Benchmark milk price slips 66 cents | TheFencePost.com

Benchmark milk price slips 66 cents

Lee Mielke

The December Federal order Class III benchmark milk price was announced by the Agriculture Department on Jan. 3 at $13.78 per hundredweight, down 66 cents from November and $1.66 below December 2017.

It equates to $1.18 per gallon, down from $1.24 in November and $1.33 a year ago. It is the lowest Class III price since February 2018 and put the 2018 Class III average at $14.61, down from $16.17 in 2017 and $14.87 in 2016.

California’s Class 4b cheese milk price averaged $15.20 in 2017 and $14.27 in 2016. The Golden State is now part of the federal order program.

Jan. 4 Class III futures settlements portended a January price at $14.25; February, $14.74; and March at $15.15, with a peak at $16.77 in September.

The December Class IV price is $15.09, up 3 cents from November, $1.58 above a year ago, and the highest Class IV price since September 2017. It averaged $14.23 in 2018, down from $15.16 in 2017 and compares to $13.77 in 2016

The first Global Dairy Trade auction of 2019 saw its weighted average of products offered jump 2.8 percent, following the 1.7 percent rise on Dec. 18 and 2.2 percent on Dec. 4. Sellers brought 63.2 million pounds to market, down from 79.8 million in the Dec. 18 session and the lowest amount since July 17, 2018.

All products offered were in the black, led by buttermilk powder, up 9.3 percent, followed by skim milk powder, up 7.9 percent, which follows a 3.4 percent rise last time. Anhydrous milkfat and butter were both up 3.9 percent, following a 4.0 and 4.9 percent respective gain in the Dec. 18 event. Cheddar was up 3.2 percent, after a 2.2 percent gain. Lactose was up 1.6 percent and rennet casein was up 1.3 percent. Whole milk powder brought up the bottom, up 1.2 percent, after it inched up 0.3 percent last time.

FC Stone equates the GDT 80 percent butterfat butter price to $1.8037 per pound U.S., up 6.6 cents from the last session. CME butter closed Jan. 4 at $2.25. GDT Cheddar cheese equated to $1.5289 per pound, up 4.9 cents from the last event and compares to Jan. 4’s CME block Cheddar at $1.4175. GDT skim milk powder averaged 99.82 cents per pound, up from 92.63 cents last time. Whole milk powder averaged $1.2269, up from $1.2129. CME Grade A nonfat dry milk closed Jan. 4 at 97 1/2 cents per pound.

Matt Gould, editor and analyst with the Dairy and Food Market Analyst newsletter, said in the Jan. 7 Dairy Radio Now broadcast that the GDT lends some optimism, even though the dairy industry and others still face the “trade war” left over from 2018. He stated that, while there have been some concessions from China, the retaliatory tariffs from Mexico are still in place.

China lowered tariffs on infant formula and whey products, which is good for global demand, he said, plus trade in general is growing, indicative of that are the shrinking inventories of milk powder in every place where data is available. “Demand appears to be getting better,” Gould said, and both he and the people he talks to are more optimistic than they have been.

Switching to domestic demand, I ask about one of dairy’s biggest customers; restaurants. Gould said “2018 was a challenging year economically due to a tight job market which meant higher wages and more turnover of employees so their bottom lines got pinched.”

He added that sales volumes were fairly weak and very weak for the big chains so as they look to 2019 “There’s talk of recession and the tight job market remains which means their costs are high so at least at the restaurant level things look a bit challenging going forward.”

Pizza chains were also challenged in 2018, according to Gould, primarily from other convenient fast foods plus “They face a more competitive 2019 after having really booming years in 2015, 2016 and 2017.” In summary, Gould said the domestic situation is “mediocre.”

The block Cheddar price closed the first Friday of 2019 at $1.4175 per pound, down 1 1/4 cents on the New Year’s holiday shortened week and 7 3/4 cents below a year ago. The barrels closed at $1.3025, up 1 1/4 cents on the week, 8 3/4 cents below a year ago, and 11 1/2 cents below the blocks. Two cars of block were sold on the week at the market of last resort and four of barrel.

The markets will have less to digest in terms of USDA reports due to the partial government shutdown so rumors and speculation will play a bigger role. The November Dairy Products report, scheduled for Jan. 3, was the next casualty, following the loss of the Ag Prices report on Dec. 27.

U.S. cheese markets were termed “quiet” by Dairy Market News. Contacts in the Midwest report that a number of plants are down for various reasons, particularly maintenance issues. Plant managers who had a smooth holiday run are now on increasingly busy schedules, some scheduling seven-day work weeks.

Milk was heavily discounted over the Christmas weekend and into New Year’s week, with prices ranging $2 to $4 under Class, although contacts suggest that late Christmas week brought even lower prices. Some cheesemakers expect discounts until mid-month, when bottling starts to pick up. Cheese demand has been steady to mixed. Regional pizza cheese producers have remained busy throughout the holiday season, while most other producers have experienced expected seasonal slowdowns.

Western cheese shipments are moving steadily through existing contracts and the occasional spot sale. Mozzarella makers are hopeful for a lift in orders for the upcoming football playoffs and the return of kids to school. Cheese demand is “a little subdued,” said DMN. Block sales have slowed in the wake of the passing winter holidays. Plenty of milk is available and because milk components remain high, cheese yields are strong. Cheese inventories are heavy and DMN warns that it seems unlikely for cheese production to slow much soon, and without a boost in sales, cheese stocks could grow further.

The cash butter price saw a Jan. 4 finish at $2.25 per pound, up 3 1/4 cents on the week and 1 1/4 cents above a year ago. Seven loads traded hands on the week.

DMN reports that cream availability for churning was expected to increase but some contacts report that offers are “pouring in.” It adds that “untimely maintenance issues have held some Midwestern butter production back, hence other plants are seeing more cream offers at multiples well below recent norms.” Food service and retail butter sales continue to be positive to steady year over year but butter inventories are beginning to build for the spring push. “All said, butter markets are holding steady in the first week of 2019, after a bullishly steady 2018,” according to DMN.

Cream is readily available in the West and is trading at discounted prices. Most butter plants are running at full capacity as they attempt to clear as much cream to the churn as possible. Bakery sector interest for butter has slowed somewhat but other buyers are getting a head start on replenishing print butter inventories for use later in the year. Spot butter sales are light however prices remain mostly stable. Some connections report that current prices are “higher than anticipated.”

Spot Grade A nonfat dry milk closed Jan. 4 at 97 1/2 cents per pound, up 3 3/4 cents on the week, 29 1/2 cents above a year ago, and could top $1 per pound for the first time at the CME since January 2017. Five carloads were sold New Year’s week at the CME.

The spot dry whey price was up a penny on the week, closing Jan. 4 at 49 cents per pound, with only one car selling in the four days of trading.

With the start of another new year, I remind readers of some important points on milk pricing. In most of the USA, California now included, milk prices are determined using complex formulas by the U.S. Agriculture Department but the system has evolved over the years from a simple volume/butterfat basis to the current multiple component pricing, which takes into consideration volume, butterfat, protein, and various other components of the milk, as well as where the milk is to be used.

There are four Classes of milk; Class I is fluid in the bottle or jug and yields the highest rate of return to farmers. Class II is milk used in ice cream, yogurt and cream cheese. Class III is milk that goes to cheese and dry whey and Class IV is milk used in butter, nonfat and whole milk powder.

It takes 9.6 pounds of milk to produce a pound of cheese, so every penny movement in the cheese price equates to about 10 cents on the Class III milk price.

Dry whey is a byproduct from making cheese. One hundred pounds of milk will yield about 10 pounds of cheese and 6 pounds of dry whey. A 1 cent movement in the dry whey price equals about 5.9 cents on the Class III milk price.

The Class IV milk price is driven by powder and butter. One hundred pounds of milk yields about 8.6 pounds of nonfat dry milk and 4.2 pounds of butter.

A penny movement on the nonfat dry milk price means about 8.6 cents on the Class IV price and a penny movement on butter results in a 4.2 cent impact on the Class IV price.

Dairy farmers receive a uniform or blend price, which is determined by their region of the country, based upon how much of that farmer’s milk went into the four different classes in his or her milk market order. That is a simplified “Cliff Notes” perspective. Call your cooperative for complete details. ❖