Sharp Drop in Cheese Price Cuts Class 3 Milk Price Down in October
Published: Friday, November 10, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Federal Reserve will hold interest rates steady for another month, a good sign of the economy, but dairy farmers aren't out of their financial woes yet. The Agriculture Department announced the October federal order Class III milk price at $16.84 per hundredweight, down $1.55 from September, driven primarily by a sharp drop in cheese prices. The benchmark is a woeful $4.97 below October 2022 and the lowest October Class III since 2018.
The year has seen a high of $19.43 in January and a low of $13.77 in July. The 10-month Class III average stands at $17.10, down from $22.20 at this time a year ago, and compares to $16.86 in 2021.
Last Friday morning Class III futures portend a turnaround in November but not much. The November contract was trading at $17.26 per hundredweight; December, $17.26; January 2024, $17.40; February $17.83; and March was at $18.22, all in the right direction but still short of profitability for most dairy producers.
The October Class IV price is $21.49, up $2.40 from September, thanks primarily to the record-breaking butter price, but is $3.47 below a year ago, yet the highest Class IV price since December 2022. Its 10-month average is at $18.93, down from $24.82 a year ago, and $15.44 in 2021.
Speaking in the Nov. 6 "Dairy Radio Now" broadcast, StoneX broker Dave Kurzawski said few, if any, dairy farmers can make milk at this price but "at the moment we haven't seen a typical seasonal demand in cheese." He added that cheese is "not at a terrible price historically but definitely lower than we thought it would be, namely closer to $1.80 to $1.85 per pound."
"We could yet see a seasonal push in demand in November for cheese," he said. "We produced a lot of cheese this year relative to demand, but exports have been off. Maybe we have enough cheese going into the holidays, but at some point there's a pipeline refill that has to happen and milk production is still flat. A lot of people are projecting that milk output will come back, but it hasn't as of yet, and given on-farm economics I don't expect it's going to get much better even in the first part of the year. When demand is slow or people have enough the price can come down," he concluded, but he believes we are underestimating the impact of a questionable milk supply.
That lack of demand appeared in cheese as November got underway. CME block Cheddar closed the first Friday of the month at $1.6650 per pound, down 6.50 cents on the week and 34.50 cents below a year ago as traders anticipated the afternoon's September Dairy Products report.
The barrels finished at $1.64, 4.25 cents lower, 33.50 cents below a year ago, and 2.50 cents below the blocks.
Sales totaled 16 loads of block on the week and 69 for the month of October, up from 24 in September. Barrel sales totaled 22 for the week and 66 for the month, down from 75 in September.
Midwest processors say milk suppliers are working to lock in extra milk loads for the end-of-year holidays, according to Dairy Market News. Current spot milk supplies are slowly edging higher week to week and mid-week spot prices ranged from class to $1 over. Cheese inventories remain "somewhat balanced."
Western cheese demand is mostly steady from retail and food service, says DMN, and inventories are "comfortable." A few manufacturers indicate inventories are decreasing slightly. Demand from international buyers is moderate to light. Domestic prices and near-term futures pricing compared to European Union-Oceania prices are not encouraging stronger export activity. Demand for Class III milk is strong to steady but extra spot loads are somewhat limited in some parts of the West, says DMN, and holding production steady.
After dropping almost 17 cents the previous week, CME butter shot up almost 11 cents last Monday to $3.30 per pound, but closed Friday at $3.1075, down 8.50 cents on the week, down 39.50 cents from its Oct. 6 peak, but still 33.50 cents above a year ago when it plunged 36.75 cents. There were six loads traded on the week and 36 for the month, down from 124 in September.
Butter market tones teetered between market signals last week, says DMN, but marketers expected it. Holiday orders have been made and a number of contacts say the record price points are unlikely to return the rest of this year. Bulk butter is available but far from abundant, according to buyers in the region.
Cream is tight in the West despite some handlers noting improved fat component levels in milk. Spot cream loads have tightened compared to the previous week in some parts of the region while loosening in others. Butter manufacturers say extra cream buying is limited by current prices. Domestic butter demand is strong to steady and current inventories are in good shape for holiday demand. Fourth-quarter demand from Canadian purchasers has picked up again and closer to the first three quarters while export demand is light elsewhere, says DMN.
Grade A nonfat dry milk closed last Friday at $1.1850 per pound, 1.25 cents lower on the week and 21.50 cents below a year ago. There were only two sales posted on the week and 52 for the month, down from 61 in September.
Dry whey saw its Friday finish at 38.75 cents per pound, down 1.25 cents on the week and 8 cents below a year ago. Sales totaled 47 loads on the week and 195 for the month of October, up from 109 in September.
Falling feed prices and a rising All Milk Price resulted in a third consecutive rise in the monthly milk feed price ratio. The Agriculture Department's latest Ag Prices report put the September ratio at 1.89, up from 1.67 in August, and 1.71 in September 2022, first month to be above the previous year since November 2022. The ratio was below the five-year average for the 16th month running, however, as the average ratio for September is 2.03.
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 1.89 pounds of dairy feed of that blend.
The All Milk Price average increased for the second month in a row, hitting $21 per hundredweight, highest since March, 2023, up $1.30 from August, but still $3.10 below September 2022.
California's average at $21.30 per hundredweight, was up $1.80 from August, but $2.50 below a year ago. Wisconsin's, at $19.80, was up 60 cents from August but $2.50 below a year ago.
The national corn price averaged $5.73 per bushel, down 52 cents from August, after falling 49 cents the previous month, and $1.88 per below September 2022.
Soybeans averaged $13.20 per bushel, down 90 cents, after falling 60 cents the previous month, and were $1 per bushel below a year ago.
Alfalfa hay slipped to $224 per ton, down $6 per ton from August and $56 per ton below a year ago.
Looking at the cow side of the ledger, the September cull price for beef and dairy combined climbed to an average $114 per hundredweight, down $1 from August, $22.80 above September 2022, and $42.40 above the 2011 base average.
Quarterly milk cow replacements averaged $1,850 per head in October, up $90 from July, and $120 above October 2022. Cows averaged $1,800 per head in California, up $135 from July, but $50 below a year ago. Wisconsin's average, at $1,990 per head, was up $80 from July and $150 per head above October 2022.
September milk production margins were the highest of 2023 by 18 cents over January, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo. Brooks said, "Income over feed costs in September were above the $8 per hundredweight level needed for steady to higher milk production for the first time since January. Input prices were lower, but all three commodities were in the top 10 for September all time. Feed costs were the fourth highest ever for the month of September and the 50th highest of all time.
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