Agriculture Secretary Sonny Purdue kicked off World Dairy Expo in Madison this week, telling dairy farmers they will have to adapt to survive. He said “It’s very difficult in the economy of scale, capital needs, all of the environmental regulations and everything else to survive milking 40, 50, 60 or even 100 cows.”
    HighGround Dairy’s Lucas Fuess reported in the Oct. 7 Dairy Radio Now broadcast that it was difficult to hear that sentiment but it is reality and “a wakeup call to make sure farmers are doing everything they can to keep costs down and continue to be competitive.”
    He said the sentiment was better at Expo this year, due to the rise in milk prices, and says HighGround has a good outlook the next few months which “hopefully will save some of the struggling dairies.” He said it was interesting to compare the Secretary’s comments to some of the programs contained in the Farm Bill as HighGround believes smaller dairies can benefit greatly from some of them such as the Dairy Revenue Protection and newly named Margin Insurance programs.
    Fuess sees continued tariff challenges on the horizon such as the latest battle with the EU and with China, even as trade officials meet Oct. 10 in Washington. “Hopefully some tariff resolution will come soon,” he concluded, “And be able to increase U.S. dairy exports, push that milk price a little higher, and stop some of the struggles that these small dairy farms are seeing.”
    Fuess’ EU reference regarded a ruling by the World Trade Organization which allows the U.S. to implement tariffs on $7.5 billion of imports from the EU in response to its subsidies of Airbus. The U.S. Trade Representative stated that a 10% tariff will be levied on European aircraft and 25% on agricultural goods including butter and cheese, as well as industrial products and other imports.
    Meanwhile, the weighted average of products offered in Tuesday’s Global Dairy Trade auction (GDT) inched 0.2% higher, following the 2.0% jump on Sept. 17. Sellers brought 85.4 million pounds of product to the market, up from 82.3 million in the last event.
    Buttermilk powder led the charge, up 6.7%. It was not traded in the last event. Skim milk powder followed, up 2.7%, after a 3.4% gain last time. Lactose was up 1.8%, after jumping 5.6%, and rennet casein was up 0.7%, after slipping 0.1%.
    Unfortunately, GDT Cheddar cheese led the losses, down 3.4%, following a 0.4% gain last time. Whole milk powder was off 0.2%, after gaining 1.9% last time. Butter was also down 0.2%, after a 2.7% gain, and anhydrous milkfat was unchanged after inching 0.6% higher last time.
    FC Stone equated the GDT 80 percent butterfat butter price to $1.8253 per pound U.S. CME butter closed Friday at $2.1850. GDT Cheddar equated to $1.6860 per pound, down 5.9 cents and compares to Friday’s CME block Cheddar at $1.9925. GDT skim milk powder averaged $1.2130 per pound and compares to $1.1791 last time. Whole milk powder averaged $1.4248. CME Grade A nonfat dry milk closed Friday at $1.1450 per pound.
    Speaking of higher milk prices, the Agriculture Department announced the September Federal order Class III benchmark at $18.31 per hundredweight, up 71 cents from August, $2.22 above September 2018, and the highest it has been since November 2014. It compares to California’s September 2018 4b cheese milk price of $15.62 and equates to $1.51 per gallon, up from $1.38 a year ago. The nine month Class III average stands at $16.11, up from $14.62 at this time a year ago and compares to $16.12 in 2017.
    Late Friday morning Class III futures portended an October price at $18.32; November, $18.01; and December at $17.37, which would result in a 2019 average of $16.56, up from $14.61 in 2018 and $16.17 in 2017. The peak in 2020 was $17.47 in September.
    The September Class IV price is $16.35, down 39 cents from August and the lowest since May, but is $1.54 above a year ago. Its 2019 average stands at $16.21, up from $13.95 a year ago and $15.51 in 2017.
    You’ll recall that preliminary data showed August 50-State milk output at 18.3 billion pounds, up just 0.2% from August 2018. The August Dairy Products report shows that more milk went to the cheese vat. Total cheese output hit 1.11 billion pounds, up 1.6% from July and 2.2% above August 2018. Year-to-date output is at 8.68 billion pounds, up just 0.9% from a year ago.
    Wisconsin produced 290.5 million pounds of the total, up 2.9% percent from July and 2.0% above a year ago. California output fell to 199.6 million pounds, down 5.2% from July and 5.7% below a year ago. Idaho contributed 88.1 million pounds, up 1.1% from July and 14.8% above a year ago. Minnesota output slipped to 59.8 million pounds, down 1.1% from July and 2.3% below a year ago. New Mexico, at 90.5 million, was up 18% from July and 20.2% above a year ago.
    Italian cheese totaled 457.1 million pounds, down 1.8% from July but 0.8% above a year ago, and brought year to date output to 3.75 billion pounds, up 2.2%
    American type totaled 457.7 million pounds, up 4.7% from July and 5.1% above a year ago, first gain all year says FC Stone, and a record high for any one month of production in almost 100 years. YTD is 3.0 billion pounds, down 1.5%.
    Cheddar, the cheese traded at the CME, totaled 322.3 million pounds, up 14.4 million pounds or 4.7% from July and 10.3 million pounds or 3.3% above a year ago. YTD Cheddar is at 2.5 billion pounds, down 2.3%.
    Butter output fell to 136.4 million pounds, down 6.1 million pounds or 4.3% from July but was 2.8 million pounds or 2.1% above a year ago. YTD butter is at 1.28 billion pounds, down 0.8% from 2018.
    Yogurt output, at 362.6 million pounds, was down 8.5% from a year ago, with YTD at 2.9 billion pounds, down 3.1%.
    Dry whey totaled 84.5 million pounds, down 1.9% from July but 7.2% above a year ago, with YTD at 637.4 million pounds, down 8.8%. Stocks totaled 72.4 million pounds, up 7.1% from July but 1.8% below those a year ago.
    Nonfat dry milk output totaled 132.2 million pounds, down 21.4% from July but 2.8% above a year ago. YTD powder is at 1.3 billion pounds, up 1.7% from 2018. Stocks fell to 269.8 million pounds, down 18.9 million or 6.5% from July and were 10.7 million pounds or 3.8% below the 2018 level.
    Skim milk powder climbed to 51.4 million pounds, up 14.7 million or 40.0% from July and was 3.8 million or 7.9% above a year ago. YTD skim hit 324.7 million pounds, down 14.2% from a year ago.
    After dropping 9 1/2-cents the previous week, the CME Cheddar blocks climbed back to $2.02 per pound Thursday but closed the first Friday of October at $1.9925, 3 3/4-cents higher on the week and 34 1/4-cents above a year ago. The barrels finished at $1.79, up 13 1/2-cents and 42 1/4-cents above a year ago. The spread fell to 20 1/4-cents. 11 cars of block and 23 of barrel were sold.
    Milk offers are few and far between in the Midwest, according to Dairy Market News, and spot milk prices ranged from Class to $1.50 over. Cheese demand reports were more positive and some expect demand to remain strong the rest of the year and into 2020. Cheese production is slower due to scanter milk supplies.
    Western contacts report that current price trends are taking U.S. cheese out of the loop when it comes to international sales. Others suggest that export demand has improved. Block cheese inventories were reported as well-adjusted, whereas barrel cheese supplies are substantial.
    Butter closed the week at $2.1850 per pound, up 3 3/4-cents but 10 1/2-cents below a year ago, with 15 trades occurring.
    Central butter manufacturing is steady, says DMN. Cream remains available and in a comfortable price range for butter plants. Inventories are reportedly in balance and will meet the increase in ordering expected near term. But, contacts do not expect cream to remain at current availability for long. Cream cheese production is expected to dip into the cream pool. Butter markets are steady, edging on bearish, but some contacts foresee continued price drops. Recent storage and market reports did not dampen the market tone as much as some expected, according to DMN.
    Western contacts suggest the butter market has a “downside feel.” “Even now, when market activity is usually at its annual peak, demand is less than hoped for,” says DMN. Buyers have filled some of their required purchases, according to contacts, but can wait for deals to finish off fourth quarter needs. Cream is readily available and butter inventories, while being drawn down seasonally, are larger than preferred.
    FC Stone warned in its October 1 Early Morning Update; “The likelihood of seeing sub-$2.00 butter prices by the end of fourth quarter is growing. Strong production and strong imports have resulted in larger than expected butter stocks that look like they are going to drag CME prices lower.”
    Spot Grade A nonfat dry milk closed Friday at $1.1450 per pound, highest CME price since March 2, 2015, up 3 1/2-cents on the week and 28 1/2-cents above a year ago, with 11 cars exchanging hands for the week.
    Weaker butter prices are being offset by firming nonfat dry milk prices, according to FC Stone, which are leaving Class IV prices in a holding pattern for now. “U.S. powder continues to find underpinning support principally in global demand that seems to be improving by the week lately.”
    CME dry whey closed Friday at 32 3/4-cents per pound, down 2 cents and 23 1/2-cents below a year ago, with a whopping 80 cars sold on the week.
    The whey market is heavily influenced by African swine fever which has devastated the world’s largest hog herd, namely China. The Daily Dairy Report’s Sarina Sharp wrote in the Sept. 27 Milk Producers Council newsletter that “Amidst sky-high pork prices producers are surely looking to boost production. They are investing in piglet health which would likely boost whey purchases.”
    She reports that “Chinese whey imports were just shy of 100 million pounds in August, highest volume since January and just 3.6% less than in August 2018. However, there are still reasons to be concerned about global demand for feed whey. The Chinese pig herd is considerably smaller than it was a year ago, and the disease is spreading quickly through South Korea, Vietnam, and the rest of Southeast Asia.”
    Back on the home front, the USDA will do another round of “trade mitigation purchases” and has issued a timeline for continued purchases into 2020. Volumes were not listed, says FC Stone but “They are talking about buying print butter, string cheese, 1- and 2-pound Cheddar chunks, instant nonfat dry milk and gallons and half-gallons of milk. Since it is all consumer type package sizes, we assume all of this would be going to food shelves and pantries.”
    Finances on U.S. dairy farms continue to improve. A higher All Milk price and lower feed prices nudged the August milk feed price ratio higher for the second month in a row. The latest Ag Prices report put the ratio at 2.26, up from 2.16 in July and compares to 2.06 in August 2018.
    The U.S. All-Milk price averaged $18.90 per hundredweight (cwt.), up 20 cents from July and $2.80 above August 2018. California’s All Milk price was $18.70, up a dime from July and $2.85 above a year ago. Wisconsin’s, at $19.10, was up 30 cents from July and $2.80 above a year ago.
    The national average corn price averaged $3.93 per bushel, down 23 cents from July but 57 cents per bushel higher than August 2018. Soybeans averaged $8.22 per bushel, down 16 cents from July and 37 cents below a year ago. Alfalfa hay averaged $179 per ton, down $4 from July but $2 per ton above a year ago.
    Looking at the cow side of the ledger; the August cull price for beef and dairy combined averaged $68.30 per cwt., up $1.30 from July, $5.30 above August 2018, but $3.30 below the 2011 base average of $71.60 per cwt.
    This week’s Crop Progress report shows 43% of the U.S. corn crop was rated mature, as of the week ending September 29, down from 84% a year ago and 30% behind the five year average. 11% has been harvested, down from 25% at this time a year ago and 8% behind the five year average. 57% was rated good to excellent, down from 69% a year ago.
    7% of U.S. soybeans have been harvested, down from 22% behind a year ago and 13% behind the five year average. 55% are rated good to excellent, 13% behind a year ago.
    16% of the cotton has been harvested, down from 19% a year ago but 2% ahead of the five year average. 40% of the cotton is rated good to excellent, down from 42% a year ago.
    Cooperatives Working Together (CWT) helped members capture sales of 354,944 pounds Cheddar and Monterey Jack cheese, 149,914 pounds of cream cheese, and 3.3 million pounds of whole milk powder. The product is going to customers in Asia and South America through January and brings CWT’s 2019 exports to 42.6 million pounds of American-type and Swiss cheeses, 277,782 pounds of anhydrous milkfat, 4.5 million pounds of butter (82% milkfat), 5.0 million pounds of cream cheese and 42 million pounds of whole milk powder. They represent the equivalent of 848.2 million pounds of milk on a milkfat basis.