USDA’s December milk production for the week leading into Christmas showed a 1,000-head revision higher in the previous herd number and a further 1,000-head addition from October into November. This raises the national heard to a one-year high, up 38,000 heifers from November 2021. With one month left in the year—that will be reported in the third week of January—2023 may start up 50,000 cows from 2022.
Milk output to date is now firmly higher YOY, so total supply is strong. Yield per cow has routinely set records throughout the year and was up 1.3 percent YOY in November. We expect similar results for December as schools recess for winter break; dairy coops will need to ship more milk to balancing plants that focus on Class IV products such as milk powders and butter. Coupled with New Year’s resolutions to shed unwanted pounds and dieting and exercise, we see supply of milk strong through H1 2023.
Following the milk production report, Fonterra hosted its final biweekly auction of the year. Prices were down sharply across the board, with the aggregate index down 3.8 percent.
Economic indicators seem to be showing a rising risk of recession in 2023 and decidedly slower rates of GDP and demand growth in response to hefty prices for all consumers. The net result is strong supply in a weakening demand environment, which according to the laws of economics, should lead logically to price weakness in the first half of the coming year.
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