The September Federal order Class III benchmark milk price was announced at $19.82 per hundredweight, down 28 cents from August but $3.29 above September 2021. Unfortunately, it’s the lowest Class III since December 2021 and put the nine-month average at $22.24, up from $16.75 a year ago, $17.48 in 2020 and $16.11 in 2019.
Late Friday morning Class III futures portend an October price at $22.05, with November at $21.85 and December at $21.19. If realized, the 2022 average would be $22.10. The U.S. Department of Agriculture has forecast $21.65 for 2022 and $19.70 for 2023.
The September Class IV price is $24.63, down 18 cents from August, $8.27 above a year ago and the lowest Class IV since February. The Class IV average is at $24.81, up from $15.26 a year ago, $13.53 in 2020 and 16.21 in 2019.
On a brighter note, CME butter set a new record high Thursday, hitting $3.2675 per pound. It closed the next day at $3.2175, up 7.25 cents on the week and $1.4975 above a year ago, with a total 35 loads finding new homes on the week.
“The interest is for use now because building inventory at these levels is expensive,” StoneX said.
Dairy Market News said cream availability has grown in recent weeks for Central churns. With hurricane-affected states working through the aftermath, cream stayed in the Midwest and Mid-Atlantic areas. Butter demand remains “notably strong,” says DMN, which also reported that cream is tight in the West, though additional loads became available following the storm.
Cheese prices faced headwinds from the GDT this week, but the Dairy Products report helped. The cheddar blocks climbed to $2.03 per pound Thursday but closed Friday at $2.0225 per pound, up 5.50 cents on the week and 21.25 cents above a year ago.
The barrels got to $2.25, highest since June 9, but finished at $2.2250, 2.50 cents higher, 43.50 cents above a year ago and 20.25 cents above the blocks. There were six sales of block on the week and 13 of barrel.
Milk availability increased this week for Class III production in the Upper Midwest, according to DMN. Plant downtime plus the additional milk brought spot prices lower. Cheese sales are meeting or exceeding expectations. Cheese demand is steady from retail and food service in the West. International demand remains strong, with continued interest from Asia for shipment in second quarter.
Grade A nonfat dry milk closed the week 3 cents lower at $1.54 per pound, 8 cents above a year ago, with seven loads exchanging hands on the week.
The Oct. 3 Daily Dairy Report said the Mexican economy is strong and the combination of a stronger peso and less expensive milk powder is likely to boost U.S. shipments of product there. Let’s hope so.
Dry whey saw a Friday finish at 42.25 cents per pound, down 1.75 cents on the week, and 17.25 cents below a year ago, on two sales for the week at the CME.
Dairy farmers saw small declines in feed prices in August; however, the all milk price fell as well. The month’s milk feed ratio was down for the seventh consecutive month, according to the latest Ag Prices report. The August ratio at 1.70, was down from 1.79 in July but compares to 1.48 in August 2021.
The all milk price average fell to $24.30 per hundredweight, down $1.40 from July, after dropping $1.20 the previous month but is $6.70 above August 2021.
The August national average corn price was $7.24 per bushel, down a penny from July, but 92 cents per bushel above August 2021. Soybeans fell to $15.30 per bushel, down 20 cents from July, but are $1.60 per bushel above August 2021. Alfalfa hay, after hitting a record average $276 per ton in July, was down $1 from July but a whopping $65 per ton above a year ago.
Looking at the cow side of the ledger, the August cull price for beef and dairy combined averaged $90.10 per cwt, down 50 cents from July, $14.10 above August 2021 and $18.50 above the 2011 base average.
Economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, said, “Dairy producers with Dairy Margin Coverage at or above $8.50 will receive a payment for August milk as the margin over feed costs was announced at $8.08.
“August’s drop in the income over feed calculation was the third straight monthly decline. Income over feed costs in August dropped to the lowest level since December 2021 but were above $8 per cwt for the 11th month running. There were no new all-time record high prices for inputs in August, but all three commodities remain in the top 10 for all time high prices, which put feed costs at second highest ever.
“For 2022, milk income over feed costs (using Sept. 30 CME settling futures prices for milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $11.88 per cwt, a gain of 19 cents per hundredweight versus the previous month’s estimate. 2022 income over feed would be above the level needed to maintain or grow milk production and $4.09 per cwt above the 2021 level.”
The latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC said, “Dairy margins declined slightly over the second half of September on weaker milk prices while feed costs remained largely steady.”
The MW said, “USDA’s cold storage report confirmed a drawdown in dairy product inventories during August which remains a supportive feature for the market.” The MW said the July to August cheese drawdown was the largest since 2018. “Given strong cheese production in August, the stocks figure implies good domestic and export demand, although stocks were still record high for August,” according to the MW.
Butter inventories remained at multi-year lows, according to the MW, and the lowest August inventory figure since 2017. The MW stated that butter production was lower during the month as cream was utilized elsewhere, “a contributing factor to the lower butter stocks.”
USDA’s quarterly grain stocks report showed Sept. 1 corn inventories at 1.377 billion bushels, according to the MW, and “below the average industry estimate of 1.497 billion but with the range of pre-report expectations between 1.295 and 1.575 billion bushels. Soybean stocks were reported at 274 million bushels versus the average industry estimate of 247 million and on the high end of the range of estimates between 220 and 275 million bushels.”
Speaking of crops, the USDA’s latest crop progress report shows 96% of U.S. corn dented, as of the week ending Oct. 2, 4% behind a year ago and 1% behind the five year average. 75% is rated mature, up from 58% the previous week, 11% behind a year ago and mirrors the average. Harvest is at 20%, up from 12% the previous week and 7% behind a year ago. 52% was rated good to excellent, 7% behind a year ago.
The report also shows 81% of the soybeans dropping leaves, 3% behind a year ago but 2% ahead of the five year average. Harvest is at 22%, up from 8% the previous week, 9% behind a year ago and 3% behind the five-year average. 55% of the beans are rated good to excellent, 3% behind a year ago.
Checking the herd; culling in the week ending Sept. 24 totaled 61,300 dairy cows, up 400 from the previous week and 700 head or 1.2% above a year ago.
Recovery halted in the Oct. 4 Global Dairy Trade auction which saw the weighted average fall 3.5%, following a 2% rise Sept.20 and a 4.9% jump Sept. 6. Traders brought 68 million pounds of product to market Tuesday, up from 57.6 million Sept. 20 and the most since Dec. 7, 2021.
Butter led the declines, dropping 7% after inching 0.2% lower Sept. 20. Anhydrous milkfat was down 1.7%, after leading the gains the previous two events, up 4% Sept. 20 and 13.9% Sept. 6. Whole milk powder was down 4% after gaining 3.7%, and skim milk powder was down 1.6% following a 0.7% loss. Cheddar was down 3.8% after a 2.1% gain last time.
StoneX said the GDT 80% butterfat butter price equates to $2.2050 per pound, down 16.50 cents from the last event. CME butter closed Friday at a very pricey $3.2175. GDT cheddar, at $2.2527, was down 8.2 cents and compares to Friday’s CME block cheddar at a bargain $2.0225. GDT skim milk powder averaged $1.5864 per pound, down from $1.6089, and whole milk powder averaged $1.6208 per pound, down from $1.6931. CME Grade A nonfat dry milk closed Friday at $1.54 per pound.
Analyst Dustin Winston said, “With tight milk production in New Zealand, more product on offer for GDT, and price weakness across the board, it would appear that demand off GDT continues to be weak and maybe even got a little worse.”
In other global news, U.S. dairy exports in August were the highest ever for that month, up 6.9% from a year ago, according to broker Dave Kurzawski in the Oct. 10 Dairy Radio Now broadcast. He reported that butter exports were up 116% and while it was a small volume, at 14.1 million pounds, it was double what they expected. Most of it went to Canada and some to the Middle East, he said.
Cheddar exports, at 15.7 million pounds, were up 11.5%, while cheddar production was down 2.1%, according to Kurzawski. “That’s what we price off of at the CME.” Cheese prices have moved from $1.80 per pound to a $2.10 average the last 4-6 weeks, he said. He attributed that to “holiday demand,” but now said exports likely played the bigger role.
The dark spot was powder. Nonfat dry milk/skim milk powder exports totaled 142.7 million pounds, down 17% from August 2021, but whole milk powder, at 9.2 million pounds, was up 51.2%.
Kurzawski said, “The market is looking for some news, like China boosting purchases. They won’t buy much from us but their purchases might spur Mexico to buy more. If that doesn’t happen prices might have to be lowered to clear product.”
Whey exports, at 50.3 million, was up 29.7%, thanks to China’s rebuilt hog herd.
Preliminary data showed August milk production was up 1.6% from August 2021, but the Dairy Products report didn’t appear to show where that milk went. Cheese, butter and powder output was not up as much as expected, says StoneX, so either milk output was overstated or product production understated.
Cheese output totaled 1.149 billion pounds, down 0.2% from the July total which was revised down 7 million pounds, but was up 0.1% from Aug. 2021. Output year to date hit 9.28 billion pounds, up 1.9% from a year ago.
Italian cheese totaled 488.1 million pounds, up 0.3% from July and 1.7% above a year ago. Mozzarella, at 386.3 million pounds, up 3.1% from a year ago.
American type cheese totaled 452.7 million pounds, down 2.9% from July and 2.1% below a year ago.
Cheddar output fell to 313.7 million pounds, down 17.9 million or 5.4% from the July total, and was 6.6 million pounds or 2.1% below Aug. 2021. YTD Cheddar is at 2.6 billion pounds, down 1.8% from a year ago.
August butter production fell to 144.1 million pounds, down 7.6 million pounds or 5.0% from July, and down 3 million or 2.0% from a year ago. YTD butter output stands at 1.4 billion pounds, down 2.2% from a year ago.
Yogurt totaled 403.3 million pounds, down 1.9% from a year ago.
Dry whey output fell to 78.8 million pounds, down 6.9 million pounds or 8.1% from July, and 3.5 million or 4.3% below a year ago. YTD is at 645.6 million pounds, up 2.1%. Stocks totaled 63.3 million pounds, down 6.1 million or 8.8% from July, and 4.2 million pounds or 6.3% below those a year ago.
Nonfat dry milk output fell to 133.9 million pounds, down 31.7 million pounds or 19.2% from July, but 12.3 million or 10.1% above a year ago. YTD powder was at 1.4 billion pounds, down 3.1%. Stocks fell to 306.5 million pounds, down 30.2 million or 9.0% from July, but were 27.7 million or 9.5% above a year ago.
Skim milk powder output crept up to 56.0 million pounds, up 5.2 million pounds or 10.2% from July, but down 16.5 million or 22.7% from a year ago. YTD SMP was at 332.7 million pounds, down 24.5% from 2021.
Cooperatives Working Together members accepted nine offers of assistance this week to capture sales of 1.2 million pounds of American-type cheese, 44,000 pounds of whole milk powder, and 342,000 pounds of cream cheese. The product is going to Asia, Oceania, and Central America through March 2023.
Green Bay-based American Dairy Coalition (ADC) reports that Wisconsin dairy farmers are receiving notifications from some cooperatives and milk buyers that new “market adjustments” will be deducted from their milk checks. Farmers will see 90 cents to $2.50 plus per hundredweight deducted from September milk checks and continue through the end of the year. The letter sent to producers cites rising costs and insufficient “make allowances,” according to the ADC.
The ADC says “A recent cost of processing study done for USDA by Dr. Mark Stephenson of UW Madison indicates that current make allowances already built into the USDA end-product pricing formulas are collectively about $1 per hundredweight short of covering costs to make the bulk Cheddar, butter, nonfat dry milk and whey that are surveyed monthly for the USDA pricing formulas.”
On the other hand, the cost of processing report described the difficulty in extracting the costs related to only those four bulk commodities because most dairy plants today make a range of products that are not included in the end-product pricing formulas. Those other products represent substantially more milk and may be sold by processors at higher prices without increasing the price they, in turn, pay to their farmers,” the ADC charged. “This appears to allow additional processor income to cover costs."
