The latest dairy products report showed a continued build in many dairy product categories. Cheese was the obvious winner, with total output in July up 1.1 percent from July 2021 and showing a nominal gain of 0.5 percent month over month. Both American- and Italian-type cheeses registered monthly production gains.
Some of the dried dairy product categories displayed interesting results that warrant closer examination. Dried whey for human consumption, whey protein concentrate, and nonfat dry milk (human consumption) all showed impressive gains against both the prior month as well as higher levels year over year.
Specifically, whey stocks were 0.6 percent higher than June and 4.3 percent higher YOY. Whey protein concentrate gained 7.1 percent compared to June and stood at 21.4 percent above July 2021. Nonfat dry milk stocks ended July just shy of 337 million pounds, setting a record for the year. Lactose output also surged higher during the month, driving inventories up 29 percent compared to July 2021. Manufacturer stocks continue to rise just as consumer demand for high-priced dairy proteins seems to have ebbed and warehousing costs surge.
Not only was the NFDM July stocks number a new high for the year, but it was also the highest level for the month of July since 2008. Buyers who were involved in dairy back then may recall that 2007/08 was a feverish and irrationally exuberant bull rally that sent prices to unprecedented heights (>$2.00 per pound). High prices led to demand destruction, while manufacturers only seeing dollar signs began huge stocks building throughout 2008. Ultimately, sense prevailed and prices collapsed.
Fast forward to 2022 and the fundamental backdrop could be pointing to increasing risks for the dairy farmer. Chances of recession are growing, and the latest CPI number continues to show hot inflation figures and the need for the Federal Reserve to continue raising interest rates. This is going to increase costs of borrowing and financing and apply brakes to the economy and consumer spending.
Meanwhile, China is still struggling to fully emerge on the other side of COVID and re-open. With stocks setting new highs, there is clearly no shortage of product. The only thing in doubt is whether demand at current prices will be sustainable. For the time being, futures on the CME appear to be finding support. Next week’s milk production report will perhaps shed further light on the herd and our next directional move.
Nonfat dry milk carryout
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