What goes up, does come down, and dairy farmers know the drill all too well unfortunately. The United States Agriculture Department announced the August Federal Order Class III milk price at $20.10 per hundredweight, down $2.42 from July, after losing $1.81 in July, but is $4.15 above August 2021.
It’s the third monthly decline after peaking at $25.21 in May and is the lowest Class III price since December 2021. The eight-month 2022 average stands at $22.54, up from $16.78 at this time in 2021 and $17.61 in 2020.
Late Friday morning Class III futures portended a September price at $19.67; October, $20.01; November, $20.99; and December at $20.83.
The August Class IV price is $24.81, down 98 cents from July, $8.89 above a year ago, and the lowest it has been since February. Its eight-month average sits at $24.83, up from $15.12 a year ago and $13.62 in 2020.
Dairy farmers got a small break on corn and soybean prices in July but a big jump in hay and a drop in the all milk price pulled the month’s milk feed ratio lower for the sixth month in a row. The latest Ag Prices report shows the July ratio at 1.79, down from 1.93 in June, but compares to 1.52 in July 2021.
The index is based on the current milk price in relationship to feed prices for a ration consisting of 51% corn, 8% soybean and 41% alfalfa hay. In other words, 1 pound of milk would only purchase 1.79 pounds of dairy feed of that blend.
The all milk price average fell to $25.70 cwt, down $1.20 from June, after dropping 40 cents the previous month, but is $7.90 above July 2021.
California’s all milk price fell to $26.60 per cwt, down 90 cents from June but $9.10 above a year ago. Wisconsin’s, at $24.30, was down $1.90 from June, but is $6.40 above a year ago.
The July national average corn price slipped to $7.25 per bushel, down 12 cents from June, but was $1.13 above July 2021.
Soybeans, after hitting a record $16.40 per bushel in June, fell 90 cents in July to $15.50 but are still $1.40 per bushel above July 2021.
Alfalfa hay averaged a record $276 per ton, up a whopping $31 from June, and a budget busting $70 per ton above a year ago.
Looking at the cow side of the ledger; the July cull price for beef and dairy combined averaged $90.60 per cwt, up 40 cents from June, $15 above July 2021 and $19 above the 2011 base average.
Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, said the ratio’s feed value came in at $14.33, driven primarily by the higher hay price. Adding salt to the wound, Brooks said revisions in the alfalfa hay price in previous months “lowered what we thought we had for profitability.”
July’s drop in the income over feed calculation was the fourth decline the past 11 months. July’s income over feed costs dropped below $12 for the first time since December 2021 but was above $8 per cwt for the 10th month running.
Dairy producer profitability for 2021 in the form of milk income over feed costs was $7.79 per cwt, according to Brooks. The profitability was $2.44 below 2020 and $1.87 lower than the 2016-20 average. In 2021, the decrease in milk income over feed costs was a result of the milk price increasing less than feed prices rose. 2021 income over feed was close to the level needed to maintain or grow milk production.
For 2022, milk income over feed costs (using Aug. 31 CME settling futures prices for milk, corn and soybean plus the Stoneheart forecast for alfalfa hay) are expected to be $11.69 per cwt, a loss of 66 cents versus the previous month’s estimate. 2022 income over feed would be above the level needed to maintain or grow milk production and $3.90 per cwt above the 2021 level.
We did see some relief in July corn and soybean prices, he said, and we are looking at a fairly large crop for both. But it is not as large as we thought earlier and were hoping for, and we still have forage issues. With the economy where it is right now, disposable income for consumers is narrowing with these higher energy prices and other costs going up, so it looks like a tight situation with narrowing profitability as we go through the rest of 2022 on into 2023. Hopefully, it stays above the level needed to at least break even for most producers, he concluded, and maybe even be profitable for some as well.
Meanwhile, the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC says dairy margins were weaker over the second half of August as increasing feed costs offset mixed milk prices with Class III largely steady while Class IV advanced.
The MW detailed the July Milk Production and Cold Storage reports, which I previously reported. It added that the corn market has been rising as Pro Farmer’s annual crop tour indicated a lower yield projection of 168.1 bushels per acre versus 175.4 in the August WASDE, with production pegged at 13.759 billion bushels compared to the current USDA estimate of 14.359 billion. For additional details, visit www.cihmarginwatch.com.
Speaking of those crops; 86% of U.S. corn was at the dough stage, as of the week ending Aug. 28, according to the latest Crop Progress report, up 11% from the previous week, 4% behind a year ago and 2% behind the five-year average. 54% was rated good to excellent, 6% behind a year ago.
Checking soybeans; 91% were setting pods, up 7% from the previous week, 1% behind a year ago and 1% behind the five-year average. 57% of the crop was rated good to excellent, 1% ahead of a year ago.
The Daily Dairy Report’s Sarina Sharp warned in the Aug. 26 Milk Producers Council newsletter that dairy producers will need milk prices to stay high to keep up with rising feed costs. The trade has grown increasingly concerned about global grain supplies amid worsening drought in Europe and in China’s rice belt.
In the week ending Aug. 20, 59,100 dairy cows were sent to slaughter, up 1,500 head from the previous week and 100 head, or 0.2%, above a year ago.
Cash dairy prices started September mixed as high temperatures and drought takes a toll on the west, especially California where wildfires caused evacuations and the governor to declare a state of emergency.
The spotlight was on butter this week which, after jumping 14.25 cents the previous week, hit the second highest level on record. First, it fell to $3.05 per pound Tuesday, but headed back up from there, closing the Friday before Labor Day at $3.10, up 1.75 cents on the week, highest since Sept. 24, 2015, and 3.50 cents shy of the record $3.1350 on Sept. 25, 2015. It is also $1.3025 above a year ago. Sales totaled 19 for the week and 144 for the month, down from 216 in July.
Cream availability held steady in the Midwest this week, according to Dairy Market News, but the amount of offers had not increased significantly. Churning and micro-fixing were reportedly somewhat even most days. Employee hiring and retention has improved, but the challenge is getting new hires trained. Butter demand is steady to slightly underperforming for this time of the year, but near-term expectations are more bullish. Demand is expected to pick up in late summer/early fall, but the limited butter stocks are and have been a concern for months. Still, as domestic butter prices maintain a stronger position than those of Oceania, an unanswered question is how buyers, particularly industrial confectioners, plan to proceed in regards to their purchasing, says DMN.
The Aug. 26 Dairy and Food Market Analyst reported that butter retailers were being put on allocation because of a lack of available supply.
Cream production is declining in the West, but availability was steady to higher this week. Contacts reported that some Class II facilities were going to run shorter schedules Labor Day weekend, enabling butter makers to utilize the additional cream and increase output. Plants continue to run below capacity due to limited tanker availability and labor shortages, according to DMN. Butter inventories are tight and demand from food service and retail is steady.
CME cheddar block cheese saw some ups and downs but closed Friday at $1.7650 per pound, up 2.50 cents on the week, and 3 cents above a year ago, as traders awaited the afternoon’s July Dairy Products report.
The barrels finished the week at $1.8575 per pound, 2.50 cents lower, 46.25 cents above a year ago and an inverted 9.25 cents above the blocks.
There was only one sale of block on the week at the CME and 19 for August, down from 23 in July. Barrel sales totaled nine for the week and 64 for the month, up from 29 in July.
Midwestern cheesemakers reported a tighter spot milk market this week. Mid-week spot prices ranged from Class to $1 under and processors say offers “noticeably quieted down,” says DMN. In a typical week, this would not necessarily be of circumstance but ahead of a holiday weekend it does eschew the more common trend of increasing milk availability at discounted offer prices. Cheese sales were mixed, but some producers say business is picking up. Some pizza cheese and retail cheddar producers report having to limit customers’ orders to ensure all other orders are being met.
Demand for cheese is mixed in the West. Some contacts noted an uptick in food service sales, particularly for mozzarella cheese from pizza makers. This is contrasted by recent declines in food service demand, as restauranteurs reduce hours and menu offerings. Retail demand was unchanged while export demand remains strong due to competitive prices. Cheese output is steady in the region, with some plants continuing to report labor shortages and delayed deliveries of supplies, preventing them from running closer to capacity, according to DMN.
Grade A nonfat dry milk climbed to $1.57 per pound Monday, highest since Aug. 4, but headed south from there and closed 4 cents lower on the week at $1.52, 18 cents above a year ago. The powder saw 18 trades on the week and 70 for the month, up from 49 in July.
The DFMA says there has been rumblings that Chinese buyers are somewhat back in the market. Mexican buyers have also returned after a two-month hiatus. And after a couple months of quiet activity, the tones of both nonfat dry milk and dry whey markets have firmed. We’ll learn more after the Sept. 6 GDT.
Dry whey gained 1.50 cents Monday, hitting 48.50 cents per pound, highest since July 11, then fell backward, closing the week at 46.50 cents per pound, down a half-cent and 2 cents below a year ago. There were two sales of whey on the week and 10 for August, down five from July.
Speaking of the GDT, the third Pulse auction was held Aug. 30 with 2.2 million pounds of Fonterra whole milk powder offered, same as Aug. 23. The resulting price averaged $3,415 U.S. per metric ton after 23 minutes of trading, up $30, or 0.9%, from Aug. 23. There were 35 participating bidders, with 15 winning bidders, down from 20 the previous week.
HighGround Dairy reports that Fonterra has cut its milk price forecast for the current year due to falling global dairy prices. The forecast was revised from $8.75-$10.25 per kg of milk solids to $8.50-$10 per kg.
Chief executive Miles Hurrell said the revision would be disappointing for the co-op’s farmers but reflected several factors, including the recent downward trend in global dairy prices driven by some short-term softening in global demand, and the general impact of inflation on purchasing behavior.
Scorching temperatures and drought conditions continue to push back on European milk production, according to the Aug. 29 Daily Dairy Report. Combined data from Eurostat, consulting firm CLAL, and the UK’s Agriculture and Horticulture Development Board indicate that collective output among the 26 reporting countries of the EU and the UK fell by 0.7% year over year during June. While still significant, this represents the smallest decline seen since February.
Cooperatives Working Together members accepted 17 offers of export assistance this week from CWT that helped them capture sales of 3.5 million pounds of American-type cheese, 1.1 million pounds of whole milk powder and 520,000 pounds of cream cheese.
The product is going to customers in Asia, Middle East-North Africa, Oceania and South America through January 2023 and raised 2022 CWT exports to 66.8 million pounds of American-type cheeses, 459,000 pounds of butter, 29.8 million pounds of whole milk powder and 7.1 million pounds of cream cheese. The products are going to 18 countries and are the equivalent of 900 million pounds of milk on a milkfat basis, according to the CWT.
Finally, a hats off to the American Beef Labeling Act, S. 2716 and H.R. 7291. The legislation would put a mandatory country of origin label on beef at the grocery store and is co-authored by Sens. Jon Tester (D-MT) and John Thune (R-SD).
