Benchmark Milk Price Declines in October but $6 Higher Than 2023
Published: Friday, November 8, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The October federal order Class III milk price headed down. The Agriculture Department announced the benchmark price at $22.85 per hundredweight, down 49 cents from September but $6.01 above October 2023. The 10-month average is $18.82, up from $17.10 a year ago, but compares to $22.20 in 2022.
Last Friday morning, Class III futures portended a November Class III of $20.25; December, $19.62; and January 2025 was at $19.68 per hundredweight.
The October Class IV price is $20.90, down $1.39 from September, 59 cents below a year ago, and the lowest Class IV in five months. Its average stands at $20.71, up from $18.93 a year ago, and compares to $24.82 in 2022.
Butter and cheese stocks fell in September. The USDA's latest Cold Storage report had Sept. 30 butter holdings at just under 303 million pounds, down 21.4 million, or 6.6%, from the August count, which was revised up 1.1 million pounds, but they were up 36.4 million pounds, or 13.6%, from September 2023.
HighGround Dairy points out that this month's data is the eighth consecutive year-over-year gain in butter inventories and the largest since May 2023.
American-type cheese stocks slipped to 782.8 million pounds, down 10.8 million, or 1.4%, from the August level, which was revised 6.3 million pounds lower, and were down 68.4 million pounds, or 8%, from a year ago.
The "other" cheese category, at 570.4 million pounds, was down 7.2 million pounds, or 1.2%, from the August count, which was revised 300,000 pounds lower, and was down 40.2 million pounds, or 6.6%, from a year ago.
The total Sept. 30 cheese inventory slipped to 1.38 billion pounds, down 18.3 million, or 1.3%, from August, and 108.2 million pounds, or 7.3%, below a year ago.
The Oct. 25 "Daily Dairy Report" points out that cheese inventories have declined for seven consecutive months and September's drop "represents the largest year-over-year decline since mid-2014 and implies demand outpaced supply." Domestic demand has been lackluster, according to the DDR, but "exports have soared to record-high levels this year and are playing a critical role in keeping cheese inventories in check."
Cash Cheddar block cheese closed last Friday at $1.8375 per pound, down 6.25 cents on the week, lowest since May 31, 24.25 cents below where it stood on Oct. 1, but was still 17.25 cents above a year ago.
The barrels fell to $1.86 last Thursday, lowest since Oct. 14, but finished last Friday at $1.8675, down a quarter-cent on the week, down 27.75 cents from Oct. 1, 22.75 cents above a year ago, and 3 cents above the blocks. Sales totaled 12 lots of block on the week and 57 for the month of October, up from 34 in September. Barrels totaled four on the week and 28 for the month, up from 21 in September.
Cheesemakers had mixed views on demand, according to Dairy Market News. Some Cheddar and/or Italian-style cheesemakers said customers were adding to orders, in fact a few may be oversold. Others said the bullish push over $2 per pound created hesitation, despite prices settling back since then. Barrel contacts say loads are moving briskly. Cheese inventories are balanced to tight. Milk availability mid-week was slightly tighter than previous weeks, with spot prices ranging 50 cents to $1.50 over Class III.
Western cheesemakers have a healthy demand for milk however, milk is tighter in the southwest as production is trending down. Domestic cheese demand is generally steady for most varieties, with Swiss demand stronger than a year ago. International demand is steady to stronger, with bookings for first quarter 2025 taking place, according to DMN.
Butter saw some ups and downs on the week but closed last Friday at $2.67 per pound, 2.50 cents lower, 8 cents lower on the month, and 43.75 cents below a year ago. There were nine sales on the week and a whopping 318 for the month, up from 102 in September.
Butter makers say demand is on par with recent weeks. Prices in the $2.60 to $2.70 range has given incentive to re-enter the market, says DMN, though food service demand has been sluggish, particularly in the national chain sector. Butter production is busy, despite some plant downtime. Cream availability is wide open and offers are abundant. The bulls point to the potential of a strong seasonal retail push, while the bears suggest "the seasonally atypical amounts of cream availability and food service sluggishness will keep downward pressure on near- and mid-term pricing."
Butter production is generally strong in the West. Cream is widely available, with some being bought and delivered to more Eastern regions. Planned downtime is approaching for some and contributing to busy production. Butter demand from domestic and international buyers is steady, says DMN.
The powder closed last Friday at $1.3775 per pound, up a quarter-cent on the week, up 2 cents lower from its Oct. 1 perch, and 19.25 cents above a year ago. There were 34 sales on the week and 120 for the month, up from 118 in September.
Dry whey was unchanged all week, holding at 60.50 cents per pound, a quarter-cent higher than its Oct. 1 print, and 21.75 cents above a year ago. There were four sales on the week at the CME and 46 for the month, up from 38 in September.
A higher All Milk Price and lower soybean prices nudged the September milk feed price ratio higher, advancing for the seventh time in the past eight months. The USDA's latest Ag Prices report shows the September ratio at 3.00, up from 2.79 in August, and compares to 1.88 in September 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 3 pounds of dairy feed of that blend.
The All Milk Price averaged $25.50 per hundredweight, with a 4.15% butterfat test, up $1.90 from August, which had a 4.09 test, and was $4.60 above September 2023, which had a 4.08% test. It is at the highest level since October 2022.
The national corn price averaged $3.98 per bushel, up 14 cents from August but $1.23 below a year ago. This is the first time since May that feed costs were up. Soybeans averaged $10.20 per bushel, down a dime from August and $3 per bushel below a year ago. Alfalfa hay averaged $172 per ton, down $3 from August and $53 per ton below a year ago.
Looking at the cow side of the ledger, the September average cull price for beef and dairy combined was at $136 per hundredweight, down $6 from August, but $22 above September 2023 and $64.40 above the 2011 base average.
Milk production margins moved to the highest level since September 2014 at $16.99 per hundredweight and were $1.85 per hundredweight above August, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo.
"Income over feed costs in September were just short of the record high set in September 2014 at $17.03," he said, "and above the $8 per hundredweight level needed for steady to higher milk production for the eleventh month in a row. Input prices were mostly lower in September with all three remaining in the top 11 for September all-time. Feed costs were the ninth highest ever for the month of September and increased 5 cents per hundredweight from August."
"Dairy producer profitability for 2023 in the form of milk income over feed costs, was $8 per hundredweight," said Brooks. "Profitability was $3.91 below 2022 and $1.72 lower than the 2018-22 average. In 2023, the decrease in milk income over feed costs was a result of the milk price decreasing more than feed prices. Income over feed was around the level needed to maintain or grow milk production."
"Milk income over feed costs for 2024, (using Oct. 31 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $13.53 per hundredweight, a loss of 41 cents per hundredweight versus last month's estimate. Income over feed in 2024 would be above the level needed to maintain or grow milk output and up $5.53 from 2023's level," said Brooks.
Milk income over feed costs for 2025 are expected to be $14.41 per hundredweight, a gain of 88 cents per hundredweight versus 2024, Brooks concludes. Income over feed would be above the level needed to maintain or grow milk production, and up 14 cents hundredweight from last month's estimate.
The Oct. 30 Daily Dairy Report says, "Beef prices have soared to record-highs, and this dynamic will have a fundamental impact on the dairy industry for years." The DDR adds, "High beef prices have been underpinned by a shrinking national beef herd. As producers and ranchers faced persistent drought conditions and rising operating costs in recent years, many responded by reducing the size of their herd. As a result, the national herd is the smallest it has been in 73 years."
Herd recovery will take years, says the DDR. "The higher prices have benefited dairy farmers who have bred at least a portion of their herd to beef bulls, resulting in a crossbred calf that can fetch a hefty price when sold to a feedlot."
That has limited the number of dairy replacement heifers and will likely keep a lid on dairy expansion and U.S. milk production. Rabo Bank's Lucas Fuess says the situation is unlike any before in the Nov. 4 Dairy Radio Now broadcast.
Milk production did turn positive in September, he said, and with the improved margins dairy farmers are seeing, Rabo Bank expects milk output to at least be flat or moving higher than a year ago the rest of fourth quarter and into 2025.
He quickly added, "Even if dairy farmers did want to expand their herd and grow cow numbers at a pretty quick rate to take advantage of those profits that have emerged, the cow situation is a little different than normal." High prices for day old calves and for springer replacements is causing farmers to do some financial calculations, he said, and he believes it will prevent a quick resurgence in cow numbers and recovery in milk production, thus keeping milk prices relatively high.
New avian flu cases are being reported in California, and Utah has joined the list of states dealing with it. StoneX said, "The larger sentiment seems concerned about demand as seasonal demand tends to decline heading into year-end."
Dairy cow slaughter for the week ending Oct. 19 totaled 52,900 head, up 1,500 from the previous week, but 1,800, or 3.3%, below a year ago. Year to date, 2,204,800 dairy cows had been culled, down 340,700 head, or 13.4%, from 2023.
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