Record-breaking exports

The “Mielke” Market Weekly

The September Federal Order Class III milk price was announced by the U.S. Department of Agriculture at $16.04 per hundredweight, down 60 cents from August and $1.55 below September 2025. The 9-month average stands at $15.96, down from $18.46 this time a year ago, and it compares to $18.37 in 2024. Thursday’s Class III futures settlements portended an October price at $15.13; November, $15.96; December, $16.30; January, $16.50; February, $16.85; and March, $17.06.

The September Class IV price is $18.94, up $1.58 from August and $2.77 above a year ago. Its 9-month average stands at $18.55, up from $18.53 a year ago, and it compares to $20.69 in 2024.

Checking the cupboard, U.S. butter stocks fell in August but were up from a year ago, according to USDA’s latest cold storage report. The August 31 butter inventory slipped to 315.7 million pounds, down 16.7 million pounds or 5.0% from July, but was up 29.5 million or 10.3% from August 2025. July’s total was revised up 11 million pounds.

With milk production growth slowing in August, StoneX believes the larger butter inventories were driven by weaker demand; “Exports might have slipped a little more than forecast, but this probably represents weak domestic demand more than weak exports.”

American type cheese stocks grew to 815.5 million pounds, up 2.4 million or 0.3% from the July level, which was revised up 1.6 million pounds, and they were up 4 million pounds or 0.5% from a year ago.

The “other” cheese category inventory climbed to 604.4 million pounds, up 2.8 million pounds or 0.5% from July’s mark, which was revised up 3.6 million pounds, and they were up 26.3 million or 4.5% from a year ago.

Total cheese stocks came in at 1.443 billion pounds, up 4.4 million or 0.3% from July and up 32.4 million or 2.3% from a year ago. Revisions added 5.2 million pounds to the July total. The gains came despite record-breaking exports.

Cheesemakers, wanting to capture the high returns from the whey stream, are keeping their vats busy. StoneX says the cold storage data explains the weakness in prices.

The cheddar blocks fell to $1.27 per pound Wednesday, the lowest Chicago Mercantile Exchange price since May 5, 2020, when the coronavirus pandemic captured the headlines. However, it rallied and closed the first Friday of October at $1.3150, up 0.75 cents on the week, ending six consecutive weeks of decline, although it was still 47.50 cents below a year ago. The barrels held all week at $1.4525, where they have been since September 16, and 31.75 cents below a year ago. Sales totaled 20 loads of block for the week and 113 for the month of September, up from 85 in August.

The September 30 Daily Dairy Report pointed out, “Over the past five Septembers, cheddar blocks have averaged about $1.90 per pound, illustrating the weakness of September 2026’s average price of $1.3990. Cheese futures through first quarter 2027 are now under $1.60 per pound, and Class III contracts are below $17 per cwt. A 10-cent move in cheese prices equates to a move of a little over $1 per cwt. in Class III prices,” according to the DDR.

The DDR’s Sarina Sharp wrote in the Sept. 25 Milk Producers Council newsletter, “Buyers are wary of bidding on cheese in Chicago, lest they unwittingly commit to hauling cheese from destinations far from the heartland. CME spot market specifications require buyers to pay the freight, less a hauling adjustment. That adjustment is set on a sliding scale based on the sellers’ distance from Green Bay, Wisconsin. But the maximum freight allowance of 4.93 cents per pound is far higher than the cost to haul cheese from the West Coast. With diesel prices at all-time highs, would-be buyers at the CME spot market assume that they’re going to be on the hook for at least 10 cents of additional freight, so they back their bids down accordingly.”

Milk supply in the Central region loosened slightly this week, according to Dairy Market News. Contacts reported minimal changes in overall milk movement and continue to point to ongoing distribution challenges attributed to elevated fuel prices. Midwest spot load availability remains limited. Similar conditions are reported in the Southwest. Class III spot prices at mid-week ranged from 50 cents over to $3.50 over. Cheese makers in the region note steady production, supported by strong orders. Retail cheese demand remains firm, although food service interest continues to trend below anticipated levels.

Overall milk and cheese supply in the West is heavy, says DMN. Cheese manufacturers continue to receive contracted milk, although spot milk is tighter. Cheese production remains active, with many plants running seven days a week. Plenty of cheese is available, including an abundant supply of colored cheddar, says DMN. Export demand is strong, while domestic markets continue to feel “weak and sloppy.” Freight challenges continue to affect cheese distribution. Rates have increased roughly 50% year over year, complicating long-distance hauling and influencing regional market spreads, according to DMN.

Cash butter fell to $1.3175 per pound Tuesday, the lowest since January 15, but it closed Friday at $1.34, 6 cents lower on the week, 5.25 cents lower on the month and 41 cents below a year ago. CME sales this week totaled 99 loads and 347 for all of September, down from 386 in August.

Cream supplies remain steady in the Midwest, says DMN. Butter manufacturers note active churning. Retail butter demand continues to improve. Inventories of 80% butterfat butter remain ample, with tight availability for 82% product.

Grade A nonfat dry milk finished Friday at $2.22 per pound, up 5 cents on the week, 32 cents higher than its September 1 post and $1.06 above a year ago. Sales totaled 16 for the week and 92 for September, down from 132 in August.

Dry whey closed Friday at 82.50 cents per pound, the highest since Feb. 14, 2022, when it was at 84.25 cents per pound. The whey was up 2 cents on the week, 8.50 cents above the Sept. 1 print and 19.50 cents above a year ago. There were three sales on the week and 15 for September, up from seven in August.

Higher feed prices and another drop in the all-milk price pulled the August milk-feed ratio lower. The USDA’s ag prices report showed the August ratio at 2.00, down from 2.12 in July and down from 2.47 in August 2025. 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 2.0 pounds of dairy feed of that blend.

The all-milk price fell for the third month in a row, averaging $19.80 per cwt., with a 4.20% butterfat test. That’s down 50 cents from July’s $20.30, which had a 4.19% test, and it compares to $20.90 a year ago, with a 4.16% test.

The national corn price averaged $4.45 per bushel, up 19 cents from July and 49 cents above August 2025. Soybeans averaged $12.10 per bushel, up 50 cents from July and $2.10 per bushel above a year ago. Alfalfa hay averaged $206 per ton, up $3 from July and $35 above a year ago.

The August cull price for beef and dairy combined averaged $172 per cwt., down $3 from July but $10 above August 2025 and $100.40 above the 2011 base.

Milk production margins decreased for the third month running by losing 80 cents per cwt. and were below $10.00 per cwt. for the first time since February at $9.91, according to dairy economist Bill Brooks of Stoneheart Consulting in Dearborn, Missouri.

“Income over feed costs in August was above the $8 per cwt. level needed for steady to higher milk production for the 36th month in a row,” Brooks said. “Input prices were higher in August, with all three input commodities inside the top 10 for August all-time. Feed costs were the eighth highest ever for the month and increased 30 cents per cwt. from July. The August all-milk price was inside the top 10 for the month, at the seventh highest ever recorded for the month.”

“Dairy producer profitability for 2025, in the form of milk income over feed costs, was $12.41 per cwt.,” according to Brooks. “Profitability was 99 cents below 2024 and $2.14 higher than the 2020-24 average. The decrease in milk income over feed costs was a result of the milk price decreasing more than feed prices dropped. Income over feed cost in 2025 was above the level needed to maintain or grow milk production.”

Milk income over feed costs for 2026 (using Sept. 29 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) is expected to be $9.92 per cwt., a loss of 71 cents per cwt. versus last month’s estimate. Income over feed costs would be above the level needed to maintain or grow milk production, down $2.49 per cwt. from 2025’s level and 78 cents lower than the 2021-25 average.

Looking at 2027, Brooks says milk income over feed costs are expected to be $9.06 per cwt., a loss of 86 cents per cwt. versus 2025. Income over feed costs in 2027 would be above the level needed to maintain or grow milk production, $1.64 per cwt. less than the 2021-25 average and down 73 cents per cwt. from the previous month.

Meanwhile, the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC says, “Dairy margins were largely flat over the last half of September as lower trade in milk prices and feed markets were mostly offsetting. USDA’s quarterly grain stocks report revealed Sept. 1 corn inventories of 2.095 billion bushels, 171 million above the average trade estimate and outside the range of pre-report expectations. The figure implies total 2025-26 feed and residual use 230 million bushels lower than previous expectations and will add substantially to new-crop beginning stocks in the October World Agricultural Supply Demand Estimates report, which lessens the potential impact from a lower yield estimate.”

The MW also detailed the August milk production and cold storage reports, which I have previously reported.

The USDA’s latest crop progress report shows 96% of U.S. corn dented, as of the week ending Sept. 27, up from 92% the previous week, 2% ahead of a year ago, and 1% ahead of the 5-year average. Seventy-two percent was classified mature, up from 58% the previous week, 3% ahead of a year ago and 1% ahead of the average. Harvest is completed on 18%, 1% ahead of a year ago and dead even with the average. Fifty-seven percent is considered good to excellent, 9% behind a year ago. Rain has kept combines stalled in the western Corn Belt and the Northern Plains.

Looking at soybeans, 75% were dropping leaves, up from 62% the previous week, 1% behind a year ago and even with the 5-year average. Seventeen percent had been harvested, 1% behind a year ago but dead even with the 5-year average. Fifty-eight percent of the crop was considered good to excellent, 4% behind a year ago.

The grain markets and many others hoped to hear more news from President Trump’s meeting with China’s President Xi, but there weren’t any major announcements other than some tariff cuts on various imports from each other. U.S. corn and dairy were among them but not soybeans.

US corn is not competitive to China, according to the DDR’s Sarina Sharp, especially once the 11% tariff is applied. China has not imported any corn from the United States so far in 2026, she said.

Also announced was the operationalization of a U.S.-China Board of Trade, which was praised by the National Milk Producers Federation and the US Dairy Export Council. NMPF President Gregg Doud commended the U.S. Trade Representative for “prioritizing agricultural exports.” “Retaliatory tariffs continue to put U.S. dairy at a disadvantage in China while our competitors gain ground. We are encouraged by dairy’s inclusion as products slated for retaliatory tariff reductions. U.S. dairy farmers look forward to seeing China’s tariff retaliation on dairy fully lifted and urge the inclusion of dairy as a key part of China’s agricultural purchase commitments. The positive momentum today is good for farmers, good for trade and good for both countries,” says NMPF.

USDA’s latest weekly slaughter data showed 55,800 dairy cows sent to slaughter the week ending Sept. 19, up 1,600 or 3.0% from a year ago. Year to date, 1,972,000 cows have been culled, up 78,800 or 4.2% from a year ago.

This week’s Global Dairy Trade Pulse saw 7.9 million pounds of product sold, up from 7.8 million pounds in the last Pulse Sept. 22. The price of anhydrous milkfat and butter continued to fall. Whole milk powder and skim milk powder ticked higher.

DMN reports that Dairy Australia data showed July 2026 milk production hit 592.9 million liters, up 22.6 million liters or 4.0% from a year ago. July was the beginning of the 2026-27 season. Output in Victoria, Australia’s largest milk-producing state, was up 3.7%.

Meanwhile, New Zealand’s August milk production set a new record at 1,478,000 metric tons, up 2.2% from a year ago. Milk solids rose 3.3% to 131.2 million kilograms. Season-to-date output is tracking higher, up 4.3% through the first three months, while tonnage is up 3.3%. Export data showed the value of milk powder, butter and cheese exports in August 2026 totaled $1.2 billion, an increase of 7.6% compared to August 2025, according to DMN.