Happy June Dairy Month consumers, but know that it is not a happy month for dairy farmers.
The U.S. Department of Agriculture announced the May federal order Class III benchmark milk price at $16.11 per hundredweight, down $2.41 from April due to sharply lower cheese and dry whey prices. This is $9.10 below May 2022 and is the lowest Class III price since August 2021.
The five-month Class III average stands at $17.99, down from $22.67 at this time a year ago, but it compares to $16.94 in 2021. The bottom line is, very few, if any, dairy farmers can make milk at current prices.
Late Friday morning Class III futures portend a June price at $15.33, July at $16.17 and August at $17.02, with a peak at $18.68 in November.
The May Class IV milk price is $18.10, up 15 cents from April but $6.89 below a year ago. Its five-month average is at $18.66, down from $24.44 a year ago but comparable to $14.54 in 2021.
StoneX dairy broker Dave Kurzawski called the situation “ugly” in the June 5 “Dairy Radio Now” broadcast. Farmers have told him that it feels like 2009, when milk prices plummeted, and he admitted, “I don’t have a great response to this.”
Typically, lows are put in, in May or June, he explained, so it’s a seasonal norm.
“The good news is that we are seeing a number of buyers step in to buy loads of cheese at the (Chicago Mercantile Exchange), and they are getting a fantastic deal,” he said.
That’s good for them, but the lower prices are attracting more export interest in third quarter, he said. The USDA also solicited bids to purchase 47 million pounds of cheese through June 5 and will award them June 14. He believes that purchase will all be made before Christmas and result in more price stabilization.
Corn and alfalfa hay prices climbed higher in April, according to the USDA’s latest Ag Prices report, and the all-milk price dropped some more. The milk feed ratio fell to 1.48, down from 1.56 in February, the lowest since July 2012’s 1.33 and comparable to 1.95 in April 2022. The all-time low was 1.02 in August 1974.
The all-milk price average fell for the sixth consecutive month, falling to $20.70 per hundredweight, down 40 cents from March and $6.30 below April 2022.
California’s all-milk price averaged $20.70, down 50 cents from March and $5.60 below a year ago. Wisconsin’s, at $20.40, was up a dime from March and $6.70 below a year ago.
The national corn price averaged $6.70 per bushel, up 3 cents from March, after dropping 13 cents the month before, but it is 37 cents per bushel below April 2022.
Soybeans were unchanged from March at $14.90 per bushel after dropping 20 cents the previous month, but they are 90 cents per bushel above a year ago.
Alfalfa hay soared to an average $287 per ton, up $20 per ton from March and $30 per ton above a year ago.
The April cull price for beef and dairy combined continued climbing, averaging $99.30 per cwt, up $3.60 from March after gaining $6.20 the month before, which also makes it $11.20 above April 2022 and $27.70 above the 2011 base average.
Income over feed costs in April were below the $8-per-cwt level needed for steady to increasing milk production for the third month in a row, according to dairy economist Bill Brooks of Stoneheart Consulting in Dearborn, Missouri. “Input prices were mixed when compared to all-time record high prices in April, but all three commodities were in the top three for April all time,” he said. “Feed costs were the highest ever for the month of April and the fourth highest all time.”
“For 2023, milk income over feed costs (using May 31 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $7.60 per cwt, a loss of 43 cents per cwt versus last month’s estimate,” Brooks said. “2023 income over feed would be below the level needed to maintain or grow milk production and down $4.39 per cwt from 2022’s level.”
“Milk income over feed costs for 2024 are expected to be $9.43 per cwt, a gain of $1.83 per cwt versus the 2023 estimate,” Brooks said. “Income over feed in 2024 would be above the level needed to maintain or grow milk production.”
Meanwhile, the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC said, “Dairy margins continued to erode over the second half of May on a further decline in milk prices that more than offset the impact of lower projected feed costs. In addition to abundant supplies of cheese, whey prices have also pressured Class III milk values as they continue to drop.”
The MW detailed the April Milk Production report, stating it showed “the slowest year-over-year growth since June 2022.” Production gains remained heavy in central and midwestern states with South Dakota, Kansas and Iowa up 7.7%, 5% and 2.9%, respectively.
“U.S. dairy producers are expected to suffer their worst losses this spring since the 2009 campaign that led to massive industry liquidation,” the MW said. “There are already indications of increased cow culling in western states and this will likely expand into Central and Midwest regions soon. In 2009, it took 13 months before there was a significant recovery in milk prices, so this process may take time.”
Corn planting was at 92% as of the week ending May 28, according to the USDA’s latest Crop Progress report. That’s up from 81% the previous week, 8% ahead of a year ago and 8% ahead of the five-year average. The corn was 72% emerged, up from 52% the previous week, 14% ahead of the previous year and 9% ahead of the five-year average. 69% was rated good to excellent, down from 73% a year ago.
Soybeans were 83% planted, up from 66% the week before, 19% ahead of a year ago and 18% ahead of the five-year average. 56% are emerged, 20% ahead of a year ago and 16% ahead of the five-year average.
HighGround Dairy’s Tuesday “Morning Huddle” said, “Corn futures have picked up steam against dry conditions in the Corn Belt, with no rain on the horizon in the two-week forecast. Farm Journal’s AgWeb reports that 26% of corn acres are presently impacted by drought. The growing season has just begun, with the most critical parts remaining, and soil moisture has been decent to aid emergence, so it is not time to panic yet. Weather will drive crop prices and could help or hurt dairy farmer margins, particularly those who purchase feed.”
The week ending May 20 saw 54,900 dairy cows go to slaughter, down 1,100 from the previous week but 2,000 head, or 3.8%, more than a year ago. Year-to-date, 1.281 million head have been culled, up 55,000, or 4.5%, from a year ago.
Tuesday’s GDT Pulse saw another 2.2 million pounds of Fonterra whole milk powder sold, same as on May 23, but at $3,100 per metric ton, down $50 from the last Pulse and down $95 or 3% from the May 16 GDT. HGD said, “With ample supplies outpacing weak global demand, there is little challenge for buyers to procure product, resulting in further WMP price declines.”
Cooperatives Working Together member cooperatives accepted 20 offers of export assistance this week that helped capture sales contracts for 1.2 million pounds of American-type cheese and 562,000 pounds of cream cheese. The product is going to customers in Asia, Central America, the Caribbean and Oceania, and will be delivered through September.
Block cheddar, in five successive declines, fell to $1.42 per pound Wednesday, the lowest CME price since May 11, 2020, when it traded at $1.3875. It regained 7.25 cents Thursday but gave some back Friday to close the Memorial Day holiday-shortened week at $1.43, down 4.75 cents and 84 cents below a year ago.
The barrels closed Friday at $1.5125, up 2.25 cents on the week, 73.25 cents below a year ago and an inverted 8.25 cents atop the blocks. Sales at the market of last resort totaled 25 loads of block for the week and 122 for the month of May, the highest monthly total in two years and up from 76 lots in April. Barrel sales totaled 35 for the week and 184 for the month, down from 212 in April.
To give a little dairy month perspective, a load of cheese is approximately 40,000 pounds. If you add May’s CME block and barrel sales, you get 306 loads of cheese or about 12.2 million pounds. That does not include the privately traded cheese. Keep in mind, it takes 10 pounds of milk to produce 1 pound of cheese. A gallon of milk weighs about 8.6 pounds.
Midwest cheesemakers are running full schedules, according to Dairy Market News. A number of plants worked through the holiday weekend, and plants that had been down for updating in recent weeks were back online. Cheese demand is mixed, but more processors are reporting upticks. Cheese inventories are moving somewhat briskly. Milk availability is “readily accessible,” and plants are turning spot milk offers away as they are already full. Mid-week spot milk prices ranged $11 to $4 under Class III, compared to $2.75 under to Class a year ago.
Retail and food service cheese demand is steady to lower in the West as some reports of decreased sales activity surfaced. Some cheese makers relay contract obligations are making heavy pulls on their supply. Inventories are available with production keeping moderately ahead overall. Export demand is steadier from Mexico and South America, compared to softer Asian demand, DMN said.
CME butter climbed to $2.4650 per pound Thursday, the highest since Dec. 22, 2022, but it closed Friday at $2.4450, up 1.50 cents on the week while 47 cents below a year ago. Sales totaled six cars for the week and 29 for May, down from 38 in April. A car of butter is also about 40,000 pounds.
Some butter plants churned cream through the weekend while others scheduled downtime. Contacts say, as Class II processing ticks up, along with temperatures, cream accessibility is not expected to remain as widely available as it is now. Butter demand is steady, but seasonal upticks are expected soon, DMN said.
Cream is widely available in the West, and cream multiples were largely unchanged this week. Butter production has been quieter as some facilities planned downtime for the holiday weekend and some cream shifted from butter making to ice cream in recent weeks. Food service demand is strong to steady, while retail demand is steady. Aside from interest from purchasers supplying butter to Canada, export activity is on the quieter end, according to DMN.
Grade A nonfat dry milk fell to $1.1550 Wednesday, then rallied Thursday and closed Friday at $1.17, unchanged on the week but 69.25 cents below a year ago. Six loads were sold on the week and 45 for the month, up from 18 in April.
Dry whey fell to 25.75 cents per pound Thursday and stayed there Friday, down 1.75 cents on the week and 3 cents below a year ago. Sales amounted to 37 loads on the week and a record 218 for the month of May, up from 142 in April.
In politics, the USDA’s Agricultural Marketing Service issued an invitation for additional proposals and issued an action plan on proposed amendments to pricing provisions of Federal Milk Market Orders.
The USDA said, “The National Milk Producers Federation has requested the USDA begin a rulemaking proceeding to consider proposals to amend pricing provisions in all Federal Milk Marketing Orders. The proposal requests USDA consider amending five provisions related to increasing manufacturing allowances, returning to the ‘higher of’ as the mover for Class I milk prices, updating the milk composition factors, removing barrel cheese from the Class III price formula, and updating the Class I price surface. … NMPF contends the dairy marketplace has changed substantially since the current market order pricing system was adopted in 2000, and pricing provisions should be updated to reflect current market conditions.”
“The proposal has not yet been approved for inclusion in a Notice of Hearing,” the USDA said. Furthermore, on May 30, the International Dairy Foods Association and the Wisconsin Cheese Makers Association provided additional information seeking to increase manufacturing allowances, as requested by USDA. Those proposals are now considered in conjunction with this request and may be viewed at https://www.ams.usda.gov/rulesregulations/moa/dairy/petitions.
NMPF responded immediately.
“We’re gratified that USDA recognizes the comprehensive nature of our proposal and are looking forward to it being considered in full because the whole of our plan adds up to more than the sum of its individual parts,” said NMPF President and CEO Jim Mulhern. “We will bring the same level of dedication and preparation to this part of the process that we did in drafting our own plan, which included more than 150 meetings and wide consultation across dairy producers and the entire industry.”
NMPF also voiced opposition to legislation introduced that the federation said would “increase U.S. vulnerability to infant formula supply disruptions by increasing U.S. reliance on imported formula and formula inputs. The legislation would unilaterally and permanently remove tariffs and tariff rate quotas on infant formula and infant formula base powder, resulting in job loss and foreign dependence.” More details are posted at the NMPF website.
