Class III milk price trending upward

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The U.S. Department of Agriculture announced the August federal order Class III milk price at $17.19 per hundredweight, up $3.42 from July but $2.91 below August 2022 and the highest Class III since April. The eight-month average stands at $16.98, down from $22.54 at this time a year ago and $16.78 in 2021.


Late Friday morning’s Class III futures prices portended a September price at $18.61; October, $18.96; November, $18.62; December, $18.47; January 2024, $18.55; February, $18.49; and March at $18.48 per cwt.


The August Class IV price is $18.91, up 65 cents from July but $5.90 below a year ago and the highest Class IV since January. Its eight-month average is at $18.59, down from $24.83 a year ago and compares to $15.12 in 2021.


A drop in corn and alfalfa hay prices helped end seven months of decline in the so-called milk feed ratio. The USDA’s Ag Prices report shows the July ratio at 1.38, up from 1.36 in June but compares to 1.77 July 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 only purchase 1.38 pounds of dairy feed of that blend.


The all-milk price average was down for the ninth consecutive month, slipping to $17.40 per hundredweight, down 50 cents from June and $8.10 below July 2022.


California’s average at $18 per cwt was down 70 cents from June and $7.30 below a year ago. Wisconsin’s, at $15.50, was also down 70 cents from June and $8.90 below a year ago.


The national corn price averaged $6.22 per bushel, down 27 cents from June and $1.03 per bushel below July 2022.


Soybeans averaged $14.70 per bushel, up 20 cents from June but 80 cents per bushel below a year ago.


Alfalfa dropped to $244 per ton, down $19 per ton from June and $34 per ton below a year ago.


Looking at the cow side of the ledger, the July cull price for beef and dairy combined climbed to an average $111 per cwt, up $4 from June, $20.40 above July 2022.


The income over feed calculation also increased as feed costs moved down enough to offset the lower all-milk price, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, and the ratio was below the five-year average for the 14th month running.


“Milk production margins were higher for the first time since November 2022,” Brooks said. “Income over feed costs in July were below the $8 per cwt level needed for steady to higher milk production for the sixth month in a row. Input prices were lower, but all three commodities were in the top five for July all time. Feed costs were the second highest ever for the month of July and the 26th highest of all time. The all-milk price stayed out of the top 100 at the 133rd highest recorded.”


Dairy producer profitability for 2022 in the form of milk income over feed costs was $11.91 per cwt, Brooks said. The profitability was $4.12 above 2021 and $2.50 higher than the 2017-21 average. In 2022, the increase in milk income over feed costs was a result of the milk price increasing more than feed prices. Income over feed was above the level needed to maintain or grow milk output.
For 2023, milk income over feed costs (using Aug. 31 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $8.26 per cwt, a gain of 44 cents versus last month’s estimate. 2023 income over feed would be below the level needed to maintain or grow milk output and was down $3.65 from 2022’s level, Brooks said.


Looking at 2024, milk income over feed costs are expected to be $11.47 per cwt, a gain of $3.21 versus the 2023 estimate. Income over feed is 61 cents per cwt higher than last month and would be above the level needed to maintain or grow milk production, according to Brooks.


Meanwhile, StoneX Global Dairy Market Outlook reports, “Price forecasts have shifted lower on weak demand again. The supply outlook continues to tighten with the U.S., New Zealand and Argentina milk production all lower than expected for July and lower milk price-margin outlooks keeping production growth weak for 2024.


“But demand remains weaker than production and hopes for a fourth quarter rebound in demand have faded. Imports by Southeast Asia have remained much weaker than expected despite decent GDP growth.


“Chinese imports, which were improving February through June, attended out in July, and early indications are September will be down. Milk production in China is reportedly slowing, and farm gate milk prices have attended out over the past four weeks. But the macroeconomic data from China continues to deteriorate, and they still seem to have plenty of domestically produced powder available.”
Speaking of China, the Aug. 29 Daily Dairy Report said milk output there overall is growing.


“Following two decades of public investments in China’s dairy industry, milk production has tripled, and this year China will become the world’s third-largest producer of cow’s milk,” the DDR stated, citing a Robo Bank analysis.


China will still have a 20%-30% dairy deficit, according to the report, and remain the largest dairy importer in the world due to its large population and increasing per capita consumption. The import gap could widen by 2032, the DDR stated.
Speaking in the Sept. 4 Dairy Radio Now broadcast, StoneX broker Dave Kurzawski said he agreed, though China is currently dealing with “some economic headwinds.” One is the fact that China’s population may have peaked, he said. It has also urbanized “a boom for consumption as you tend to make more money living in an urbanized center as opposed to a rural setting.”
Kurzawski said the rate of China’s urbanization was about 3.5%, but that will slow as more people have made the move. Boom times will return, he predicted, but the growth rate in demand will be in the neighborhood of 2.5% over the next 10 years. If they are producing 1.5% more milk per year and consuming 2.5% more dairy products, “there’s going to be a shortfall, and the world is going to have to step up and feed China,” he said.


How soon the turn-around will happen is hard to predict, he said. The last three GDT events saw China’s participation pick up a little, but it was subdued by the GDT’s index decline, as Southeast Asia’s demand has fallen. Demand is still weak, Kurzawski said.


“It tends to come back when you least expect it, and as we go into 2024, we will start to hear some better demand out of China,” Kurzawski said.


Tuesday’s GDT Pulse saw 2.2 million pounds of Fonterra whole milk powder sold, down fractionally from the Aug. 22 Pulse, at $2,450 per metric ton, unchanged from the last Pulse and the lowest Pulse price ever.


HighGround Dairy said, “A bearish market outlook persists as plentiful global stocks and minimal demand stymies price growth ahead of the Southern Hemisphere spring flush period.


“Fonterra has made a volume adjustment ahead of next week’s GDT, shifting 6,500 metric ton from the 12-month whole milk powder forecast onto the Pulse platform, and for the first time, adding skim milk powder to the Pulse platform. The skim milk powder 12-month forecast has been reduced by 23,510 metric ton, with Fonterra offering 1,000 metric ton of skim milk powder per Pulse auction.”


Cooperatives Working Together member cooperatives accepted 17 offers of export assistance this week that helped capture sales for 1.2 million pounds of American-type cheese, 2,000 pounds of anhydrous milkfat, 49,000 pounds of whole milk powder and 150,000 pounds of cream cheese. The product is going to customers in Asia, Antarctica and South America through January 2024.
Checking the fields, following the hottest week of summer across the Midwest last week, Hurricane Idalia hit Florida and the southeast this week.


The USDA’s latest Crop Progress report showed 88% of corn in the dough stage, as of the week ending Aug. 27, up from 78% the previous week, 4% ahead of a year ago and 2% ahead of the five-year average. 51% was dented, up from 35% from the previous week, and 7% ahead of a year ago. 56% was rated good to excellent, down 2% from the previous week but 2% ahead of a year ago.


The report shows 91% of the soybeans were setting pods, up from 86% the previous week and 1% ahead of a year ago and five-year the average. 58% were rated good to excellent, down 1% from the previous week but 1% ahead of a year ago.


The week ending Aug. 19 saw 59,800 dairy cows go to slaughter, down 2,100 head from the previous week but 700, or 1.2%, more than a year ago. Year-to-date, 2,034,400 have been culled, up 109,400 head, or 5.7%, from a year ago.
Cheese prices entered September a little stronger as traders anticipated the long Labor Day weekend and the July dairy products report on Tuesday. The cheddar blocks climbed to $1.9925 per pound Tuesday but closed Friday at $1.95, up a half-cent on the week and 18.50 cents above a year ago.


The barrels finished at $1.87 per pound, 7 cents higher, 1.25 cents above a year ago and 8 cents below the blocks.


Sales at the market of last resort totaled three loads of block for the week and 15 for the month of August, down from 61 in July. Barrel sales totaled two for the week and 21 for the month, down from 169 in July.


StoneX points out that, while July milk production was down 0.5% from last year, “higher protein and fat content in the milk and less fluid milk consumption means solids available to processing were likely up about 0.9% from last year, but that is a slowdown from plus 1.7% in June. Less growth in solids available for processors will likely mean a slowdown in the growth for cheese, butter and powder.”


We will find out in the Sept. 5 dairy products report.


Milk offers to Midwest cheesemakers remained somewhat mum this week despite the upcoming holiday weekend.


Dairy Market News said the previous week’s high temperatures and elevated humidity in the Upper Midwest kept milk restrained and spot prices above Class III. Milk output is slowing seasonally in the Midwest, and cow comfort is being impacted. Cheese demand is strong for central processors, but there’s growing concern that order fulfillment, particularly of mozzarella and pizza cheese, may come up short in upcoming weeks, with schools reopening, football season kicking off and tightening milk supplies.


Strong to steady retail and food service cheese demand is reported in the West. Export demand is moderate, with less hesitation from Latin American purchasers. Some believe less active export demand is sending more barrel cheese to the CME. Cheese production is steady despite tighter milk and cream volumes throughout the West. Processing capacity is in good balance with milk supply, DMN said, and some say inventory levels are contributing to the bullish prices.


Butter slipped to $2.62 per pound Tuesday, lowest since Aug. 3, but it closed Friday at $2.66, a penny lower on the week and 44 cents below a year ago. There were 44 sales on the week and 249 loads for August, up from 150 in July.
Midwest butter churning has picked up in recent weeks with some reports that churning has been steady throughout the summer, depending on location. 

Cream is more available due to the spin-off of stronger bottling for school re-openings. Spot cream multiples were in the Class IV “comfort zone” of low to mid-1.20s, DMN said, and Labor Day plant downtime was also adding to the cream supply.


Cream is tight in the West, but plant shutdowns for the holiday may loosen some of that. The limited spot loads were commanding higher multiples. A few plants have scheduled maintenance for their churns ahead of the anticipated heavier running times as fall arrives.


Grade A nonfat dry milk sunk to $1.0725 per pound Thursday, lowest CME price since Nov. 9, 2020, but it closed Friday at 1.0750, down 3 cents on the week and 44.50 cents below a year ago. Sales amounted to 14 for the week and 71 for the month, up from 41 in July.


Dry whey hit 30.50 cents per pound Thursday, highest since May 9, and stayed there Friday, up 2.50 cents on the week but 16 cents below a year ago. The week saw eight sales and 58 for the month of August, down from 152 in July.


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