Friday Closing Dairy Market Update - USDA Releases Federal Milk Marketing Order Changes

MILK:

Traders did not have much to go on for underlying spot prices. Cheese prices remained steady after a wild week of price movement. This provided traders with little direction but likely was a relief after the wild swings seen over the past week. Cheese prices did gain for the week but that provided little support to Class III futures. The FSA will begin the next enrollment period for the Dairy Margin Coverage program on Jan. 29 and will run through March 31. At least that is the current duration. It may likely be extended again as it has been since the beginning of the program.

The USDA issued the final rule on the amendments to the milk marketing orders. It has been a long process, and these are the amendments. The skim milk powder composition factors will be updated to 3.3% true protein, 6.0% other solids and 9.3% nonfat solids, with a six-month delayed implementation. The skim milk composition will be updated. The 500-pound barrel cheddar cheese prices will be removed from the Dairy Product Mandatory Reporting Program survey. The Class III and Class IV manufacturing allowances will be changed to $0.2519 for cheese, $0.2272 for butter, $0.2393 for nonfat dry milk, and $0.2668 for dry whey, all on a per pound basis, and the butterfat recovery factor to 91%. The base Class I skim milk price formula will be returned to the higher of the advanced Class III or Class IV skim milk prices for the month. In addition, the adoption of a Class I extended shelf life (ESL) adjustment for all ESL products equal to the average of the mover plus a 24-month rolling average adjuster with a 12-month lag.

The Class I differential values will be updated to reflect the increased cost of servicing the Class I market. These changes will not take place until June 1.

AVERAGE CLASS III PRICES:

3 Month:	$20.11
6 Month:	$19.74
9 Month:	$19.53
12 Month:	$19.38

CHEESE:

For the week, the block cheese price increased by 7 cents with 13 loads traded. The average price for the week was $1.8825. The barrel cheese price increased by 4 cents with seven loads traded. The average price for the week was $1.8740. The dry whey price slipped by 0.25 cent with four loads traded. The average price for the week was 73.80 cents. The dairy markets will be closed on Monday due to it being the Martin Luther King Jr. federal holiday.

BUTTER:

For the week, the butter price declined by 7 cents with 31 loads traded. The weekly average price was $2.5640. The Grade A nonfat dry milk price gained 0.75 cent with six loads traded. The weekly average price was $1.3680. The price declined each day this week as buyers held back waiting for lower prices. They see no need to be aggressive due to the abundant cream supply and full churning schedules.

OUTSIDE MARKETS SUMMARY:

March corn closed up 9.75 cents per bushel at $4.8425, March soybeans closed up 15.00 cents at $10.3400 and March soybean meal closed up $2.80 per ton at $297.20. March Chicago wheat closed up 1.25 cents at $5.3875. February live cattle closed up $0.15 at $196.75. March crude oil is down $0.50 per barrel at $77.35. The Dow Jones Industrial Average is up 335 points at 43,488 with the NASDAQ up 292 points at 19,630.

Friday Midday Dairy Market Summary - Cheese Prices Hold Steady

OUTSIDE MARKETS SUMMARY:

CORN:	11 Higher
SOYBEANS:	18 Higher
SOYBEAN MEAL:	$3.90 Higher
LIVE CATTLE:	$0.60 Higher
DOW JONES:	408 Points Higher
NASDAQ:	347 Points Higher
CRUDE OIL:	$0.42 Lower

MIDDAY MARKET UPDATE:

Both block and barrel cheese prices remained unchanged at $1.89 and $1.89 respectively. The block and barrel prices spend very little time at the same price level, but have remained at the same price for two consecutive days. There were no loads traded with only an uncovered offer for barrels remaining at the close of spot trading. The dry whey price remained steady at 73.75 cents with no loads traded. Class III futures are 4 cents lower to 14 cents higher. The butter price slipped 0.50 cent closing at $2.53 with three loads traded. Grade A nonfat dry milk increased by 0.50 cent closing at $1.3725 with two loads traded. Class IV futures are 2 to 29 cents lower. Butter futures are 3.00 cents lower to 0.22 cent higher. Dry whey futures are 1.00 cents lower to 1.50 cents higher. The markets will not be open on Monday due to the Martin Luther King Jr. holiday.

2025 looks to be a more favorable year for dairies

Dairies are entering 2025 in a much stronger position than they were a year ago, and all indications point to much stronger returns for dairies in the coming year. Feed is inexpensive and readily available. Western dairy feed costs dropped by more than 20% in 2024, with hay prices at their lowest levels in the past four years. Despite downward pressure on milk prices throughout 2024 Q4, cheese and butter prices have steadied since December, with milk prices likely to follow suit. Notwithstanding lower milk prices during Q4, margins for the period are still expected to be the highest in the last decade for most producers. Dairy margins for Q1 of 2025 are projected to be in the profitable given stronger milk prices and low feed costs.

Highly Pathogenic Avian Influenza (HPAI) continued to slow national milk production. Since November, more than 700 California herds have been infected, leading to a record 9.2% year-over-year drop in the state’s November milk production. California’s December milk production numbers will likely show an even sharper decline. In response, the Governor of California declared a state of emergency to provide funding and resources to combat the spread. In AgWest’s territory, HPAI has been detected in California, Idaho, and Nevada so far and it is likely to spread to other states in 2025, causing temporary drops in milk production. To identify HPIA cases faster and limit spread of the virus, USDA has mandated bulk testing of milk supplies starting Dec. 16, 2024. USDA has created Financial Assistance Programs to help offset the cost of testing and milk losses.

Profitability

Dairy: Slightly profitable - Neutral 12-month outlook

 While cheese plant capacity and strong consumer demand for dairy products support prices, global competition and potential market volatility pose headwinds to profitability. The ongoing pull of dairy and dairy-cross cattle to feedlots is slowing the expansion of dairy herds.