Intensifying Competition for Milk Supplies Amid Rising Prices and Expanding Cheese Production
Source: DairyNews.today
As milk supplies tighten across the United States, the competition for available milk is set to intensify, driven by rising milk prices and expanding cheese manufacturing capacity. According to Sarina Sharp, an analyst with the Daily Dairy Report, the squeeze on milk supplies could force some milk dryers to operate below capacity as cheese processors outbid others to keep their production lines running.
Cheese manufacturers, who typically prioritize maintaining full vats, are more likely to pay a premium for milk, particularly in a market where supply is constrained. In contrast, producers of nonfat dry milk rely on cheaper milk available during periods of surplus. However, as current market conditions show, with limited excess milk, the production of nonfat dry milk and skim milk powder has fallen behind other dairy products.
From January through June 2024, the combined output of nonfat dry milk and skim milk powder declined by 15.2% compared to the same period in the previous year. This trend suggests that if dairy producers continue to struggle with boosting milk production and processing capacity expands as anticipated, the production of milk powder could further decline while butter and cheese output increases.
“Even though year-over-year milk production has lagged behind prior-year volumes for 11 consecutive months, the high prices of butter have motivated dairy producers to focus on increasing butterfat levels,” Sharp noted. “This increase in butterfat has more than compensated for the deficit in milk production.”
Indeed, U.S. dairy producers have been almost exclusively focused on enhancing butterfat content, with average monthly butterfat levels surpassing those of the previous year in every month since June 2020. For the first six months of 2024, U.S. milk production dropped by 0.9%, reaching a four-year low compared to the same period in 2023. In contrast, butterfat production increased by 1.8%, ensuring ample cream availability for both Class II products and butter, pushing U.S. butter output to record highs.
However, the rise in protein levels in U.S. milk has been far less dramatic. For the 12-month period ending in June 2024, the average protein level in U.S. milk increased only slightly to 3.28%, up from 3.26% in the preceding year. This modest increase has barely compensated for the lower overall milk output, with total milk protein production rising just 0.1% in the first half of 2024 compared to the same period in 2023.
“The gradual increase in nonfat solids has not been enough to offset the decline in milk production,” Sharp explained. In the first half of 2024, nonfat solids production was 0.5% lower than in the same period the previous year.
Sharp emphasized that the combination of declining milk output and expanding dairy processing capacity has heightened competition for milk supplies. Spot milk prices in the Upper Midwest have exceeded the historical average in 48 of the past 52 weeks, indicating the growing demand. While there is more than enough cream for all uses, the smaller increases in protein and milk solids levels, coupled with an unexpected rise in milk bottling, have forced processors to search farther afield for milk to meet their cheese and dryer needs.
“As new processing plants come online, the battle for milk is likely to become even more intense,” Sharp concluded, highlighting the challenges ahead for the U.S. dairy industry.
From January through June 2024, the combined output of nonfat dry milk and skim milk powder declined by 15.2% compared to the same period in the previous year. This trend suggests that if dairy producers continue to struggle with boosting milk production and processing capacity expands as anticipated, the production of milk powder could further decline while butter and cheese output increases.
“Even though year-over-year milk production has lagged behind prior-year volumes for 11 consecutive months, the high prices of butter have motivated dairy producers to focus on increasing butterfat levels,” Sharp noted. “This increase in butterfat has more than compensated for the deficit in milk production.”
Indeed, U.S. dairy producers have been almost exclusively focused on enhancing butterfat content, with average monthly butterfat levels surpassing those of the previous year in every month since June 2020. For the first six months of 2024, U.S. milk production dropped by 0.9%, reaching a four-year low compared to the same period in 2023. In contrast, butterfat production increased by 1.8%, ensuring ample cream availability for both Class II products and butter, pushing U.S. butter output to record highs.
However, the rise in protein levels in U.S. milk has been far less dramatic. For the 12-month period ending in June 2024, the average protein level in U.S. milk increased only slightly to 3.28%, up from 3.26% in the preceding year. This modest increase has barely compensated for the lower overall milk output, with total milk protein production rising just 0.1% in the first half of 2024 compared to the same period in 2023.
“The gradual increase in nonfat solids has not been enough to offset the decline in milk production,” Sharp explained. In the first half of 2024, nonfat solids production was 0.5% lower than in the same period the previous year.
Sharp emphasized that the combination of declining milk output and expanding dairy processing capacity has heightened competition for milk supplies. Spot milk prices in the Upper Midwest have exceeded the historical average in 48 of the past 52 weeks, indicating the growing demand. While there is more than enough cream for all uses, the smaller increases in protein and milk solids levels, coupled with an unexpected rise in milk bottling, have forced processors to search farther afield for milk to meet their cheese and dryer needs.
“As new processing plants come online, the battle for milk is likely to become even more intense,” Sharp concluded, highlighting the challenges ahead for the U.S. dairy industry.
