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Benchmark down 75 cents

It was a week of COVID cases shooting higher across the country. Hurricane Ida attacked the Louisiana coast plunging New Orleans into darkness and causing flooding in Mississippi, even reaching to New York and New Jersey with rains and flooding. And, it was the U.S., in humiliating surrender, leaving Afghanistan after 20 years. With all that on our minds, I endeavor to report the dairy markets.

The Agriculture Department announced the August Federal order Class III benchmark milk price at $15.95 per hundredweight (cwt.), down 54 cents from July, $3.82 below August 2020, and the lowest Class III since February. The eight month Class III average stands at $16.78, down from $17.61 a year ago and compares to $15.83 in 2019.

Friday’s Class III futures settlements had the September contract at $16.64; Oct., $16.85; Nov., $17.10; and Dec. at $17.42 per cwt.



The August Class IV price is $15.92 per cwt., down 8 cents from July but $3.39 above a year ago, and the lowest since April. Its average for the year stands at $15.12, up from $13.62 a year ago, and compares to $16.19 in 2019.

A continued falling All Milk price and higher corn and hay prices in July were not offset by the drop in the soybean price and resulted in the U.S. milk feed ratio falling again, a descent that started in December, paused in April, but has resumed ever since. The USDA’s latest Ag Prices report has the July ratio at 1.55, down from 1.60 in June, and compares to 2.72 in July 2020.



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. In other words, one pound of milk would only purchase 1.55 pounds of dairy feed of that blend.

The U.S. All Milk price averaged $17.90 per cwt., down 50 cents from June and $2.70 below the July 2020 average.

California’s All Milk price fell to $18.20 per cwt., also down 50 cents from June and $2.90 below a year ago. Wisconsin’s, at $17.70, was down 60 cents from June and $4.60 below a year ago.

The national average corn price hit $6.12 per bushel, up 12 cents per bushel from June, and a whopping $2.91 per bushel above July 2020.

Soybeans averaged $14.10 per bushel, down 40 cents from June after falling 30 cents the previous month, but were still $5.60 per bushel above July 2020.

Alfalfa hay averaged $201 per ton, up $2 from June and $29 above a year ago.

Looking at the cow side of the ledger; the July cull price for beef and dairy combined averaged $75.60 per cwt., up $1.70 from June, $5.10 above July 2020, and $4 above the 2011 base average of $71.60 per cwt.

BEARISH OVERALL

The latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. says “Dairy margins were unchanged over the first half of August as increases in both milk prices and feed costs were largely offsetting since the end of July.” It credited strength in cash cheese prices the past week being supportive of CME Class III futures but warned; “The overall tone of the market remains bearish with spot futures still down around $2.50 from their May highs.”

“Milk production remains strong for this time of the year as demand uncertainty lingers from the advancing Delta variant of COVID-19 and indications from Open Table that U.S. restaurants are no longer showing growth in demand, with some significant slowing evident in states more heavily impacted by the current COVID-19 surge. Mobility data similarly suggests a modest slowdown in travel.”

The MW cited USDA’s decreased forecast in U.S. milk output in the latest World Agricultural Supply and Demand Estimates, but said “The bigger surprise was on the feed side where USDA cut the corn yield projection by 4.9 bushels from July to 174.6 bushels per acre, down 2 million from the average industry estimate.”

“The soybean yield was similarly trimmed to 50.0 bushels per acre from 50.8 in July and likewise below the average pre-report estimate of 50.3 bushels. Both corn and soybean meal pushed higher following the report, and high feed costs continue to raise breakeven prices for most dairy operations which now generally need at least $18 per cwt. to cover all costs,” the MW concluded.

EXPORT SUCCESS

The good news is that U.S. dairy exports continue to impress, according to HighGround Dairy’s Lucas Fuess. Reporting in the Sept. 6 ‘Dairy Radio Now’ broadcast, Fuess said July cheese exports, at 81.1 million pounds, were up 26.8% from July 2020, driven primarily by gains into Mexico, but also impressive exports to Japan.

Nonfat dry milk exports, at 160.9 million, were down 3.1%, he said, but still on track for another record year over year increase, up 12.7%. He emphasized the large increase of NFDM to China which is buying it wherever it can in recent months. U.S. powder shipments were the highest since March of 2014.

Dry whey totaled 37.3 million pounds, down 8.7%, though YTD is up 19.1%.

U.S. butter volumes were good as well, though a fraction of the others, he said. Butter totaled 8 million pounds, up 80% from a year ago, with YTD exports up an impressive 136.1%. Interestingly, the U.S. imported 8.6 million pounds, up 11% from a year ago, and cheese imports totaled 37.5 million pounds, up 33.3%.

Fuess also reported that Hurricane Ida impacted feed prices after damaging grain export elevators in Louisiana. Power outages may keep them at idled for some time.

Meanwhile, dairy prices at the Chicago Mercantile Exchange started September with butter and powder climbing and cheese and whey falling, as Friday’s (Sept. 3) traders anticipated the afternoon’s July Dairy Products and the long Labor Day holiday weekend.

The 40-pound Cheddar blocks started the week dropping 4 cents but rallied late in the week to close Friday at $1.7350 per pound, down 1.5 cents on the week and 39 cents below a year ago when they pole vaulted 29.75 cents to $2.1250.

The 500-pound Cheddar barrels lost 3.75 cents Monday, then recovered some but finished Friday at $1.3925 per pound, down a penny on the week, 30.75 cents below a year ago when they jumped 27 cents to $1.70, but are 34.25 cents below the blocks. Only four cars of block were sold on the week at the market of last resort, with 23 in the month of August, up from 21 in July. There were 16 sales of barrel on the week and 72 on the month, down from 111 in July.

Midwestern cheesemakers tell Dairy Market News that production schedules remain busy but staffing shortages are adding stress to a growing number. Regional cheese sales are healthy and pizza cheese producers continue to turn down orders. Mozzarella inventories are tightening. Curd and barrel sales are steady week to week. Regional cheese market movements were more bullish than bearish, says DMN, despite the CME price fluctuations.

Cheese demand remains steady in the west in retail and food service though there is concern about the current surge of COVID-19 cases affecting demand, particularly with food service. Demand remains strong from international purchasers but ongoing port congestion is causing delays. Domestic loads are also facing delays due to a shortage of truck drivers and limited available shipping supplies. Inventories of both barrels and blocks are available, says DMN

CME butter had a great week climbing to its Friday close at $1.7975 per pound, 9 cents higher on the week, highest since June 17, and 30.50 cents above a year ago. 28 cars were sold on the week and 106 in the month, up from 55 in July.

Butter production remains busy, says DMN, in spite of lighter seasonal cream supplies. Plant managers’ reports of staffing shortages are growing and plant schedules would be more routine if it were not for thinly stretched workforces. Cream multiples are a little steeper week to week and some producers are bidding for fourth quarter cream supplies. Butter sales remain somewhat steady. Retail sales have yet to lift, but fall demand upticks are expected near-term.

Cream availability continues to taper in the West and contacts note staffing issues and delivery delays are interrupting production at some plants. Cream would be tighter if facilities were able to operate full steam, says DMN. Other contacts, however, report unhindered churning schedules and receipt of steady cream supplies to maintain typical seasonal butter production. Inventories are available. Retail sales are stable and contacts say some grocers are increasing orders heading into fall and the holiday season. Food service demand remains steady to growing, despite lingering concerns about the Delta variant. The restaurant sector is reportedly particularly busy, says DMN.

Grade A nonfat dry milk had a good week, closing Friday at $1.34 per pound, up 4.75 cents on the week and 31 cents above a year ago. Sixteen carloads traded hands on the week, with 34 sold in August and 34 sold in July.

Dry whey had a down week, finishing at 48.50 cents per pound, down 1.50 cents, lowest since Aug. 4, but still 15.25 cents above a year ago. Two sales were reported for the week at the CME and 13 for the month, down from 17 in July.

The USDA’s preliminary data showed July milk production at 19.1 billion pounds, up 2.0% from July 2020. The latest Dairy Products report shows where that milk was used.

CHEESE REPORT

July cheese output totaled 1.15 billion pounds, up 2.4% from June and 3.5% above July 2020. Year to date cheese output is at 7.9 billion pounds, up 3.3% from the same period in 2020.

Wisconsin produced 292.2 million pounds of the cheese total, up 0.1% from June and 3.5% above a year ago. California output, at 203.0 million pounds, was up 5.1% from June and 0.2% above a year ago. Idaho produced 86.1 million pounds, down 0.1% from June and 3.8% below a year ago.

Italian style cheese totaled 484.4 million pounds, down 2.9% from June but 6.5% above a year ago. YTD Italian hit 3.3 billion pounds, up 1.6%.

American type cheese, at 463.6 million pounds, was up 2.3% from June and 2.3% above a year ago. YTD American was at 3.2 billion pounds, up 5.5%.

Mozzarella output totaled 377.7 million pounds, up 3.5% from a year ago, with YTD mozzarella at 2.6 billion pounds, up 0.1% from 2020.

Cheddar, the cheese traded at the CME, totaled 321.8 million pounds, down 5.1 million pounds or 1.6% from June, and 1 million pounds or 0.3% below a year ago. YTD Cheddar climbed to 2.3 billion pounds, up 4.7% from 2020.

Churns produced 151.7 million pounds of butter, down 8.6 million pounds or 5.4% from June, and 1.2 million pounds or 0.8% below a year ago. YTD butter output was at 1.28 billion pounds, down 2.0% from 2020.

Yogurt totaled 394.2 million pounds, up 7.9% from a year ago, with YTD at 2.8 billion pounds, up 4.4%.

Dry whey output amounted to 80.8 million pounds, up 9.4 million pounds or 13.2% from June, but 1.8 million pounds or 2.3% below a year ago. YTD dry whey output hit 543.5 million pounds, down 4.7% from a year ago.

Dry whey stocks climbed to 66.8 million pounds, up 5.2 million or 8.4% from June but were 20.6 million pounds or 23.6% below those a year ago.

Nonfat dry milk output fell to 157.3 million pounds, down 29.7 million pounds or 15.9% from June and were down 8.8 million or 5.3% below a year ago. Powder production YTD totaled 1.3 billion pounds, up 9.3% from 2020.

Stocks fell to 322.3 million pounds, down 27.1 million pounds or 7.8% from June, but were up 8.5 million pounds or 2.7% above those a year ago.

Skim milk powder production totaled 51.1 million pounds, up 7.6 million pounds or 17.5% from June but 10.3 million pounds or 16.8% below a year ago. YTD skim milk powder, at 284.4 million pounds, is down 22.3% from 2020.

July regular hard ice cream output totaled 65.5 million pounds, down 11% from a year ago, with YTD output reaching 444.3 million pounds, down 0.9% from 2020.


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