so that you never miss an episode!

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[00:05] 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, Contributing Dairy Economist at HighGround. USDA just dropped its July Dairy Products report and our team has met to discuss our initial thoughts and are ready to share them with all of you!

[00:32] In the cheese complex, July’s production of 1.125 billion pounds was down 0.7% from July 2022, driven primarily by falling Cheddar and mozzarella volumes. The year-on-year decline is the most significant since August 2020. Natural American cheese output actually eked out a small increase of 0.2% versus prior year which was driven by stronger production in the “other than American” cheese category, which includes products like Monterey Jack and Colby.

[01:07] The falling year-over-year Cheddar production was not a total surprise to the team at HighGround, as reports throughout the month indicated that supplies of 4 to 30-day-old Cheddar were tight and that has lead to the current rally that we’ve seen in the CME Spot market.

[01:22] Cream and Neufatchel cheese, which make up roughly 8% of the category, were down by 6.7% against July 2022’s big numbers. If I take this category out of the total cheese number and sum up all of the other types of cheeses, July 2023’s total is actually bigger than July 2022’s, meaning the drop in this category pretty notable and quite sizable.

[01:48] Parmesan production continued to grow, up 8.6% versus July 2022—the third month in a row of increases. This could be due to end-users buying up product as the cheese market headed lower, prompting manufacturers to make more Parm.

[02:06] Butter was neutral to our expectations, growing 3.5% versus prior year and down 6.3% versus June. That 6.3% is right at the five-year average drop from June to July. California’s butter numbers were way off, down 6% year-on-year but the rest of the West— probably Washinton and Idaho—erased some of those losses with overall production down just 2.2% in that region. The Central region favored making butter, as churns turned out 16.9% more in July 2023 than in July 2022. That’s almost 8.5 million more pounds of butter than a year ago. Manufacturers with the ability may have favored churning over sending milk to the cheese vats in July, due to the disparity between the Class III and IV markets earlier this summer.

[03:06] Moving on to Nonfat. That was actually slightly bullish to our expectations, as production totaled just under 135 million pounds, falling nearly 19% from prior year levels and down nearly a whopping 27% from June. This is the smallest July figure since 2013. USDA also took June’s Nonfat Dry Milk production down by 4.5 million pounds—a revision of 2.5%.

[03:36] Skim milk powder (SMP) volumes increased slightly in July and that was a little bit surprising. They were up 2.6% year-on-year after logging year-over-year losses for the previous six months. July’s volume of 62.6 million pounds is the biggest since December 2022. However, despite growing SMP production, international demand is terrible. Combined SMP and Nonfat Dry Milk production for July was the smallest since 2015, and the lowered milk production in Nonfat Dry Milk-heavy areas like California did not encourage additional production. Milk flows are recovering in that region, so it’s likely that moving forward, the story will just be centered on poor international demand, poor exports, and so on.

[04:27] Dry whey was slightly bearish to our expectations. With current markets at over $0.30 per pound and rallying off the bottom they made in mid-July, dry whey production actually increased in July year-over-year, and stocks built by 3% from June and were also up almost 18% from July 2022. A lot more supplies than we would have expected. WPI production fell for the tenth month in a row. However, June’s number was pretty significantly revised, increasing by 2.2 million pounds—a change of over 20% from the original print. June’s lactose stocks also saw a sizable revision, declining 6.2 million pounds or revised downward 4.25%.

There are a lot of numbers there but watch your inbox for more in-depth analysis and we will catch you later!

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