The past week brought two USDA dairy reports, both setting the stage for a staggering volume of milk and inventories of dairy products in months ahead. January’s USDA Milk Production report showed a massive increase in the statistical herd, with the total U.S. herd gaining 36,000 head, 100,000 head above December 2019.
Total milk production across the 24-states was 18.1 billion lbs, up 3.2 percent YOY, putting all milk output up 2.1 percent YOY. More importantly, we begin 2021 with an elevated dairy herd as yields will now start rising with the flush season. The combination should bring a tsunami of milk domestically in the next four months. We know that international demand and appetite is healthy for dairy products, but with new variants of COVID-19 circulating and threatening renewed shutdowns and with new travel bans (UK, South Africa, and Brazil), supply may not only satisfy but overwhelm demand. To put this in perspective, the total U.S. herd is the largest in 20 years.
The bearish milk production report was followed the same day by an equally bearish Cold Storage report. Total cheese stocks in refrigerated warehouses were up 4 percent from the previous month and up 6 percent YOY. Butter stocks were up 9 percent month on month and up a whopping 44 percent vs. December 2019.
More importantly, we are starting calendar 2021 with record butter stocks in cold storage ahead of the heavy milk production period that normally sees stocks swell. We have never finished a year with 274 million lbs of butter in cold storage.
The double round of bearish stats hit the markets hard, with dairy products (whey and nonfat dry milk) selling off dramatically through the first half of the last week. In the previous week, we had recommended patience and waiting for more attractive levels, and the market appears to be finally cooperating.
U.S. monthly dairy herd