Benchmark milk price begins long climb back
February 8, 2019
U.S. milk prices are beginning a slow rebound but have a long way back to profitability. The Agriculture Department announced the January Federal order (FO) Class III benchmark price at $13.96 per hundredweight (cwt.), up 18 cents from December but 4 cents below January 2018. It equates to $1.20 per gallon, up from $1.18 in December and compares to $1.20 a year ago.
Friday's Class III futures settlements portend a February price at $14.03 and March at $14.39, with a peak at just $16.45 in September.
The January Class IV milk price is $15.48, up 39 cents from December, $2.35 above a year ago, and the highest Class IV price since September 2017.
California, now a federal order, saw its January 4b cheese milk price at $13.37 a year ago and that was 63 cents per cwt. below the FO Class III.
Meanwhile, a drop in the U.S. All Milk price average could not be offset by some lower prices on feed and thus pulled the November milk feed price ratio down after three months of advances. The Agriculture Department's latest Ag Prices report shows the November ratio at 2.18, down from 2.20 in October and down from 2.54 in November 2017.
The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.18 pounds of dairy feed containing that blend. The U.S. All-Milk price averaged $17 per cwt., down 40 cents from October and $1.20 below November 2017. New Mexico again had the low at $15.30, followed by Kansas at $16. California, at $16.44, was down 2 cents from October; and Wisconsin was at $16.90, down 70 cents from October.
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The national average corn price averaged $3.41 per bushel, unchanged from October but 26 cents above November 2017. Soybeans averaged $8.37 per bushel, down 21 cents from October and 85 cents per bushel below a year ago. Alfalfa hay averaged $178 per ton, down $3 from October but $25 per ton above a year ago.
Looking at the cow side of the ledger; the November cull price for beef and dairy combined averaged $52.70 per cwt., down $5.10 from October, $10.70 below November 2017, and $18.90 below the 2011 base average of $71.60 per cwt.
Cheese and butter started February with some strengthening. Block Cheddar closed Feb. 1 at $1.50 per pound, highest CME price since Oct. 30, 2018, up 11 cents on the week, reversing four weeks of decline, up 8 1/4 cents on the month and 3 3/4 cents above a year ago.
The barrels finished at $1.30, up 18 cents on the week, a quarter-cent lower on the month, 2 1/2 cents below a year ago, and 20 cents below the blocks. 14 cars of block traded hands on the week, 29 on the month. 28 cars of barrel traded on the week, 82 on the month.
A number of Midwestern cheese producers report slightly higher demand when compared to recent weeks, according to Dairy Market News. Super Bowl, along with the upcoming basketball playoffs, have proven positive for mozzarella and provolone producers in the region. Some cheesemakers saw more spot milk available last week and loads ranged from $2.75 under to 50 cents over Class III. "That said, the impact of current Siberian-like cold weather have some cheese plant managers expecting fewer discounts near term."
Western cheese output remains at or near full capacity. Inventories are reported to be long, "but there seems to be a consensus that this may be a new norm." Market participants are eager to get updated statistics on cheese production and inventories. They expect large cheese stocks in the warehouse, but are not sure how large and at what point inventories become burdensome.
The USDA is rescheduling its missed reports from the government shutdown however the missing December Cold Storage report was not yet listed at our deadline.
Storage numbers are only part of the story, according to some contacts who report that "manufacturers are placing a bit more cheese into aging programs to extract greater value out of the cheese and deal with available milk. The action may move stock numbers higher, but it better meets consumer demand trends," said DMN. Cheese makers say domestic demand has been steady and the lower CME cheese prices have generated some interest in export markets.
DMN says; "Developing new export business is challenging when foreign buyers expect heavy inventories to automatically mean lower prices. With increasing CME prices, a few expect more resistance to U.S. cheese offers."
Cash butter climbed to $2.2925 per pound Jan. 29, highest CME price since Nov. 2, 2018. It closed Feb. 1 at $2.29, up 4 1/2 cents on the week, 7 1/4 cents above its Jan. 2 perch, and 17 1/2 cents above a year ago. Fifteen cars traded hands on the week at the CME and 34 on the month.
Cream remains abundant for Central butter producers who expect similar availability to last through February, according to DMN. Butter sales are a little lower than expected in some cases, but somewhat steady overall.
Western butter inventories remain abundant while prices are higher compared to last year, said DMN. "Contacts believe the increased costs of managing inventories could be a contributing factor for the high value of butter." They also report that "last year's holiday sales haven't been as robust compared to previous years. In addition, with easily accessible cream, butter output continues to be strong, adding to the pile of post-holiday stocks. Nevertheless, some butter vendors are reporting solid first quarter sales to the point where their sales are almost above current production levels. U.S. butter prices are competitive in the global market, so sellers hope that export demand will react to the prices."
Cash Grade A nonfat dry milk closed Feb. 1 at $1.0025 per pound, down a penny on the week, up 5 1/4 cents on the month, and 28 cents above a year ago, with five cars finding new homes on the week and 49 in the month of January.
Dry whey continued to weaken, closing at 36 1/4 cents per pound, down 4 1/4 cents on the week, lowest price since May 23, 2018, on 19 sales reported on the week. ❖