Benchmark down 28 cents, butter at record high
The September Federal order Class III benchmark milk price was announced at $19.82 per hundredweight, down 28 cents from August, after plunging $2.42 in August, but is $3.29 above September 2021. Unfortunately, it’s the lowest Class III price since December 2021 but put the nine month average at $22.24, up from $16.75 a year ago, $17.48 in 2020 and $16.11 in 2019.
Friday’s (Oct. 7) Class III futures settlements portend an October price at $22.11, with November at $21.85, and December at $21.23. If realized, the 2022 average would be $22.11. USDA has forecast $21.65 for 2022 and $19.70 for 2023.
The September Class IV price is $24.63, down 18 cents from August, $8.27 above a year ago, and the lowest Class IV since February. The Class IV average is at $24.81, up from $15.26 a year ago, $13.53 in 2020, and 16.21 in 2019.
Dairy farmers saw small declines in feed prices in August however the All Milk price fell as well. The month’s milk feed ratio was down for the seventh consecutive month, according to the latest Ag Prices report. The August ratio at 1.70, was down from 1.79 in July, but compares to 1.48 in August 2021.
The All Milk Price average fell to $24.30 per hundredweight, down $1.40 from July, after dropping $1.20 the previous month, but is $6.70 above August 2021.
The August national average corn price was $7.24 per bushel, down a penny from July, but 92 cents per bushel above August 2021.
Soybeans, fell to $15.30 per bushel, down 20 cents from July, but are $1.60 per bushel above August 2021.
Alfalfa hay, after hitting a record average $276 per ton in July, was down $1 from July but a whopping $65 per ton above a year ago.
Looking at the cow side of the ledger; the August cull price for beef and dairy combined averaged $90.10 per cwt., down 50 cents from July, $14.10 above August 2021, and $18.50 above the 2011 base average.
On a brighter note, the CME butter price hit the highest price ever Thursday, setting the new record at $3.2675 per pound. It closed the next day at $3.2175, up 7.25 cents on the week and $1.4975 above a year ago.
“The interest is for use now,” says StoneX Dairy Group, “because building inventory at these levels is expensive.” Dairy Market News says cream availability has grown in recent weeks for Central churns. With hurricane affected states working through the aftermath, cream stayed in the Midwest and Mid-Atlantic areas. Butter demand remains “notably strong,” says DMN, which also reported that cream is tight in the West, though additional loads became available following the storm.
Cheese prices faced headwinds from the Global Dairy Trade auction this week but the Dairy Products report helped the cause. The Cheddar blocks climbed to $2.03 per pound Thursday but closed Friday at $2.0225 per pound, up 5.50 cents on the week and 21.25 cents above a year ago.
The barrels got to $2.25, highest since June 9, but finished at $2.2250, 2.50 cents higher, 43.50 cents above a year ago, and 20.25 cents above the blocks. There were six sales of block on the week and 13 of barrel.
Milk availability increased last week for Class III production in the upper Midwest, according to DMN. Plant downtime, plus the additional milk brought spot prices lower. Cheese sales are meeting or exceeding expectations. Cheese demand is steady from retail and food service in the West. International demand remains strong, with continued interest from Asia for shipment in second quarter.
Grade A nonfat dry milk closed the week 3 cents lower at $1.54 per pound, 8 cents above a year ago, with seven loads exchanging hands on the week.
The Oct. 3 Daily Dairy Report says the Mexican economy is strong and the combination of a stronger peso and less expensive milk powder is likely to boost U.S. shipments of product there. Let’s hope so.
Dry whey saw a Friday finish at 42.25 cents per pound, down 1.75 cents on the week, and 17.25 cents below a year ago, on two sales for the week at the CME.
StoneX dairy broker Dave Kurzawski analyzed the markets in the Oct. 3 Dairy Radio Now broadcast, starting with the block and barrel price spread. He said the expectation was/is that the barrels would fall to a closer to normal alignment however “We’re in the peak demand time seasonally so we could be seeing $2 per pound cheese for several more weeks.”
When asked about butter setting new record highs and remaining so long above $3 per pound, Kurzawski stated that butter demand is good because “We turned a corner on demand about 10 years ago,” referring to the perception that butter was not good for you.
Currently there are production issues, he explained, as butter output is not keeping up with demand and inventories are well below year ago, but he pointed to a new and growing use of butter as part of an appetizer on culinary “butter boards” promoted on the often controversial social media, Tik Tok.
A butter board is covered in soft spread butter, many of them flavored, along with toasted bread, cheese, olives, fruits, nuts, or whatever you like. People love the taste of butter, he said. “People want dairy fat and we underestimate this in the industry to our peril.”
U.S. dairy exports in August were the highest ever for that month, up 6.9% from a year ago, according to broker Dave Kurzawski in the Oct. 10 Dairy Radio Now broadcast.
He reported that butter exports were up 116% and while it was a small volume number, at 14.1 million pounds, it was double what they expected. Most of it went to Canada and some to the Middle East, he said.
Cheddar exports, at 15.7 million pounds, were up 11.5%, while Cheddar production was down 2.1%, according to Kurzawski. “That’s what we price off of at the CME.” Cheese prices have moved from $1.80 per pound to a $2.10 average the last four to six weeks, he said. Attributing it to “holiday demand,” but now says exports likely played the bigger role.
The dark spot was powder however. Nonfat dry milk/skim milk powder totaled 142.7 million pounds, down 17% from August 2021, but whole milk powder, at 9.2 million pounds, was up 51.2%.
“The market is looking for some bit of news,” Kurzawski said, “like China boosting its purchases. They won’t buy much from us but their purchases might spur Mexico to buy more.” “If that doesn’t happen,” he warned, “prices might have to be lowered to clear product.”
Whey exports, at 50.3 million pounds, were up 29.7%, thanks to China’s rebuilt hog herd.
Recovery halted in the Oct. 4 Global Dairy Trade auction which saw the weighted average fall 3.5%, following a 2.0% rise on Sept.20, and a 4.9% jump on Sept. 6. Traders brought 68 million pounds of product to market, up from 57.6 million on Sept. 20, and the most since Dec. 7, 2021.
Butter led the declines, dropping 7.0%, after inching 0.2% lower on Sept. 20. Anhydrous milkfat was down 1.7%, after leading the gains the previous two events, up 4.0% on Sept. 20 and 13.9% on Sept. 6. Whole milk powder was down 4.0%, after gaining 3.7%, and skim milk powder was down 1.6%, following a 0.7% loss. Cheddar was down 3.8%, after a 2.1% gain last time.
StoneX says the GDT 80% butterfat butter price equates to $2.2050 per pound U.S., down 16.50 cents from the last event. CME butter closed Friday at a very pricey $3.2175. GDT Cheddar, at $2.2527, was down 8.2 cents, and compares to Friday’s CME block Cheddar at a bargain $2.0225. GDT skim milk powder averaged $1.5864 per pound, down from $1.6089, and whole milk powder averaged $1.6208 per pound, down from $1.6931. CME Grade A nonfat dry milk closed Friday at $1.54 per pound.
Analyst Dustin Winston says “With tight milk production in New Zealand, more product on oﬀer for GDT, and price weakness across the board, it would appear that demand oﬀ GDT continues to be weak and maybe even got a little worse.”