Benchmark milk price gains 58 cents
U.S. milk prices are heading in the right direction but have a ways to go to reach needed profitability on the farm. The Agriculture Department announced the September Federal order Class III benchmark at $16.53 per hundredweight, up 58 cents from August and only a dime above September 2020. The nine month average stands at $16.75, down from $17.48 at this time a year ago and compares to $16.11 in 2019.
Friday’s Class III futures settlements portend an October price at $18.13; November, $18.20; and December at $17.87.
The September Class IV price is $16.36 per cwt., up 44 cents from August and $3.61 above a year ago. Its 2021 average stands at $15.26, up from $13.53 a year ago, but compares to $16.21 in 2019.
Will milk prices keep U.S. dairy farmers in business? Speaking in the Oct, 4 ‘Dairy Radio Now’ broadcast, StoneX dairy broker, Dave Kurzawski answered; “In business, probably yes. Happily in business, probably no.”
He cited the rising costs farmers are facing, gas and energy, labor costs and issues, as well as feed costs, but the good news is that we’re seeing a little milk tightness in the U.S., as well as globally, and prices are beginning to respond to that. And, we are entering a period of good demand as the holidays approach.
When asked about the helpfulness of government programs like the one announced this week, he responded, “Any little bit can help I suppose, but the flip side of that, from a brokerage perspective and a trading perspective, you have to say, the more money the government hands out the more milk we have in 2022.”
The 2022 milk price average is in the high $17 area, he said, but he believes that could climb over $18 as we push into fall. He said there’ll be opportunities for producers to set some floor prices, either through the Dairy Revenue Protection program (DRP) or using futures or options, etc.
“The real question is, what is it going to cost to produce milk next year? Producers have to take a hard look at grain costs, which have moderated some but are at a high price level with corn over $5 per bushel. We have to look at profit margin before doing anything,” he concluded. “The DRP is probably the easiest way to get some risk management and give yourself a safety net.”
Dairy farm profit remains elusive. Another lower All Milk price, together with higher corn and hay prices resulted in the August milk feed ratio slipping again. The USDA’s latest Ag Prices report shows the August ratio at 1.50, down from 1.55 in July, and compares to 2.48 in August 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 1.50 pounds of dairy feed of that blend.
The U.S. all milk price averaged $17.70 per cwt., down 20 cents from July and 90 cents below the August 2020 average.
The national average corn price climbed to $6.32 per bushel, up 20 cents per bushel from July and a whopping $3.20 per bushel above August 2020.
Soybeans averaged $13.70 per bushel, down 40 cents from July after falling 40 cents the previous month, but are still $5.04 per bushel above August 2020.
Alfalfa hay averaged $206 per ton, up $5 from July and $35 above a year ago.
The August cull price for beef and dairy combined averaged $76 per cwt., up 40 cents from July, $5.30 above August 2020, and $4.40 above the 2011 base average of $71.60 per cwt.
Most dairy product prices start October a little stronger than they did in September. CME block Cheddar climbed to $1.8725 per pound Sept. 30, highest since Jan. 14, but closed that Friday at $1.85, up 14.25 cents on the week, 14 cents above their Sept. 1 perch, but 76 cents below a year ago.
The barrels got to $1.7550, highest since May 13, but finished the week at $1.7450, 14.50 cents higher on the week, 36.50 above the Sept. 1 close, and 21 cents below a year ago when they pole vaulted 29.50 cents.
The block to barrel price spread narrowed to 9 cents Sept. 27 but grew back to 10.50 cents at Friday’s close. Sales included five cars of block on the week and 18 for the month of September, down from 23 in August. There were 17 cars of barrel traded on the week and 69 for the month, down from 72 in August.
Midwestern cheesemakers told Dairy Market News that spot milk was generally available at around the Class III price or just above the last week of September. Cheese demand is strengthening seasonally with retail customers particularly active as gift box cheese orders are growing. Cheese plant managers relayed mixed tones regarding continued staffing shortages.
Cheese demand in the West remains steady in retail and food service as well as internationally, largely driven by purchasers in Asia. Traders continue to deal with delays due to a shortage of truck drivers and limited shipping supplies. Port congestion also remains a huge issue but not everywhere, as the director of communications for the port in Oakland, Calif., informed us. As loads continue to get delayed, available warehouse space has also become limited.
Spot butter climbed to $1.77 per pound Tuesday, Sept. 28, but ended Friday, Oct. 1 at $1.7475, up 2 cents on the week and 23.75 cents above a year ago. The butter was down 1.75 cents from its Sept. 1 mark. There were 33 sales for the week and 121 for the month, up from 106 in August.
Midwest cream availability is mixed but end users say it remains available, albeit pricier. Some procurers say they were not expecting it to be as accessible as it was the last week of the month but others said the higher price was pushing the limits for a return on investment. Staffing shortages also have plants concerned. Butter inventories are still meshing well with demand, according to DMN.
Butter production varies throughout the West. Cream hauling issues persist, but plant managers say cream availability is generally meeting needs. Retail sales are steady, and some grocers are reportedly placing larger orders in advance of fall baking and holiday demand. Food service orders are mixed. Some describe strong regional sales but others indicate pockets of faltering demand, particularly in the restaurant sector, amidst rising COVID case counts, dine-in restrictions, and reduced staffing and hours.
Grade A nonfat dry milk saw a Friday, Oct. 1, finish at $1.3975 per pound, up 3.75 cents on the week, highest since Aug. 2014, 6.50 cents higher than on Sept. 1, and 27.50 cents above a year ago. There were 23 sales on the week and 69 for the month, up from 34 in August.
Domestic powder demand is reportedly increasing as there is a high volume of inquiries, according to StoneX. International demand is also steady as Mexico continues to be a strong buyer. There still are worries that prices will make some buyers hesitant and pull back in the market, but that has yet to happen.
The dry whey closed the week at 58 cents per pound, 0.75 cents higher on the week, up 9.50 cents on the month, and 19 cents above a year ago. There was only one sale on the week and 13 for September as well as 13 in August.
The best news is that America’s love for dairy remains, according to the Agriculture Department’s annual per-capita consumption data, and that despite the COVID-19 pandemic. The Economic Research Service added 2020 data to an accounting of per capita dairy consumption dating back to 1975 when the average American consumed just 539 pounds of dairy foods per year. Last year’s consumption was at 655 pounds in milk, cheese, yogurt, ice cream, butter, and other products.
The 2020 figure represents an increase of 3 pounds per person over the previous year, according to the International Dairy Foods Association. “Ice cream continued to rebound and grew by 6% year-over-year in 2020,” the IDFA stated. “Yogurt consumption jumped 3% and butter notched a 2% increase. Milk and cheese remained resilient throughout 2020 despite the closure of restaurants, cafes, schools, and other institutions that drive demand.”
The IDFA says per capita consumption has grown 22% since USDA began tracking dairy consumption in 1975. “How we consume our dairy is different than a generation ago,” said IDFA president and CEO Michael Dykes. “Americans eat more dairy than we drink and include dairy in all meals and occasions as well as for fitness and recovery, to live a healthy life, and to celebrate those special moments. With a greater focus on producing sustainable foods, dairy will continue to grow as a category well into the future,” Dykes said.
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