Dairy Processing - December 2021 - 66

COMMODITIES OUTLOOK
Supply and demand
Reduced milk production is resulting in less butter and lower inventories.
By Nate Donnay | Nate.Donnay@stonex.com
T
he US butter market is shifting from a period of
abundance to scarcity, but this isn't a story about
logistics, shipping delays or pandemic impacts. This
is a good old fashioned supply story. High feed costs earlier
this year, and rising costs for nearly everything else, have
pushed margins lower for dairy farmers. They have reacted
by reducing the size of the dairy herd by 85,000 head, which
is almost 1%, between May and September. The reduced milk
production is resulting in less butter production and we're
drawing inventories lower, which is pushing butter prices
higher, and they likely have even more upside in 2022.
Most of the " balancing " of the milk supply falls to
butter and milk powders like nonfat dry milk (NFDM).
Milk production is very seasonal, peaking in the spring and
falling in the summer before bottoming out in the autumn
and starting to rise again. But dairy consumption patterns
don't line up with the season increases and decreases in milk
production. To ensure we have enough milk around in the
summer months, we effectively overproduce in other months.
That excess milk gets turned into storable dairy products
like cheese, butter and milk powders which can then be used
when milk production dips down.
Partly to deal with these seasonal swings in milk
66 DEC 2021 | DAIRYPROCESSING.COM
production, dairy farmers banded together in cooperatives
who would pool the milk from multiple farms and sell it to
commercial processors. To give themselves more bargaining
power, and deal with any surplus milk that they couldn't sell,
some cooperatives built their own plants that could turn the
milk into something storable. Since butter/NFDM has a long
shelf life, and because the US government was willing to buy
a nearly unlimited about of these products under their price
support program, cooperatives tended to invest heavily in
butter/NFDM plants. So, when there is a surplus of milk, it
tends to get directed to butter, and when milk production is
weak, butter production really suffers.
CREAM ON THE RISE
On top of the weak milk production we're also seeing good
demand for cream going into other dairy products and uses.
There is a certain amount of fat available at the farm gate.
Milk going into a bottle (Class I) gets first draw on the supply,
followed by soft dairy products like yogurt and ice cream
(Class II), then whatever fat is left will go toward cheese and
butter. There are a number of new expansions at cheese plants,
and a very large new cheese plant, that have come online in
the past year. There are few things worse for profitability than
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Dairy Processing - December 2021

Table of Contents for the Digital Edition of Dairy Processing - December 2021

Dairy Processing - December 2021 - Intro
Dairy Processing - December 2021 - 1
Dairy Processing - December 2021 - 2
Dairy Processing - December 2021 - 3
Dairy Processing - December 2021 - 4
Dairy Processing - December 2021 - 5
Dairy Processing - December 2021 - 6
Dairy Processing - December 2021 - 7
Dairy Processing - December 2021 - 8
Dairy Processing - December 2021 - 9
Dairy Processing - December 2021 - 10
Dairy Processing - December 2021 - 11
Dairy Processing - December 2021 - 12
Dairy Processing - December 2021 - 13
Dairy Processing - December 2021 - 14
Dairy Processing - December 2021 - 15
Dairy Processing - December 2021 - 16
Dairy Processing - December 2021 - 17
Dairy Processing - December 2021 - 18
Dairy Processing - December 2021 - 19
Dairy Processing - December 2021 - 20
Dairy Processing - December 2021 - 21
Dairy Processing - December 2021 - 22
Dairy Processing - December 2021 - 23
Dairy Processing - December 2021 - 24
Dairy Processing - December 2021 - 25
Dairy Processing - December 2021 - 26
Dairy Processing - December 2021 - 27
Dairy Processing - December 2021 - 28
Dairy Processing - December 2021 - 29
Dairy Processing - December 2021 - 30
Dairy Processing - December 2021 - 31
Dairy Processing - December 2021 - 32
Dairy Processing - December 2021 - 33
Dairy Processing - December 2021 - 34
Dairy Processing - December 2021 - 35
Dairy Processing - December 2021 - 36
Dairy Processing - December 2021 - 37
Dairy Processing - December 2021 - 38
Dairy Processing - December 2021 - 39
Dairy Processing - December 2021 - 40
Dairy Processing - December 2021 - 41
Dairy Processing - December 2021 - 42
Dairy Processing - December 2021 - 43
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