The “Mielke” Market Weekly

High-protein whey boosts price strength

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The first federal order Class III milk price of 2024 starts with an 87-cent plunge. The U.S. Department of Agriculture announced the January benchmark at $15.17 per hundredweight, $4.26 below January 2023 and the lowest Class III since July 2023.

 Late Friday morning Class III futures were portending a turnaround in February, at $16.18. March was trading at $17.33; April, $17.55; May, $17.81; and June at $18.19, with a peak at $18.63 in September.

 The Class IV price is $19.39, up 16 cents from December but 62 cents below a year ago.

 The USDA issued its greatly anticipated cattle report this week, and dairy heifer numbers were down for the sixth year in a row. Heifers expected to calve were only down 1.1% from last year, StoneX said.

“Not a record decline despite a growing belief that a systemic heifer supply problem exists,” StoneX said.

The USDA did revise last year’s heifer supply from a 2% decline to a 7% decline.

“Which goes a long way to explain how the herd continued to drop in the second half of 2023 despite very strong slaughter,” StoneX said. “The drop in 2023 was a record large drop (although data only goes back to 2003). This report gives us a nice overview but will likely have little impact to dairy market trading as is perennially the case.”

The 2022 Census of Agriculture will be released Feb. 13, and the USDA will update the cattle inventory data for 2018-23. Those numbers will be released Feb. 27.

The Daily Dairy Report warned in its analysis, “Waning heifer inventories will ensure that growth in the dairy herd will be slow and costly.”

The week ending Jan. 20 saw 51,100 dairy cows go to slaughter, down 4,900 head from the previous week, but 19,700, or 27.8%, below a year ago. Year-to-date, 155,600 cows have been culled, down 48,800, or 23.9%, from a year ago.

Checking the CME, cheddar block cheese climbed to $1.6675 per pound Thursday, highest since Nov. 7, 2023, but closed the first Friday of February at $1.65, up 11.25 cents on the week, 17 cents higher than its Jan. 2 standing, but 21.50 cents below that week a year ago.

The barrels finished at $1.55, 8 cents higher on the week, 11 cents higher on the month, 8 cents below a year ago and 10 cents below the blocks.

Sales totaled 29 loads of block on the week and 81 for the month of January, down from 93 in December. Barrel sales totaled 24 for the week and 113 for January, down from 161 in December.

Milk availability for Midwest cheese processors continues to edge tighter, said Dairy Market News. Spot milk prices at mid-week were at Class to $1-over. A year ago, the range was $10 to $3-under Class. One factor in the current milk balance is active cheese production. Some plants are running an extra day per week, DMN said. Retail and food service cheddar producers said demand was lower this week, while others say sales are busier.

Retail cheese demand is steady to stronger in the West. Food service demand is strengthening following weather-related power outages and transportation issues. International demand has strengthened. Class III spot loads are readily available, despite some tighter volumes. Class III milk demand from cheese makers is stronger, according to DMN.

Fueled by the bullish December cold storage report, cash butter shot up to $2.8025 per pound Monday, highest since Nov. 7, 2023, but the closing bell on Friday saw the price at $2.7450, down 1.50 cents on the week, 6 cents higher on the month and 37 cents above a year ago. There were eight sales on the week and 63 for the month, up from 30 in December.

Midwest butter makers report a widely available cream supply. Upper Midwest processors suggest bids at multiples at and around 1.15 will keep churns full. Farther south, loads were moving to plants at .9 to 1.10. Contacts expect cream availability to maintain a similar pattern through February. Butter demand is holding steady. Expectations are more bullish than bearish regarding late-winter and early-spring demand. Contacts expect milkfat components to settle and then decrease, seasonally, DMN said.

Cream volumes are slightly tighter in a few parts in the West, but spot loads are readily available. Butter output is steady to stronger, with many working to build inventory for second quarter. Distributors indicate, aside from Canadian purchasers, export demand is moderate to lighter, according to DMN.

Grade A nonfat dry milk climbed to $1.23 per pound Tuesday, highest since Oct. 23, 2023, but saw its Friday finish at $1.2250, still a half-cent higher on the week, 5.25 cents higher on the month, but 2 cents below a year ago. Sales for the week totaled nine loads and 63 for January, up from 44 in December.

Dry whey climbed to Friday’s close at 50.75 cents per pound, a level not seen since June 21, 2022, up 6.50 cents on the week, up 12.25 cents on the month and 9.25 cents above a year ago. There were three sales on the week and 19 for the month of January, down from 20 in December.

The Daily Dairy Report credited “formidable demand for high-protein whey products” for the price strength. “Every penny increase in whey value has added six cents to Class III prices, so the rally has boosted dairy producers’ potential Class III revenue by more than 70 cents per cwt,” DDR said.

Meanwhile, a drop in the all-milk price with higher corn and soybean prices reversed five consecutive gains in the milk feed price ratio. The USDA’s latest ag prices report shows December at 2.00, down from 2.12 in November and the lowest in three months, but compares to 1.83 in December 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 just 2 pounds of dairy feed of that blend.

The all-milk price average ended four months of gain, dropping to $20.60 per cwt, with a 4.35% butterfat test. That’s down $1.10 from November and $3.90 below December 2022, which had a 4.27% test.

California’s average at $20.90 per cwt was down 90 cents from November and $3 below a year ago. Wisconsin’s, at $19, was down 80 cents from November and $4.70 below a year ago.

The national corn price averaged $4.80 per bushel, up 14 cents from November, but $1.78 below December 2022.

Soybeans averaged $13.10 per bushel, up a dime from November but $1.30 per bushel below a year ago.

Alfalfa hay slipped to $205 per ton, down $2 per ton from November and $63 below a year ago.

Looking at the cow side of the ledger, the December cull price for beef and dairy combined slipped to an average $101 per cwt, down $3 from November, $24.10 above December 2022 and $29.40 above the 2011 base average.

Income over feed costs in December were above the $8 per cwt level needed for steady to higher milk production for the fourth time since January, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri. He adds that input prices were higher and all three commodities were in the top six for December all time. Feed costs were the fifth highest ever for the month of December and the 65th highest of all time.

“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 rose. Income over feed in 2022 was above the level needed to maintain or grow milk production.”

Milk income over feed costs for 2023 came in at $8.14 per cwt, according to Brooks, up 7 cents versus last month’s estimate. 2023 income over feed was below the level needed to maintain or grow milk production. Profitability was down $3.77 from 2022’s level and $1.58 lower than the 2018-22 average.

Looking at 2024, milk income over feed costs, using Jan. 31 CME settling futures prices for milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay, are expected to be $12.06 per cwt, a gain of $3.92 per cwt versus 2023. Income over feed in 2024 is 3 cents per cwt higher than last month and would be above the level needed to maintain or grow milk production, according to Brooks.

Chicago-based Commodity & Ingredient Hedging LLC’s latest “Margin Watch” said, “Dairy margins remained relatively flat over the second half of January except for spot first quarter which improved following a rally in nearby milk futures prices while the corn and soybean meal markets held steady.”

The MW detailed the December milk production and cold storage reports, which I have previously reported. It cited data from the USDA’s semi-annual cattle report.

“There were 4.059 million dairy heifers as of Jan. 1, down 0.35% from last year and the lowest dairy heifer inventory in 20 years,” MW said.

“Increased beef cross breeding has sharply reduced the number of dairy heifers,” MW said. “USDA also cut their estimate of heifers expected to calve and enter the milk-cow herd in 2023, revising their initial forecast of a 2% decline to a 7% drop. A further 1% drop is expected in 2024 with only 2.59 million heifers expected to calve this year and enter the dairy herd, the lowest inventory in 22 years of USDA projections.”

The Jan. 30 GDT Pulse saw 4.4 million pounds of product sold, up from 4.2 million Jan. 23, with 100% of the total offered finding new homes.

“After mixed results last week, both whole milk powder and skim milk powder were up,” StoneX said. “WMP was up 1.1% while SMP was up 0.2%. New Zealand WMP has been the cheapest source of dairy solids for more than two years which was a drag on the entire dairy complex. The fact that GDT WMP has generally been trending higher for three months is supportive for dairy prices in general. However, all indications are that Chinese import demand is still weak and the higher WMP price could dent demand in the rest of the world.”

By the way, European milk production has also been trending downward, according to the Daily Dairy Report’s Monica Ganley, of Quarterra, in the Jan. 26 Milk Producers Council newsletter.

“Volumes in the European Union and United Kingdom fell by an estimated 2.5% year over year in November,” Ganley said. “Many of the bloc’s largest milk producers, including Germany, France and the Netherlands, saw pronounced declines in November output. Strict environmental regulations in many European countries are likely to interfere with milk production recovery and have sparked high profile protests in the region. In South America, volumes in Argentina recoiled by 7.7% in December as producers confront deep economic and political uncertainty. Oceania, however, is expanding with Australia and New Zealand both posting gains in the most recent month for which data is available.”

Cooperatives Working Together member cooperatives accepted 36 offers of export assistance this week from CWT that helped them capture sales of 5 million pounds of American-type cheese, 309,000 pounds of whole milk powder and 150,000 pounds of cream cheese. The products are going to customers in Asia, Central America, the Caribbean, Middle East-North Africa and South America, and will be delivered through July.

In politics, following 12 weeks of testimony, the National Federal Milk Marketing Order Pricing Formula Hearing has come to an end. The purpose of the hearing was for the USDA to consider proposals to amend the uniform pricing formulas applicable in the 11 FMMOs. Forty proposals were submitted.

National Milk Producers Federation dairy economist Stephen Cain said the process was longer than the department or the participants expected in the Feb. 5 “Dairy Radio Now” broadcast. He said the industry hasn’t had a hearing of this magnitude in over 20 years and that the dairy industry has changed a lot in those years so updates are needed. He called it “a good thorough process” and believes a package of changes has been developed that will “move the industry forward together because we need both dairy producers and dairy processors.”

NMPF’s proposed changes include a return to the “higher of” Class I mover; discontinuing the use of barrel cheese in the protein component price formula, and extending the current 30-day reporting limit to 45 days on forward priced sales on nonfat dry milk and dry whey to capture more exports sales in the USDA product price reporting.

NMPF proposes updating milk component factors for protein, other solids and nonfat solids in the Class III and Class IV skim milk price formulas and development of a process to ensure make-allowances are reviewed more frequently through legislation directing the USDA to conduct mandatory plant-cost studies every two years. The proposal also includes updating dairy product manufacturing allowances contained in the USDA milk price formulas and updating the Class I differential price system to reflect changes in the cost of delivering bulk milk to fluid processing plants.

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