Benchmark Milk Price, at $15.83, Looks Better Than a Year Ago
Published: Friday, September 13, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department announced the August federal order Class III benchmark milk price at $17.60 per hundredweight, up a nickel from July, $2.65 above August 2018, and the highest Class III price since December 2014.
Last Friday morning, Class III futures portended a September price at $17.96; October, $17.70; November, $17.35; and December at $16.90, which would result in a 2019 average of $16.38, up from $14.61 in 2018 and $16.17 in 2017. The 2020 Class III peak was $17.13 in September.
The 2019 Class III average stands at $15.83, up from $14.44 at this time a year ago and compares to $16.09 in 2017.
The August Class IV price is $16.74, down 16 cents from July but $2.11 above a year ago and the highest August Class IV since 2014. Its eight-month average stands at $16.19, up from $13.85 a year ago and $15.46 in 2017.
The U.S. produced more cheese in July than in June and a year ago. The USDA's latest Dairy Products report shows total output at 1.09 billion pounds, up 2.3 percent from June and .5 percent above July 2018. Year-to-date cheese output is at 7.6 billion pounds, up just .7 percent from a year ago.
Wisconsin produced 282.2 million pounds of that total, up 1.9 percent percent from June but 2.1 percent below a year ago. California produced 210.3 million pounds, up 3.7 percent from June but .4 percent below a year ago. Idaho contributed 87.1 million pounds, up 1.2 percent from June and 1.7 percent above a year ago. Minnesota output slipped to 60.6 million, down 1 percent from June and .5 percent below a year ago. New Mexico produced 76.7 million, down .4 percent from June but 2 percent above a year ago.
Italian cheese totaled 465.9 million pounds, up .6 percent from June and .7 percent above a year ago. YTD stands at 3.3 billion pounds, up 2.4 percent. Mozzarella totaled 370.3 million pounds, up .8 percent from a year ago, with YTD at 2.6 billion, up 4.1 percent.
American type cheese totaled 436.1 million pounds, up 2.2 percent from June but 1.1 percent below a year ago, with YTD at 3 billion pounds, down 1.5 percent.
July Cheddar, the cheese traded at the CME, totaled 307.4 million pounds, up 300,000 pounds, or .1 percent, from June but 17.8 million pounds, or 5.5 percent, below a year ago. YTD Cheddar is at 2.16 billion pounds, down 1.3 percent.
Butter output slipped to 142.7 million pounds, down 2.1 million pounds, or 1.5 percent, from June but was a hefty 8.1 million pounds, or 6 percent, above a year ago. YTD butter is at 1.14 billion pounds, down 1.1 percent from 2018.
Yogurt output, at 350.5 million pounds, was down 2.9 percent from a year ago, with YTD at 2.5 billion pounds, down 2.2 percent.
Dry whey totaled 82.1 million pounds, down 1 percent from June and 8.9 percent below a year ago, with YTD at 552.1 million pounds, down 10.9 percent. Stocks totaled 65.5 million pounds, down 4.1 percent from June and 15.6 percent below those a year ago.
Nonfat dry milk production totaled 168.8 million pounds, up 8.3 percent from June and 12.4 percent above a year ago. YTD powder is at 1.15 billion pounds, up 1.7 percent from 2018. Stocks climbed to 291.2 million pounds, up 2.4 million pounds, or .8 percent, from June but were 26.2 million pounds, or 8.3 percent, below the 2018 level.
Skim milk powder fell 36.7 million pounds, down 7.7 million pounds, or 17.3 percent, from June and were 10.8 million, or 22.7 percent, below a year ago. YTD skim hit 273.4 million pounds, down 17.4 percent from a year ago.
Matt Gould, editor and analyst of the Dairy and Food Market Analyst newsletter, pointed out in the Sept. 9 Dairy Radio Now broadcast that in the recent July Cold Storage report, we saw a second consecutive month that butter stocks counter-seasonally increased, but "the July Dairy Products report showed us why."
Butter output was up 6 percent from July 2018, he said, and output was only up 1.9 percent in June "so we had this huge increase in butter production and that resulted in more inventory. That was the major headline grabber in the Dairy Products report."
U.S. butter imports are strong due to the high CME price. Gould still believes they are not a major factor in the price, though he admits, "The Irish have been very successful at getting U.S. consumers to buy their Kerrygold branded butter."
Meanwhile, in the midst of the trade war with China, the July percentage of milk-solids basis exports was virtually unchanged from June, according to Gould's analysis. He says 13.8 percent of the milk-solids produced in July were exported, "so the U.S. appears to be making adjustments to find new markets outside of China," though he adds the caveat that 13.8 percent isn't a particularly big number. We have seen that as high as 19 percent "so there certainly is an impact from the trade war."
FC Stone reports that "U.S. exports fell 6.9 percent from July 2018 on a milk equivalent basis. Cheese exports continue to be stable, up 1.8 percent, which is right in line with July 2017 too. Exports to China were down 41 percent YoY (an improvement from 65 percent in April/May) while exports to all other countries were up 6 percent. In order for orders from 'all other countries' to offset China's declining shipments, demand from 'all other countries' would have needed to be up 14 percent in July," according to FC Stone.
U.S. exporters had a much tougher time moving cheese to the export market in August, says FC Stone, with blocks having spent much of the month north of $1.80. This is especially true as there is European cheese trading hands today in the $1.50's," but "very strong domestic sales continue to offset falling U.S. exports to keep the U.S. market on the tight side at least in July."
Skim milk powder exports were down 8.9 percent, at 109.3 million pounds, according to USDA, but they have been down 6.3 percent over the past 12 months, says FC Stone, "As EU exporters have been taking more market share." Confirmation of that may be in the Dairy Products reports, says FC Stone. The report showed NFDM production up 12.4 percent "and the bellwether state of California was up 50.8 percent in July."
Skim milk powder production was down a sharp 22.7 percent, according to FC Stone, "4th straight month we have seen substantial declines in SMP. This does not bode well as manufactures make skim milk powder to meet the specs of export customers. With this in mind we could see exports continue to soften in the months ahead," they warn. "Mexico sales have slowed down slightly as aid from Mexico to Venezuela has slowed to a trickle."
A higher All-Milk price and lower hay price inched the July milk feed price ratio higher, first positive move since March. The USDA's latest Ag Prices report put the ratio at 2.16, up from 2.08 in June and compares to 1.93 in July 2018.
The U.S. All-Milk price averaged $18.70 per hundredweight, up 60 cents from June and $3.20 above July 2018.
The Daily Dairy Report's Sarina Sharp says "the Dairy Margin Coverage program's national average income-over-feed margins reached $9.47 per hundredweight in June, up 47 cents from May. Margins slipped 4 cents from June to July, as higher cash corn prices offset a 60-cent increase in the All-Milk price. Despite larger milk checks, dairy producers are still strapped for cash," she concludes.
CME block cheese climbed to its highest price since November 2014 in the Labor Day holiday shortened week, closing last Friday at $1.9975 per pound, up 6¾ cents on the week and 33½ cents above a year ago. The barrels finished at $1.7425, a half-cent higher on the week, 24¼ cents above a year ago when they fell 14½ cents, but are at a whopping 25½ cents below the blocks. Eighteen cars of block traded hands on the week at the CME and 22 of barrel.
Cheesemakers in the Midwest continue to report mostly positive sales, according to Dairy Market News. Food service orders increased, as many schools have returned. Cheese production is steady. Milk handlers suggest cheese producers are "somewhat satisfied" with their internally sourced milk supplies. Spot prices ranged 50 cents under to $1 over Class III. In week 36 last year, prices were $1 to $2 over, and in 2017 milk prices were discounted from $2 to $4 under class. Hurricane Dorian, which is affecting mostly the Southeastern portion of the country, is also keeping milk loads in the upper Midwest, says DMN.
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