Milk Prices Head Back Up, but Profitability Still a Long Way Off
Published: Friday, March 8, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The nation's benchmark milk price reversed two months of decline in February but still has a ways to go to return profitability to most U.S. farms. The federal order Class III price was announced at $16.08 per hundredweight, up 91 cents from January but still $1.70 below February 2023.
Last Friday morning futures portend a March price at $16.77. April was at $16.74; May, $17.19; June, $17.74; July, $18.05; August, $18.49; September, $18.71; October, $18.78; November, $18.65; and December was at $18.10.
The plunge in whey prices and butter's descent is pressuring the futures markets. The Class III breakeven price varies widely and is dependent on a number of factors but currently ranges between $18-$22 per hundredweight.
The February Class IV price is $19.85, up 46 cents from January and 99 cents above a year ago.
After a bullish December Cold Storage report showing a large drawdown on butter, the Agriculture Department's January data told a different story.
Butter holdings jumped to 249.1 million pounds, up 49.5 million pounds, or 24.8%, from December, which had no revision. But, stocks were 15.2 million pounds, or 5.8%, below those a year ago.
American-type cheese slipped to 836.4 million pounds, down 1.3 million pounds, or .2%, from December, but were up 13 million, or 1.6%, from a year ago.
The "other" cheese holdings climbed to 596.2 million pounds, up 12.5 million pounds, or 2.1%, from December, but down 3.6 million, or .6%, from a year ago.
The Jan. 31 cheese inventory totaled 1.454 billion pounds, up 11.8 million pounds, or .8%, from December, largest since October 2023, and was up 7.7 million pounds, or .5%, from a year ago.
Back on the farm, a drop in the U.S. All Milk Price was not offset by lower corn, soybean and hay prices in January and thus the milk feed price ratio was pulled lower for the second consecutive month. The USDA's latest Ag Prices report shows the January ratio at 1.98, down from 2.00 in December and the lowest since September 2023, but compares to 1.73 in January 2023.
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 1.98 pounds of dairy feed of that blend.
The All Milk Price averaged $20.10 per hundredweight with a 4.35% butterfat test, down 50 cents from December, and $3 below January 2023, which had a 4.23% test.
The national corn price averaged $4.74 per bushel, down 6 cents from November, after gaining 14 cents the previous month, and $1.89 below a year ago.
Soybeans averaged $12.80 per bushel, down 30 cents from December, after gaining a dime the month before, and was $1.70 per bushel below a year ago.
Alfalfa hay slipped to $202 per ton, down $3 from December and $61 below a year ago.
Looking at the cow side of the ledger, the January cull price for beef and dairy combined crept up to average $103 per hundredweight, up $2 from December, $21.30 above January 2023, and $31.40 above the 2011 base average.
January quarterly replacements averaged $1,890 per head, up $40 from October, and $170 above January 2023. Cows averaged $1,750 per head in California, down $50 from October, and $70 below a year ago. Wisconsin's average, at $2,060 per head, was up $70 from October and $250 above January 2023.
Milk production margins dropped below $10 per hundredweight for the first time since September 2023, according to dairy economist Bill Brooks of Stoneheart Consulting in Dearborn, Mo., and were 34 cents per hundredweight below December.
"Income over feed costs in January were above the $8 per hundredweight level needed for steady to higher milk production for the fifth month in a row. Input prices were lower but all three input commodities remained in the top six for January all time." He adds, "Feed costs were the fifth highest ever for the month of January and the seventieth highest of all time." "The ratio was below the five-year average for the twentieth month running, as the average ratio for January is 2.07."
"Milk income over feed costs for 2023 came in at $8.14 per hundredweight," says Brooks, "and were near the level needed to maintain or grow milk production. Profitability was down $3.77 per hundredweight from 2022 and $1.58 lower than the 2018-22 average."
"Looking at 2024, milk income over feed costs (using Feb. 29 CME settling futures prices for milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $13.25 per hundredweight, a gain of $5.11 per hundredweight versus 2023. Income over feed in 2024 is $1.19 per hundredweight higher than last month and would be above the level needed to maintain or grow milk production," Brooks concludes.
The week ending Feb. 17 saw 59,300 dairy cows go to slaughter, down 2,400 from the previous week, and 8,600, or 12.7%, below a year ago. Year to date, 396,700 head have been culled, down 77,200, or 16.3%, from a year ago.
Meanwhile, dairy farmers are being encouraged to sign up for the Dairy Margin Coverage (DMC) program. Signup began Feb. 28 and runs through April 29.
The National Milk Producers Federation says, "The DMC is improved from the previous farm bill, thanks to the permanent incorporation of updated production histories in the program, and recent low producer margins underscore just how critical DMC is for dairy farms of all sizes."
"Dairy producers are also struggling across the pond," writes the Daily Dairy Report's Sarina Sharp in the Feb. 23 Milk Producers Council newsletter. "Milk output in Europe and the United Kingdom fell .7% year-over-year in December," said Sharp. "Poland was the only country in the bloc's seven largest dairy nations with greater milk output in December 2023 than in the final month of 2022."
"Tractors have blocked traffic in cities around Europe as the farm sector protests the red tape in the bloc's Green Deal. Farmers are also angry about rising fuel costs and competition from imports that are not subject to similarly onerous regulations. In a sign of agriculture's growing political power, the EU Commission simplified or reduced some of the requirements in the bloc's Common Agricultural Policy, gave farmers some flexibility from government mandates to fallow farmland, and withdrew a plan that would have halved pesticide use by 2030," said Sharp.
CME block Cheddar closed March 1 at $1.55 per pound, unchanged on the week but 11.75 cents below its Feb. 1 post, and 40 cents below a year ago.
The barrels got to $1.67 last Monday, highest since Nov. 15, 2023, but finished last Friday at $1.65, up 3.50 cents on the week, 11 cents above their Feb. 1 post, 7.50 cents above a year ago, and 10 cents above the blocks.
Sales totaled 12 loads for the week and 62 for the month of February, down from 81 in January. There were 16 sales of barrel on the week and 45 for February, down from 113 in January.
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