Cheese demand holding steady

The “Mielke” Market Weekly

Financial relief is coming slowly to U.S. dairy farms. The U.S. Department of Agriculture announced the November federal order Class III milk price at $17.15 per hundredweight, up just 31 cents from October but $3.86 below November 2022 and the lowest November Class III since 2018. That put the year’s average at $17.11, down from $22.09 in 2022 but compares to $16.96 in 2021.

Unfortunately, late Friday morning Class III futures portend a December price at $16.11, which would be down $1.04 from November. January was trading at $16.26; February, $16.69; and March at $17.39, with a peak of $18.61 in October.

The November Class IV price is $20.87, down 62 cents from October and $2.43 below a year ago. The year’s average is at $19.11, down from $24.68 a year ago but compares to $15.74 in 2021.

Class III milk prices in 2024 will be better than those we saw this summer, said HighGround Dairy’s market intelligence manager, Cara Murphy, in a “Dairy Radio Now” broadcast, but not to the levels we saw in 2022. Feed prices have come down, she said, and are more supportive of on farm margins.

Demand is one of the big factors in milk prices, and “China is always on our mind,” Murphy said. China has backed off in its dairy purchases, and there’s a lot of uncertainty as to when they will come back. Murphy said the export market holds potential, for the U.S. European cheese prices have been low for most of 2023 but have since been on the rise on low inventories in Europe. That is opening opportunities for the U.S., she said, due to our low prices.

The other side of the coin is supply, and that means milk. HighGround Dairy sees limited growth in the U.S. in 2024, according to Murphy. She pointed to the large reduction in California particularly, though some of that has been countered by increases in the Midwest. The slaughter rate is telling, she said. Rates popped in the summer months when the Class III plunged to $13.77 in July. Culling has since pulled back but is up 2.6% from a year ago. The October herd was down 42,000 from a year ago, and Murphy predicted that will play out in 2024.

Falling feed prices for the sixth month in a row and another boost in the all milk price nudged the milk feed price ratio higher for the fourth consecutive month. The USDA’s latest Ag Prices report put the October ratio at 2.03, up from 1.89 in September and 1.90 in October 2022, and the highest since March 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 2.03 pounds of dairy feed of that blend.

The all milk price average increased for the third month in a row, hitting $21.60, up 60 cents from September but $4 below October 2022.

California’s average at $21.60 per cwt was up 30 cents from September but $3.50 below a year ago. Wisconsin’s, at $19.40, was down 40 cents from September and $5.20 below a year ago.

The national corn price averaged $4.93 per bushel, down 28 cents from September, after falling 52 cents the previous month, and is $1.56 per below October 2022.

Soybeans averaged $12.70 per bushel, down 50 cents, after dropping 90 cents the previous month, and were 80 cents per bushel below a year ago.  

Alfalfa hay fell to $217 per ton, down $7 per ton from September and $64 below a year ago.

Looking at the cow side of the ledger, the October cull price for beef and dairy combined fell to an average $108 per cwt, down $6 from September but $23.90 above October 2022 and $36.40 above the 2011 base average.

“Milk production margins were the highest of 2023 by $1.07 over September,” according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri. “Income over feed costs were above the $8 per cwt level needed for steady to higher milk production for the second time since January. Input prices were lower, but all three commodities were in the top five for October all time. Feed costs were the fifth highest ever for the month of October and the 61st highest of all time. The ratio was below the five-year average for the 17th month running, as the average ratio for October is 2.18.”

“2023 milk income over feed costs (using Nov. 30 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $7.79 per cwt, a loss of 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 $4.12 per cwt from 2022’s level.”

Milk income over feed costs for 2024 are expected to be $11.86 per cwt, a gain of $4.07 versus the 2023 estimate. Income over feed is 57 cents per cwt lower than last month and would be above the level needed to maintain or grow milk production, Brooks said.

The 2023 crop harvest is all but complete. USDA’s Crop Progress report shows 96% of the corn was harvested, as of the week ending Nov. 26, up from 93% the previous week, 3% behind a year ago but 1% ahead of the average.

Dairy cow culling continues to slow, and the week ending Nov. 18 was the 11th consecutive one to be below a year ago. The week saw 55,300 cows go to slaughter, up 1,300 from the previous week but 5,000, or 8.3%, below a year ago. Year-to-date 2,701,600 have been culled, up 64,500, or 2.4%, from a year ago.

Cash dairy prices started December varied. The cheddar blocks crept up 2 cents Monday but headed lower from there, closing Dec. 1 at $1.52 per pound, down 7 cents on the week, lowest since July 17, down 16.50 cents from its Nov. 1 print and 58 cents below a year ago.

The barrels also finished Friday at $1.52, up 8 cents on the week, 15.25 cents lower on the month and 37.75 cents below a year ago. There were 14 sales of block on the week and 51 for the month of November, down from 69 in October. Barrels totaled 16 for the week and 58 for the month, down from 66 in October.

Milk availability defied expectations the week following Thanksgiving, said Dairy Market News. Spot milk prices reached $2.50-under Class III over the weekend but bounced back to $1-over with no sub-Class prices being reported at midweek. Last year, below-Class prices during the holiday week continued into the following week. Cheese demand is holding a steady pattern, said DMN, and any extra cheddar loads are generally spoken for among regional contacts.

Western retail and food service cheese demand remains steady while restaurant use remains lighter as higher menu prices take a toll. Cheese inventories are comfortable. Export demand is moderate, according to DMN.

Butter shot up to a Friday finish at $2.6550 per pound, up 15.50 cents on the week, down 48.75 cents on the month and 24.50 cents below a year ago. Six loads were traded on the week and 65 for the month, up from 36 in October.

Some Midwestern butter makers had a busy holiday weekend while others took some downtime, but butter output is back and busy, DMN said. Churns were running full capacity in a few plants, as cream was priced as low as flat market over the holiday week and weekend. Cream prices have since bounced back to pre-holiday levels, with multiples hovering around 1.20. Micro-fixing remains stronger than it historically has been during a timeframe when cream is widely available for churning. 

“Butter makers are taking a conservative stance on how much inventory to build due to the history making market climax in October, followed by a bearish denouement throughout this month,” DMN said.

Cream volumes have increased in the West, as fat component levels in milk also improved in some parts. This is contributing to increased bulk butter production. Bulk butter demand is outpacing production. Domestic butter demand is strong to steady, and demand from Canadian purchasers is steadier, DMN said.

Grade A nonfat dry milk climbed to $1.1950 per pound Wednesday but closed Friday at $1.18, a half-cent lower on the week, 0.75 cents lower on the month and 18 cents below a year ago. There were 18 sales reported on the week and 32 for November, down from 52 in October.

The powder is feeling pressure from global prices and anecdotal weaker Mexican demand, according to StoneX, which put pressure throughout 2024 futures.

Dry whey was unchanged until Friday when it inched up a quarter-cent to 40 cents per pound, 3.50 cents lower on the month and 5 cents below a year ago. Sales totaled six for the week and 54 for the month, down from 195 in October.

Tuesday’s GDT Pulse saw mixed results on sales of Fonterra skim milk powder and whole milk powder. HighGround Dairy’s analysis shows 2,217 metric tons, or 98.5% of the total 2,250 MT on offer, was sold. 460 MT less of instant WMP was sold and 61 MT more of regular WMP was sold versus the last Pulse. 24 MT less of SMP on offer was sold this auction, HGD said.

In politics, the U.S., Mexico, and Canada Free Trade Agreement negotiated by the Trump administration will not be as beneficial as expected for the U.S dairy industry. A Nov. 24 ruling by a USMCA dispute panel allows Canada to continue to restrict dairy access that the U.S. negotiated for in the pact and “weakens the agreement’s value to the U.S. dairy industry,” according to the National Milk Producers Federation and the U.S. Dairy Export Council.

An earlier panel ruled in January 2022 that Canada had improperly restricted access to its market for U.S. dairy products. In response, Canada made insufficient changes to its dairy tariff rate quota system, resulting in an outcome that fell far short of the market access the U.S. expected to receive under USMCA. To address that shortcoming, the U.S. brought a second case to challenge the changes that Canada instituted. The panel announced Nov. 24 that Canada was not obligated to make further changes.

“It is profoundly disappointing that the dispute settlement panel has ruled in favor of obstruction of trade rather than trade facilitation,” said Jim Mulhern, president and CEO of NMPF. 

Despite this independent panel’s adverse ruling, NMPF urged Ambassador Tai and Ag Secretary Vilsack to look at all available options to ensure that Canada respects what was negotiated.

 The International Dairy Foods Association called the ruling “a glaring failure to safeguard the most fundamental rights outlined in the USMCA.”

Meanwhile, the IDFA reported that the USDA released grant-approval to significantly expand the Healthy Fluid Milk Incentives Projects, a program established by Congress in the 2018 farm bill and one of the department’s key nutrition incentive programs for participants in the Supplemental Nutrition Assistance Program.

“HFMI projects provide SNAP beneficiaries with a dollar-for-dollar match when they purchase healthy fluid milk options,” IDFA said. “USDA’s award announcement utilizes $4 million in fiscal year 2023 congressional appropriations to Auburn University’s Hunger Solutions Institute to bring the program to an additional 575 retail outlets in 16 states, including locations in rural communities, counties with persistently high poverty rates, low-income and low access census tracts, and Tribal Nations and surrounding tribal communities.”

IDFA President and CEO Michael Dykes lauded the expansion of the HFMI, noting the important role dairy incentives play in improving health outcomes for Americans experiencing increasing levels of food and nutrition insecurity.

Last but not least, IDFA said, “Americans are writing a new chapter in their love affair with dairy products, according to fresh data from the USDA which reports per capita consumption of all dairy products reached 653 pounds per person in 2022, 63 pounds above the historical average dating back to 1975 when USDA began tracking per capita dairy consumption.

“Cheese consumption set an all-time high in 2022 to reach nearly 42 pounds per person, a half-a-pound per-person increase over the previous year. For comparison, the average American consumed 32.2 pounds of cheese in 2000 and 21.9 pounds in 1980. Ice cream consumption in 2022 also edged out the previous year, while other dairy products including yogurt and butter remained consistent with recent year highs.

“Americans are turning to dairy like never before as part of their health regimen, to celebrate with family and friends, or to liven up their meal and snacking routines. The data from USDA demonstrate how consumers continue to choose dairy products even as they exercise cost-conscious shopping, illustrating how dairy remains affordable and accessible to all people. Dairy is more than a food or beverage, it has become an essential part of our lives, in more than 95% of U.S. households on any given day. The growth in dairy consumption is a testament to America’s dairy foods makers who offer wholesome, delicious, affordable products for people all ages, all year around.

“In the past decade alone, domestic per capita consumption of cheese is up 17.1%, and per capita butter consumption is up 9%. Overall, USDA data show American dairy per capita consumption across products consistently increasing each year, with 2022 up 0.4% over the past five years, 7.5% over the past 15 years and 16.1% over the past 30 years.”