Dec. Milk Price Hits 16-Year High
Published: Friday, January 13, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The last federal order Class III benchmark milk price of 2022 was announced at $20.50 per hundredweight, down 51 cents from November but $2.14 above December 2021. It is the highest December Class III price since 2007. The 2022 average is $21.96, up from $17.08 in 2021 and $18.16 in 2020, a penny off of USDA's latest projection. The department projects a 2023 average at $19.80.
Last Friday morning Class III futures portended a January price at $19.28; February $18.40; and March at $18.34, with a $19.90 peak in October.
The Class IV price is $22.12, down $1.18 from November, $2.24 above a year ago, and the lowest Class IV since December 2021. Its 2022 average is $24.47, up from $16.09 in 2021 and $13.49 in 2020. USDA projects $20.10 in 2023.
The first Global Dairy Trade event of 2023 saw its weighted average drop 2.8%, following the 3.8% plunge on Dec. 20, and .6% gain on Dec. 6. Traders brought 73.8 million pounds of product to market, up from 63.4 million on Dec. 20, and the most since Nov. 3, 2020. The average metric ton price fell to $3,365, down from $3,493 last time.
Buttermilk powder provided the biggest pull on the average, down 12.9%, after not trading on Dec. 20. Anhydrous milkfat was down 5.1%, after falling 2.2% last time, and butter was down 2.8%, following a 2.6% descent. Skim milk powder was down 4.3%, following a 4.8% plunge, and whole milk powder was off 1.4%, after dropping 4%. GDT Cheddar was down 2.7%, after slipping .7% last time.
StoneX Dairy Group says the GDT 80% butterfat butter price equates to $1.9822 per pound U.S., down 5.5 cents, after losing 5.4 cents last time, and compares to CME butter which closed last Friday at $2.3825. GDT Cheddar, at $2.1274, was down 5 cents, and compares to last Friday's CME block Cheddar at $2.0550. GDT skim milk powder averaged $1.2874 per pound, down from $1.3447 (5.7 cents), and whole milk powder averaged $1.4552 per pound, down from $1.4723 (1.7 cents). CME Grade A nonfat dry milk closed last Friday at $1.2975 per pound.
StoneX's Dustin Winston said, "Total supply on offer increased 4,000 metric tons (MT) in this event, and with a corresponding increase in purchase quantity of nearly 5,000 MT it is hard to say that demand is down. More likely, it seems that market buyers are unwilling to pay up for volume as they are not in such a dire need for product. Purchase volume for every region except SE Asia," said Winston.
Nui Market's Ron O'Brien says global markets enter 2023 "on the defensive." Speaking in the Jan. 9 Dairy Radio Now broadcast, O'Brien said buyers have the leverage, mostly due to pressure from the Southern Hemisphere's flush inventory which remains on offer.
He expects "lackluster demand out of Asia and increasing supplies in Oceania to continue to pressure CME spot and front month futures lower. Where the back months are higher than the front months must play out to inspire spot demand to carry forward, specifically for butter and nonfat dry milk," O'Brian explained.
"Inflation fears and supply chain nightmares are beginning to recede," he said, "but it's a double edged sword for dairies as end users are now interested in less safety stock and are re-evaluating future budgets due to demand destruction."
"Basis risk continues to plague margins on all sides of the market," according to O'Brien. "Output prices based on CME spot markets and input prices based on federal order milk markets continue to diverge. Wide variances in CME futures market settlements and actual milk checks. Historical variances in the block-barrel spread. And worse enough corn-basis variances of as much as $2 to $3 when prices are already near $7," he said.
Valley Milk in Turlock, Calif. is Nui's newest platform addition, along with Seattle-based Darigold, joining Hilmar and Milk Specialties Global to "bring additional value to the marketplace by bringing buyers and sellers together, further increasing transparency for all that are involved," he concluded.
Meanwhile, U.S. dairy exports remained strong in November. USDA's latest data shows cheese exports totaled 82.7 million pounds, up 12.9% from a year ago.
Butter, at 18.6 million pounds, was up 160%, with shipments to Canada at an all-time high, although unit value was incredibly low, according to HighGround Dairy, "suggesting some sort of blended fat, alternative item or mislabeled product." Butter demand from Bahrain also remained strong.
Nonfat/skim milk powder exports totaled 155.2 million pounds, down 3%. Dry whey, at 43.8 million pounds, was up 17.4%.
HighGround Dairy says this was the highest November volume on record, with the largest gains to Mexico, primarily on nonfat dry milk, and then China.
Weaker Margins
Dairy margins weakened further over the last half of December as milk prices continued to drop while projected feed costs moved higher, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. "A build in milk production during November along with Cold Storage data from USDA both pressured milk prices," according to the MW.
The MW reported highlights from the Milk Production and Cold Storage reports, which I have previously reported, crediting the increase in milk output to a combination of increased efficiency from a larger milking herd.
"The Cold Storage report reflected a seasonal decline in dairy product stocks during the month, although the drawdown was not as large as in previous months as high prices are beginning to negatively impact demand," the MW concluded.
CME cheese prices plunged in the shortened first week of 2023. The Cheddar blocks lost 13.75 cents the first day of trading, then fell to $1.9725 per pound last Wednesday, lowest since Nov. 1, 2022, but rallied, jumping 7.50 cents last Friday to close at $2.0550, down 8 cents on the week but 6 cents above a year ago.
The barrels fell to $1.7150 last Wednesday, lowest since Dec. 21, 2022, but closed last Friday at $1.7250, 13.25 cents lower on the week, 14 cents below a year ago when they jumped 15.50 cents, and are 33 cents below the blocks. Sales totaled five cars of block on the week and 11 of barrel.
Midwest cheesemakers are running busy schedules, according to Dairy Market News, as spot milk prices remained as low as they were during the holiday weeks. Cheese demand varied, with some cheesemakers saying demand slackened in recent weeks, while others say it is steady week to week. Cheese availability has grown. Late in the year, contacts suggested extra cheese was mostly spoken for, but now stocks are, in some cases, growing, says DMN.
StoneX reported that the greatest discounts on spot milk loads were around $10 under class, "but it is unlikely that offers are able to stay that low."
Western cheese demand is steady to lighter from food service and retail and International demand is mixed. Lower prices from global suppliers is contributing to the lighter demand, while some report strong sales to Asian markets. Milk remains available for cheesemakers and some are purchasing it below class prices. Schedules are busy, says DMN, but some plants continue to report delayed deliveries of supplies and labor shortages.
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