The last federal order Class III benchmark milk price of 2022 was announced at $20.50 per hundredweight, down 51 cents from November 2022 but $2.14 above December 2021. It is the highest December Class III price since 2007. The 2022 average is $21.96, up from $17.08 in 2021 and $18.16 in 2020, a penny off of the U.S. Department of Agriculture’s latest projection. The USDA projects a 2023 average at $19.80.
Late Friday morning, Class III futures portended a January price at $19.28; February $18.40 and March at $18.34, with a $19.90 peak in October.
 The Class IV price is $22.12, down $1.18 from November 2022, $2.24 above a year ago and the lowest Class IV since December 2021. Its 2022 average is $24.47, up from $16.09 in 2021 and $13.49 in 2020. USDA projects $20.10 in 2023.
The first Global Dairy Trade event of 2023 saw its weighted average drop 2.8%, following the 3.8% plunge Dec. 20, 2022, and 0.6% gain Dec. 6, 2022. Traders brought 73.8 million pounds of product to market, up from 63.4 million Dec. 20, 2022, and the most since Nov. 3, 2020. The average metric ton price fell to $3,365, down from $3,493 last time.
Buttermilk powder provided the biggest pull on the average, down 12.9%, after not trading Dec. 20, 2022. Anhydrous milkfat was down 5.1%, after falling 2.2% last time, and butter was down 2.8%, following a 2.6% descent. Skim milk powder was down 4.3%, following a 4.8% plunge, and whole milk powder was off 1.4%, after dropping 4%. GDT cheddar was down 2.7% after slipping 0.7% last time.     
StoneX Dairy Group said the GDT 80% butterfat butter price equates to $1.9822 per pound, down 5.5 cents, after losing 5.4 cents last time, and compares to CME butter which closed Friday at $2.3825. GDT cheddar, at $2.1274, was down 5 cents, and compares to Friday’s CME block cheddar at $2.0550. GDT skim milk powder averaged $1.2874 per pound, down from $1.3447 (5.7 cents), and whole milk powder averaged $1.4552 per pound, down from $1.4723 (1.7 cents). CME Grade A nonfat dry milk closed Friday at $1.2975 per pound.
StoneX’s Dustin Winston said total supply on offer increased 4,000 metric tons in this event, and with a corresponding increase in purchase quantity of nearly 5,000 metric tons, it is hard to say that demand is down. More likely, it seems that market buyers are unwilling to pay up for volume as they are not in such a dire need for product. Purchase volume for every region except Southeast Asia, said Winston.
Nui Market’s Ron O’Brien said global markets enter 2023 on the defensive. Speaking in a Dairy Radio Now broadcast, O’Brien said buyers have the leverage, mostly due to pressure from the Southern Hemisphere’s flush inventory which remains on offer.
He expects lackluster demand out of Asia and increasing supplies in Oceania to continue to pressure CME spot and front month futures lower. Where the back months are higher than the front months must play out to inspire spot demand to carry forward, specifically for butter and non-fat dry milk, O’Brian said.
Inflation fears and supply chain nightmares are beginning to recede, he said, but it’s a double-edged sword for dairies as end users are now interested in less safety stock and are re-evaluating future budgets due to demand destruction.
Basis risk continues to plague margins on all sides of the market, according to O’Brien. Output prices based on CME spot markets and input prices based on federal order milk markets continue to diverge. Wide variances in CME futures market settlements and actual milk checks. Historical variances in the block-barrel spread. And worse enough corn-basis variances of as much as $2 to $3 when prices are already near $7, he said.
Valley Milk in Turlock, California, is Nui’s newest platform addition, along with Seattle-based Darigold, joining Hilmar and Milk Specialties Global to bring additional value to the marketplace by bringing buyers and sellers together, further increasing transparency for all that are involved, he concluded.
Meanwhile, U.S. dairy exports remained strong in November 2022. USDA’s latest data shows cheese exports totaled 82.7 million pounds, up 12.9% from a year ago.
Butter, at 18.6 million pounds, was up 160%, with shipments to Canada at an all-time high, although unit value was incredibly low, according to HighGround Dairy, suggesting some sort of blended fat, alternative item or mislabeled product. Butter demand from Bahrain also remained strong.
Nonfat/skim milk powder exports totaled 155.2 million pounds, down 3%. Dry whey, at 43.8 million pounds, was up 17.4%.
HighGround Dairy said this was the highest November volume on record, with the largest gains to Mexico, primarily on nonfat dry milk, and then China.
 Dairy margins weakened further over the last half of December 2022 as milk prices continued to drop while projected feed costs moved higher, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. A build in milk production during November 2022 along with cold storage data from USDA both pressured milk prices, according to the MW.
The MW reported highlights from the milk production and cold storage reports, which I have previously reported, crediting the increase in milk output to a combination of increased efficiency from a larger milking herd.
The cold storage report reflected a seasonal decline in dairy product stocks during the month, although the drawdown was not as large as in previous months as high prices are beginning to negatively impact demand, the MW concluded.
CME cheese prices plunged in the shortened first week of 2023. The cheddar blocks lost 13.75 cents the first day of trading, then fell to $1.9725 per pound Wednesday, lowest since Nov. 1, 2022, but rallied, jumping 7.50 cents Friday to close at $2.0550, down 8 cents on the week but 6 cents above a year ago.
The barrels fell to $1.7150 Wednesday, lowest since Dec. 21, 2022, but closed Friday at $1.7250, 13.25 cents lower on the week, 14 cents below a year ago when they jumped 15.50 cents, and are 33 cents below the blocks. Sales totaled five cars of block on the week and 11 of barrel.
Midwest cheesemakers are running busy schedules, according to Dairy Market News, as spot milk prices remained as low as they were during the holiday weeks. Cheese demand varied, with some cheesemakers saying demand slackened in recent weeks, while others said it is steady week to week. Cheese availability has grown. Late in the year, contacts suggested extra cheese was mostly spoken for, but now stocks are, in some cases, growing, said DMN.
StoneX reported the greatest discounts on spot milk loads were around $10 under Class, but it is unlikely that offers are able to stay that low.
Western cheese demand is steady to lighter from food service and retail, and international demand is mixed. Lower prices from global suppliers is contributing to the lighter demand, while some report strong sales to Asian markets. Milk remains available for cheesemakers, and some are purchasing it below Class prices. Schedules are busy, said DMN, but some plants continue to report delayed deliveries of supplies and labor shortages.
Spot butter, after holding Christmas week and most New Year’s week at $2.38 per pound, inched up a quartercent Friday to close at $2.3825, 36 cents below a year ago. There were no sales on the week.
Cream is reportedly widely available from within and outside the Midwest. Multiples are a little steeper in some cases but still discounted when compared to off-holiday seasons. Butter output, with the widely accessible cream, is busy, and plants are running at capacity when staffing and hauling cooperates. Butter demand lightened some late in the year and the first week of 2023, said DMN, and market sentiment has clearly settled down from the fall’s bullish stint. Contacts said market timbre is uncertain at the moment.
There are a number of factors involved, but strong production pushes and plentiful cream supplies are not expected to firm market tones as demand has quieted in recent weeks.
Demand for cream in the West is being outpaced by ample cream availability to start the year. Cream is being used internally by some butter producers as opposed to selling it at start of the year prices. Cream delivery delays are due to transportation issues, but butter output is strong and outpacing demand.
StoneX said with near term demand for physical butter and nonfat dry milk appearing mostly satiated, they continue to believe that demand for fat will continue to be strong in January. It’s retail demand that is the problem as prices for a pound of butter hit $6, $7, $8 or more depending on the retailer and brand. Anecdotal conversations point to relatively weak immediate demand for NFDM, but the prospect of buyside interest down the road a bit seems to be improving.
Grade A nonfat dry milk was not helped by the week’s GDT and closed Friday at $1.2975 per pound, down 3.75 cents, lowest since Aug. 27, 2021, and 37 cents below a year ago. There were four sales reported on the week.
Dry whey held steady for three sessions but finished the week at 39 cents per pound, down 2.50 cents and 36.75 cents below a year ago, with two sales reported.
Dairy farmers saw a slight improvement in one of the measures of profitability. The November 2022 milk feed price ratio inched higher for the third month in a row. The latest Ag Prices report shows the ratio at 1.93, up from 1.92 in October, and compares to 1.92 in November 2021.
The all milk price average slipped to $25.60 per cwt, down 30 cents from October, but was $4.90 above November 2021.
California’s price averaged $26.40 per cwt, down 20 cents from October, but $6 above a year ago. Wisconsin’s, at $23.60, was down 80 cents from October but $3 above a year ago.
The November 2022 national corn price averaged $6.49 per bushel, down a penny from October, after falling 59 cents the previous month but is still $1.23 per bushel above November 2021.
Soybeans crept up $14 per bushel, up 50 cents from October, after dropping 60 cents a month ago and were $1.90 per bushel above November 2021.
Alfalfa hay dropped $14 per ton from October after jumping $4 a month ago and hit a record high. The November 2022 average fell to $267 per ton, still $54 per ton above a year ago.
The November 2022 cull price for beef and dairy combined averaged $78.40 per cwt, down another $5.70 from October, after dropping $7.10 the previous month, but is $9.20 above November 2021 and $6.80 above the 2011 base average.
Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, said income over feed costs in November were above the $8 per cwt level needed for steady to increasing milk production for the 14th month running.
Alfalfa hay prices set a new all-time record high price in November 2022, and all three commodities were in the top two for November all-time high prices. Feed costs were the highest ever for the month of November and the ninth highest all time. The all-milk price was able to stay in the top 10 at the eighth highest recorded, according to Brooks.
For 2022, milk income over feed costs (using Dec. 30, 2022, CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $12.17 per cwt, a gain of 48 cents per cwt versus the previous month’s estimate. 2022 income over feed would be above the level needed to maintain or grow milk production and $4.38 per cwt above the 2021 level, Brooks said.
Looking at 2023, milk income over feed costs (using Dec. 30, 2022, CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $8.18 per cwt, a loss of 59 cents per cwt versus last month’s estimate. 2023 income over feed would be above the level needed to maintain or grow milk production, Brooks said, but down $3.99 per cwt from 2022’s estimate.
In politics, dairy farmers will be slighted by the Environmental Protection Agency, according to the National Milk Producers Federation President and CEO Jim Mulhern. NMPF is disappointed that once again dairy farmers, who every day strive to be leaders in environmental stewardship, may need to live under a WOTUS rule that is cumbersome, unclear and overly complicated, said Mulhern. Because the EPA’s most recent iteration fails to resolve what is now a 50-year struggle to define what constitutes a water body subject to federal regulation under the Clean Water Act, members will face continued uncertainty as they attempt to comprehend and comply with unclear regulations.
NMPF was pleased with the Navigable Waters Protection Rule and disappointed when it was revoked. NMPF is also disappointed that EPA failed to listen to numerous agriculture stakeholders that called on the agency to stay rulemaking on a new WOTUS rule until the Supreme Court ruled on the Sackett case, expected this spring.
NMPF cautioned that EPA’s latest iteration is not a complete return to the unworkable rule adopted in 2015. EPA’s listed exemptions at least try to address some of agriculture’s concerns over lack of clarity. Even so, EPA is reintroducing considerable ambiguity in this version of the rule as it attempts to determine what is a water of the U.S. as seen in the treatment of ditches, ephemeral streams and groundwater, all of which were largely categorically out under the NWPR. NMPF fully anticipates continued litigation as a result of this rule. More details are posted at NMPF’s website.