Class III benchmark milk price of 2023 turns south

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The final Class III benchmark milk price of 2023 headed south. The U.S. Department of Agriculture announced the federal order Class III price at $ 16.04 per hundredweight, down $1.11 from November, $4.46 below December 2022 and the lowest Class III since July. That put the 2023 Class III average at $17.02, down from $21.96 in 2022 and compares to $17.08 in 2021.

Late Friday morning Class III futures portend a January price of $15.12, February, $15.59; and March at $16.25, with the peak at $18.45 in November.

The December Class IV price is $19.23, down $1.64 from November, $2.89 below a year ago and the lowest since September. The 2023 Class IV average is $19.12, down from $24.47 in 2022 but compares to $16.09 in 2021.

Blame cheese prices for the Class III fall, said Rabo Bank’s Lucas Fuess. Speaking in the Jan. 8 Dairy Radio Now broadcast, Fuess said cheese prices fell below $1.40 per pound Christ-mas week and remain well below long-term averages. He attributed that to an adequate supply and muted demand.

First quarter will be the low point as demand recovers, he said, and the lower milk supply will help as well. Milk output is down in the U.S. and globally, down significantly in October in Europe, and Fuess expects that to remain the case in the first half of 2024. New Zealand output may be higher on a solids basis, he said, but not extraordinarily. “We wait for global demand to return,” Fuess said. “There is hope that 2024 will turn out to be a better year than 2023.”

Checking Chicago, as traders awaited the November dairy products report Friday afternoon, the cheddar blocks started 2024 with a $1.4350 per pound close the first Friday of the New Year, down 3.5 cents on the holiday-shortened week and 62 cents below a year ago when they had fallen 8 cents to $2.0550.

The barrels, after climbing to $1.44 Tuesday, finished Friday at $1.41, up a penny on the week, 31.50 cents below a year ago and 2.50 cents below the blocks. Sales for the week amounted to four loads of block and 26 of barrel.

Dairy Market News reports that cheese demand is somewhat steady in the Midwest. Retail cheddar ordering remains at seasonal levels. There are extra loads but inventories are not “disconcerting.” Milk availability reached seasonal highs into Christmas week and early New Year’s week. Spot prices were still as low as $8-under Class. This time last year was near the beginning of a long $10-under Class stretch that lasted into the summer months. Contacts do have concerns, but most expect milk prices to move nearer to Class III “as the holidays grow more distant in the rearview mirror,” DMN said.

Western retail cheese demand is steady with food service remaining softer than retail. Bottling demand was picking up again, but cheese manufacturers relay that Class III milk is readily available. Cheese demand from international buyers is moderate though U.S. prices are more favorable for better export demand.

Cash butter climbed to $2.6850 per pound Tuesday, highest since Nov. 15, 2023, but it closed Friday at $2.5750, down 9 cents on the week and 19.25 cents above a year ago. There were 11 sales logged on the week.

Cream availability is near holiday quantities for churning in the Midwest, and Class II and Class III demand for cream remains sluggish. Butter makers are getting offers at multiples around 1-1.10. Plants are running at or near capacity and plan to hold that pace for a while. Some ran into maintenance backups Christmas week which put even more pressure on cream handlers in the region. Butter demand is quiet but meeting seasonal expectations. Contract bulk butter prices for 2024 remain in similar territory to 2023 values, DMN said.

Cream supplies remain plentiful in the West, but most churns are running less than full capacity though steady. Butter inventories are tighter compared to last year but at comfortable levels. Demand for retail and bulk butter is steady overall. Some spot buyers are holding off purchases, waiting for lower price movement.

Grade A nonfat dry milk closed Friday at $1.1725 per pound, up a quarter-cent on the week but 12.50 cents below a year ago, with 19 sales on the week.

Dry whey finished 2.75 cents higher on the week Friday, closing at 41.25 cents per pound, highest since Nov. 15, 2023, 2.25 cents above a year ago, with only two sales on the week.

The week ending Dec. 23, 2023, had 55,800 dairy cows go to slaughter, down 900 from the previous week and 1,200, or 2.1%, below a year ago. Year-to-date, 3,033,300 head had been sent to slaughter, up 39,100, or 1.3%, from a year ago.

Falling corn and hay prices and another small gain in the all-milk price moved the milk feed price ratio higher for the fifth month in a row. The USDA’s latest ag prices report put the October ratio at 2.12, up from 2.03 in October and 1.92 in November 2022, the highest since January 2022.

The index is based on the current milk price in relationship to feed prices for a ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. One pound of milk would purchase 2.12 pounds of dairy feed of that blend.

The all-milk price average increased for the fourth month in a row, hitting $21.70 per hundredweight, up 10 cents from October but $3.70 below November 2022.

California’s average at $21.80 per cwt was up 20 cents from October but $3 below a year ago. Wisconsin’s, at $19.80, was up 40 cents from October and $4.20 below a year ago.

The national corn price averaged $4.66 per bushel, down 27 cents from October, after falling 28 cents the previous month, and $1.83 per below November 2022.

Soybeans averaged $13 per bushel, up 30 cents, after dropping 50 cents the previous month, but were $1 per bushel below a year ago.

Alfalfa hay fell to $207 per ton, down $10 per ton from October and $60 below a year ago.

Looking at the cow side of the ledger, the November cull price for beef and dairy combined slipped to an average $104 per cwt, down $4 from October, $25.60 above November 2022 and $32.40 above the 2011 base average.

Milk production margins were the highest of 2023 by 51 cents over October, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri. “Income over feed costs in November were above the $8 per cwt level needed for steady to higher milk production for the third time since January,” Brooks said. “Input prices were lower, but all three commodities were in the top five for November all time. Feed costs were the fifth highest ever for the month of November.”

“Milk income over feed costs for 2023, using Dec. 29 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay, are expected to be $8.07 per cwt, up 11 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 $3.84 per cwt from 2022’s level.”

Milk income over feed costs for 2024 are expected to be $12.03 per cwt, a gain of $3.96 versus the 2023 estimate. Income over feed in 2024 is 17 cents per cwt higher than last month and would be above the level needed to maintain or grow milk production, according to Brooks.

“Dairy margins were flat over the last half of December with little feature in either the milk or feed markets that have languished near recent lows,” according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.

“Increased cheese production as more plants come online in the U.S. has depressed the cheese market, although there are hopes that exports may become more competitive in the new year,” MW said.

“U.S. cheese exports are expected to increase to 465,500 metric ton in 2024 according to USDA, up 8.1% from the prior year as new processing capacity and lower cheese prices will improve U.S. competitiveness, particularly to Asian markets,” MW said.

Exports are expected to improve for other dairy products as well, according to MW. “Milk fat exports are expected to increase 12.5% to 41,400 metric ton because of slower exports from Oceania and the European Union, while exports of nonfat dry milk and skim milk powder are expected to rise to a record 837,500 metric ton, up 3.4% from 2023,” MW said.

“Milk production has been declining in the EU as rising costs, increased environmental regulations and lower milk prices have led many producers to cease operations,” MW said. “October milk output declined 1.7% year-over-year in the EU and UK, and combined output across the five main global dairy exporters declined 1.2% which represented the third consecutive month of lower year-over-year declines and the largest drop since May 2022.”

The Jan. 2 Global Dairy Trade Auction started 2024 with its weighted average up 1.2%, following a 2.3% advance Dec. 19 and 1.6% gain Dec. 5. Traders brought 57.8 million pounds of product brought to market, down from 60.4 million Dec. 19 and the lowest since July 18, 2023. The average metric ton price slipped to $3,363, down from $3,388 Dec. 19.

Whole milk powder led the gains this time, up 2.5%, following a 2.9% gain Dec. 19. Butter was up 2.1%, after leading the gains last time with a 9.9% jump.  Anhydrous milkfat inched 0.2% higher, same as Dec. 19.

Lactose was down 5%. Cheddar was down 2.4%, after jumping 5.9% last time. Skim milk powder slipped 0.9%, after falling 1.3%, and buttermilk powder was off 0.1%.

StoneX said the GDT 80% butterfat butter price equates to $2.4401 per pound, up 2.5 cents from the Dec. 19 event, and compares to CME butter which closed Friday at a pricy $2.5750. GDT cheddar, at $1.8892, was down 4.5 cents and compares to Friday’s CME block cheddar at a bargain $1.4350. GDT skim milk powder averaged $1.1850 per pound, down from $1.1885, and whole milk powder averaged $1.4923 per pound, up from $1.4549. CME Grade A nonfat dry milk closed Friday at $1.1725 per pound.

“Fonterra’s contract two benchmark WMP and SMP prices were both up 2.2% from the previous Pulse auction,” StoneX said. “This is the sixth week of continuously higher WMP price while SMP remains in the $2,500-$2,600 range that it has been in since mid-November. We would argue that the higher prices, particularly for WMP, are supportive for dairy prices around the world from a trend perspective, but the range bound (and relatively cheap) SMP won’t spark much strength in U.S./EU prices.”

“North Asia purchases, which includes China, were weaker than both year-ago levels and last event,” StoneX said. “Southeast Asian demand fell from last year but was stronger than last event. Total volume available on the auction was down nearly 6,000 metric ton from last year’s level, but volume actually sold was down 7,000 metric ton. Typically smaller purchasing regions like Europe, Africa and the Middle East picked up some of the volume not purchased by Asian regions.”

Cooperatives Working Together member cooperatives finished of 2023 accepting eight offers of export assistance that helped them capture sales contracts for 5.2 million pounds of American-type cheese and 340,000 pounds of cream cheese. The product is going to customers in Asia, Middle East-North Africa and Oceania through May.

CWT’s year-end exports totaled 58.4 million pounds of American-type cheeses, 1.1 million pounds of butter, 46,000 pounds of anhydrous milkfat, 39 million pounds of whole milk powder and 9.1 million pounds of cream cheese. The products went to 24 countries and were the equivalent of 922.1 million pounds of milk on a milkfat basis, according to CWT.

The USDA will reconvene the national public hearing to consider proposals seeking to amend uniform milk pricing formulas in all 11 Federal Milk Marketing Orders Jan. 16. If the hearing is not completed by Jan. 19, it will reconvene Jan. 29, and held each weekday. If not completed by Feb. 2, the hearing will reconvene at a later date, the USDA said. The process began Aug. 23, 2023, and is being held in Carmel, Indiana.

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