The “Mielke” Market Weekly

Prices head lower

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The October Federal Order Class III milk price headed down. The U.S. Department of Agriculture announced the benchmark price at $22.85 per hundredweight, down 49 cents from September but $6.01 above October 2023. The 10-month average is $18.82, up from $17.10 a year ago, but compares to $22.20 in 2022.

Late Friday morning Class III futures portended a November Class III of $20.25; December, $19.62; and January 2025 at $19.68 per cwt.

The October Class IV price is $20.90, down $1.39 from September, 59 cents below a year ago, and the lowest Class IV in five months. Its average stands at $20.71, up from $18.93 a year ago, and compares to $24.82 in 2022.

Butter and cheese stocks fell in September. The USDA’s latest cold storage report had Sept. 30 butter holdings at just under 303 million pounds, down 21.4 million or 6.6% from the August count, which was revised up 1.1 million pounds. But, stocks were up 36.4 million pounds or 13.6% from September 2023.

HighGround Dairy points out that this month’s data is the eighth consecutive year-over-year gain in butter inventories and the largest since May 2023.

American-type cheese stocks slipped to 782.8 million pounds, down 10.8 million or 1.4% from the August level, which was revised 6.3 million pounds lower, and was down 68.4 million pounds or 8.0% from a year ago.

The “other” cheese category, at 570.4 million pounds, was down 7.2 million pounds or 1.2% from the August count, which was revised 300,000 pounds lower, and was down 40.2 million pounds or 6.6% from a year ago.

The total Sept. 30 cheese inventory slipped to 1.38 billion pounds, down 18.3 million or 1.3% from August, and 108.2 million pounds or 7.3% below a year ago.  

The Oct. 25 Daily Dairy Report points out that cheese inventories have declined for seven consecutive months and September’s drop represents the largest year-over-year decline since mid-2014 and implies demand outpaced supply. Domestic demand has been lackluster, according to the DDR, but exports have soared to record-high levels this year and are playing a critical role in keeping cheese inventories in check.

Cash Cheddar block cheese closed Friday, Nov. 1, at $1.8375 per pound, down 6.25 cents on the week, lowest since May 31, 24.25 cents below where it stood Oct. 1, but still 17.25 cents above a year ago.

The barrels fell to $1.86 Thursday, lowest since Oct. 14, but finished Friday at $1.8675, down a quarter-cent on the week, down 27.75 cents from Oct. 1, 22.75 cents above a year ago, and 3 cents above the blocks. Sales totaled 12 lots of block on the week and 57 for October, up from 34 in September. Barrels totaled four on the week and 28 for the month, up from 21 in September.

Cheesemakers had mixed views on demand this week, according to Dairy Market News. Some Cheddar and/or Italian-style cheesemakers said customers were adding to orders, in fact a few may be oversold. Others said the bullish push over $2 per pound created hesitation, despite prices settling back since then. Barrel contacts say loads are moving briskly. Cheese inventories are balanced to tight. Milk availability mid-week was slightly tighter than previous weeks, with spot prices ranging 50 cents to $1.50 over Class III.

Western cheesemakers have a healthy demand for milk, however, milk is tighter in the Southwest as production is trending down. Domestic cheese demand is generally steady for most varieties, with Swiss demand stronger than a year ago. International demand is steady to stronger, with bookings for first quarter 2025 taking place, according to DMN.

Butter saw some ups and downs on the week but closed Friday at $2.67 per pound, 2.50 cents lower, 8 cents lower on the month, and 43.75 cents below a year ago. There were nine sales on the week and a whopping 318 for the month, up from 102 in September.

Butter makers say demand is on par with recent weeks. Prices in the $2.60-$2.70 range have given the incentive to re-enter the market, says DMN, though food service demand has been sluggish, particularly in the national chain sector. Butter production is busy, despite some plant downtime. Cream availability is wide open and offers are abundant. The bulls point to the potential of a strong seasonal retail push, while the bears suggest the seasonally atypical amounts of cream availability and food service sluggishness will keep downward pressure on near- and mid-term pricing.

Butter production is generally strong in the West. Cream is widely available, with some being bought and delivered to more eastern regions. Planned downtime is approaching for some and contributing to busy production. Butter demand from domestic and international buyers is steady, says DMN.

The powder closed Friday at $1.3775 per pound, up a quarter-cent on the week, up 2 cents lower from its Oct. 1 perch, and 19.25 cents above a year ago. There were 34 sales on the week and 120 for the month, up from 118 in September.

Dry whey was unchanged all week, holding at 60.50 cents per pound, a quarter-cent higher than its Oct. 1 print, and 21.75 cents above a year ago. There were four sales on the week at the Chicago Mercantile Exchange and 46 for the month, up from 38 in September.

A higher all-milk price and lower soybean prices nudged the September milk feed price ratio higher, advancing for the seventh time in the past eight months. The USDA’s latest ag prices report shows the September ratio at 3.00, up from 2.79 in August, and compares to 1.88 in September 2023.

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 3 pounds of dairy feed of that blend.

The all-milk price averaged $25.50 per cwt., with a 4.15% butterfat test, up $1.90 from August, which had a 4.09% test, and was $4.60 above September 2023, which had a 4.08% test. It is at its highest level since October 2022.

California’s average, at $23.80 per cwt., was up $1.10 from September and $3.10 above a year ago. Wisconsin’s, at $25.50, was up $2.50 from August and $5.40 above a year ago.

The national corn price averaged $3.98 per bushel, up 14 cents from August but $1.23 below a year ago. This is the first time since May that feed costs were up. Soybeans averaged $10.20 per bushel, down a dime from August and $3.00 per bushel below a year ago. Alfalfa hay averaged $172 per ton, down $3 from August and $53 per ton below a year ago.

Looking at the cow side of the ledger, the September average cull price for beef and dairy combined was at $136 per cwt., down $6 from August, but $22 above September 2023, and $64.40 above the 2011 base average.

Milk production margins moved to the highest level since September 2014 at $16.99 per cwt. and were $1.85 per cwt. above August, according to dairy economist Bill Brooks of Stoneheart Consulting in Dearborn, Missouri.

“Income over feed costs in September was just short of the record high set in September 2014 at $17.03, and above the $8 per cwt. level needed for steady to higher milk production for the eleventh month in a row,” he said. “Input prices were mostly lower in September with all three remaining in the top 11 for September all-time. Feed costs were the ninth highest ever for the month of September and increased five cents per cwt. from August.”

“Dairy producer profitability for 2023 in the form of milk income over feed costs, was $8.00 per cwt.,” said Brooks. “Profitability was $3.91 below 2022 and $1.72 lower than the 2018-22 average. In 2023, the decrease in milk income over feed costs was a result of the milk price decreasing more than feed prices. Income over feed was around the level needed to maintain or grow milk production.”

“Milk income over feed costs for 2024, (using Oct. 31 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $13.53 per cwt., a loss of 41 cents per cwt. versus last month’s estimate. Income over feed in 2024 would be above the level needed to maintain or grow milk output and up $5.53 from 2023’s level,” said Brooks.

Milk income over feed costs for 2025 are expected to be $14.41 per cwt., a gain of 88 cents per cwt. versus 2024, Brooks said. Income over feed would be above the level needed to maintain or grow milk production, and up 14 cents cwt. from last month’s estimate.

Meanwhile, the U.S. corn harvest was 81% completed, as of the week ending Oct. 27, according to the USDA’s latest crop progress report. That’s up from 65% the previous week and compares to 68% a year ago and 17% ahead of the five-year average. Soybeans were 89% harvested, up from 81% the previous week, 7% ahead of a year ago, and 11% ahead of the five-year average.

The Oct. 30 DDR said, “Beef prices have soared to record highs, and this dynamic will have a fundamental impact on the dairy industry for years. High beef prices have been underpinned by a shrinking national beef herd. As producers and ranchers faced persistent drought conditions and rising operating costs in recent years, many responded by reducing the size of their herd. As a result, the national herd is the smallest it has been in 73 years.”

Herd recovery will take years, said the DDR. “The higher prices have benefited dairy farmers who have bred at least a portion of their herd to beef bulls, resulting in a crossbred calf that can fetch a hefty price when sold to a feedlot.”

That has limited the number of dairy replacement heifers and will likely keep a lid on dairy expansion and U.S. milk production. Rabo Bank’s Lucas Fuess said the situation is unlike any before in the Nov. 4 Dairy Radio Now broadcast.

Milk production did turn positive in September, he said, and with the improved margins dairy farmers are seeing, Rabo Bank expects milk output to at least be flat or moving higher than a year ago for the rest of the fourth quarter and into 2025. 

He said, “Even if dairy farmers did want to expand their herd and grow cow numbers at a pretty quick rate to take advantage of those profits that have emerged, the cow situation is a little different than normal.” High prices for day old calves and for springer replacements are causing farmers to do some financial calculations, he said, and he believes it will prevent a quick resurgence in cow numbers and recovery in milk production, thus keeping milk prices relatively high.

New avian flu cases are being reported in California and Utah has joined the list of states dealing with it. StoneX said, “The larger sentiment seems concerned about demand as seasonal demand tends to decline heading into year-end.”

Dairy cow slaughter for the week ending Oct. 19 totaled 52,900 head, up 1,500 from the previous week, but 1,800 or 3.3% below a year ago. Year to date, 2,204,800 dairy cows had been culled, down 340,700 head or 13.4% from 2023.

In other news of interest, StoneX reported in its Oct. 30 Early Morning Update that the European Commission will impose countervailing duties on imports of electric vehicles from China. It seems likely that China will retaliate by confirming tariffs on EU agricultural imports under investigation (pork, in addition to cheese and cream). Earlier this month, the Ministry of Commerce decided to collect provisional anti-dumping duties on brandy in the form of security deposits.

“Only 18% of China’s cheese imports come from the EU,” said StoneX. “Some of that is high-end specialty product that they aren’t going to buy from the U.S., but it probably increases our ability to compete on mozzarella. From a longer-term perspective, the Chinese government is trying to encourage the Chinese industry to build cheese capacity,” said StoneX.

Tuesday’s Global Dairy Trade Pulse saw 4.8 million pounds of product sold, up from 4.7 million in the last Pulse. Pulse prices were higher with whole milk powder hitting $3,610, up 2.1% from the Pulse auction last week. This is the highest Fonterra C2 regular WMP price since September 2022.

“Skim milk powder was up 2% to $2,860 ($1.30 per pound), the highest level since May 2023. The strength seems largely driven by the demand side (China) as supply in New Zealand (and the other major exporters) has been improving,” said StoneX.

USDA’s Agricultural Marketing Service announced the launch of the Organic Dairy Product Promotion, allocating $15 million to expand access to organic dairy products in educational institutions and youth programs.

Michael Dykes, DVM, president and CEO of the International Dairy Foods Association, said, “IDFA applauds USDA on this new effort to increase consumption of organic dairy products among children and young adults. The Dietary Guidelines for Americans highlights that between 68% and 76.2% of school-age males and between 77.4% and 94.3% of school-age females are not consuming enough dairy.

Programs like the ODPP will work to improve access to nutritious dairy products for children and young Americans while building partnerships between dairy businesses and school districts. We encourage USDA to continue to focus on creative ways to increase consumption of nutritious dairy foods including conventional, organic, lactose-free, and value-added dairy, especially among communities that historically under consume nutritious dairy.”

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