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Benchmark milk price up $1.73

By Lee Mielke

The Agriculture Department announced the November federal order Class III milk price at $23.34 per hundredweight, up $1.73 from October, $2.89 above November 2019, and the highest Class III since July.

The 2020 Class III average stands at $18.39, up from $16.74 at this time a year ago and $14.69 in 2018. The December Class III futures contract settled Dec. 11 at $15.35, which would portend an $18.13 average for 2020.

The Class IV price is $13.30, down 17 cents from October and $3.30 below a year ago. That put the 11-month average at $13.50, down from $16.26 a year ago and compares to $14.15 in 2018.



The large gap between October and November Class III and Class I prices again likely led to processor de-pooling and huge producer price differentials (PPDs), resulting in dairy farmers in many regions losing millions of dollars in revenue.

I asked HighGround Dairy’s Lucas Fuess in the Dec. 7 “Dairy Radio Now” broadcast if it’s time to restructure how we price milk in this country. He said it’s a decades-old question and one of the issues is the complexity of the federal order program. “When dairy farmers don’t understand exactly how their milk is being priced, there is some resistance to the system,” he said.



Federal orders also make export contracts more difficult, according to Fuess, and “Exports will be a key driver of dairy product disappearance and higher prices for farmers, hopefully in the future, if federal orders can be tweaked to allow longer term contracts to happen.”

As to negative PPDs, Fuess said “They’re a reflection of volatility in milk and for some farmers who are not necessarily seeing those negative PPDS, depending on the region, they have been extremely thankful for record high cheese prices.”

“Ultimately it’s the hope, and the system is designed, so PPDs average out close to the zero mark over the long term,” he reasoned. “If there’s something that can be done to even those out better on a month to month basis and allow farmers to receive the higher value of that cheese milk maybe there is something that could be looked at there.”

The system has been around since the 1930s, he said, and has prioritized Class I milk. “Perhaps a discussion can be had around having just one manufacturing class to allow milk to move to its highest value overall.”

“Federal orders have not been revised in any sort for more than 10 years,” Fuess said, “with make allowances being the same since prior to 2010, and there’s a question there as to what those numbers should be as well.”

It’s important for dairy farmers to consider every risk management tool available, he concluded. “Farmers also have the power to vote orders out or processors can take a look at make allowances to see if there are other tweaks that could be made to the system that would benefit everyone.”

Market bulls got some fodder in the Dec. 1 Global Dairy Trade auction. The event’s weighted average was up 4.3%, biggest gain since July 7, and followed the 1.8% rise on Nov. 17, and a 2.0% descent Nov. 3.

Every product offered saw strong gains, led by lactose, up 13.5%, after plunging 18.8% on Nov. 17. Whole milk powder was up 5%, after rising 1.8% last time, and skim milk powder was up 3.6%, following a 2.5% rise. Butter was up 3.8%, after inching 0.4% higher, and anhydrous milkfat was up 2.6% following a 4.1% rise. GDT Cheddar was up 2.4%, after dropping 3.5% last time, and buttermilk powder was up 1.3%.

StoneX equated the GDT 80% butterfat butter price to $1.7638 per pound U.S., up 6.5 cents from the last event. CME butter closed Dec. 11 at $1.48. GDT Cheddar cheese equated to $1.6935 per pound, up 4.2 cents, and compares to Dec. 11’s CME block Cheddar at $1.5850. GDT skim milk powder averaged $1.3103 per pound, up from $1.2696, and whole milk powder averaged $1.4435, up from $1.3774. CME Grade A nonfat dry milk closed Dec. 11 at $1.15 a pound.

Rising global prices and a weak dollar are making U.S. dairy exports increasingly attractive to importers, according to the Daily Dairy Report. “As demand rises globally, as evidenced both by the sharp GDT price advances and recent strong demand from China, U.S. exporters could begin to move larger shipments overseas, which could offer a lift to U.S. dairy product values, especially milk and whey powders.”

Most CME dairy prices entered December a little stronger except cheese. The Cheddar blocks closed Dec. 11 at $1.5850 per pound, lowest since Aug. 11, down 9.5 cents on the week and 38.5 cents below a year ago. The barrels finished at $1.40, down 2.25 cents, 82.75 cents below a year ago, and 18.5 cents below the blocks. Eight cars of block sold on the week at the CME and 23 of barrel.

Midwest cheesemakers reported widely available spot milk the week after Thanksgiving, according to Dairy Market News, and “wholly discounted.” Cheese producers say demand is steady to intermittent, with concern expressed that further restrictions on food service establishments due to COVID-19 will have further impact on sales. Market tones remain “hobbled after a resolutely bearish November,” DMN said. “Markets are under pressure but Midwestern contacts have yet to relay strong concerns regarding inventory growth.”

Western cheese output is also active. Heavy milk volumes from the week of Thanksgiving kept facilities full and most plants were already at or near capacity. Manufacturers are hesitant to add much cheese to their inventories while milk prices are strong and cheese prices are falling. Some suggest buyer interest is slowly returning as market prices have fallen. Demand for cheese from retail and pizza sectors is steady and solid, but food service demand is lacking.

Butter saw daily gains and closed at $1.48 per pound, up 12 cents on the week, highest since Oct. 20, but 43.5 cents below a year ago, on 34 sales reported.

Some Central butter producers report fall volumes are moving quickly. Government orders have receded so they are focusing more on retail customers. Food service remains slow and contacts are still waiting for the full impact of COVID restaurant closures and restrictions. Cream has been, and is, widely available at declining prices and producers are unconcerned about finding cream for the rest of the month or year. Butter market tones were improving day to day last week, but fall has been anything but bullish for the typically stalwart market.

Western contacts expected lots of cream to be available over the Thanksgiving holiday weekend due to manufacturing facilities closing. As butter makers shift to end of year holiday orders, the underlying focus is to manage stocks. Requests for holiday print butter remain active but inventories appear to be quite adequate. Manufacturers will get a clearer picture of butter needs starting the post-holiday week as some buyers have adjusted purchases around their immediate needs. Bulk butter demand is quiet, DMN said.

Grade A nonfat dry milk climbed to $1.1575 per pound Dec. 10, highest since Feb. 21, but closed Dec. 11 at $1.15, still 5.5 cents higher on the week and 11.75 cents below a year ago. There were 25 sales reported on the week.

CME dry whey climbed to a 46.25 cents per pound close, up 3.25 cents on the week, highest since Jan. 22, 2019, and 9.5 cents above a year ago, with five sales reported on the week.

You’ll recall October milk output hit 18.56 billion pounds, up 2.3% from 2019. The October Dairy Products report shows that more of that milk went into powder and butter.

Cheese output totaled 1.13 billion pounds, up 3.2% from September, but 0.6% below October 2019. Year to date total cheese sits at 10.96 billion pounds, up just 0.4% from a year ago.

Wisconsin produced 286 million pounds of that October total, up 2.8% from September but 0.9% below a year ago. California output hit 200.6 million pounds, up 4.1% from September but 7.1% below a year ago. Idaho, with 86 million pounds, was down 1.2% from September and 1.0% below a year ago.

Italian type cheese totaled 469.2 million pounds, up 1.3% from September but 3.4% below a year ago. YTD Italian was at 4.7 billion pounds, down 1.2%.

American type cheese totaled 461.1 million pounds, up 6.1% from September and 3.5% above a year ago. YTD American was at 4.4 billion pounds, up 2.0%.

Mozzarella output was at 366 million pounds, down 4.8% from a year ago, with YTD at 3.7 billion pounds, down 1.4% from 2019.

Cheddar, which trades daily at the CME, climbed to 326.9 million pounds, highest October volume ever, up 19.9 million pounds or 6.5% from September and 17.3 million or 5.6% above October 2019. YTD Cheddar is at 3.2 billion pounds, up 2.7% from a year ago.

Butter churns produced 164.9 million pounds, up 13.3 million pounds or 8.8% from September and 2 million pounds or 1.2% above a year ago. YTD butter is at 1.7 billion pounds, up 5.9% from 2019.

Yogurt production totaled 382.9 million pounds, up 7.1% from a year ago, with the YTD total at 3.8 billion pounds, up 2.3%

Whey totaled 80.2 million pounds, up 5.4 million or 7.2% from September but 10.6 million or 11.8% below a year ago, with YTD at 810.6 million, down 1.5%.

Dry whey stocks totaled 68.1 million pounds, down 14.3% from September and 14.2% below a year ago.

Nonfat dry milk climbed to 138.4 million pounds, up 12.4 million pounds or 9.8% from September and 5.7 million or 4.3% above a year ago. YTD powder sits at 1.6 billion pounds, up 2.1% from 2019. Stocks, at 234.9 million pounds, were up 1.6 million or 0.7% from September, but 17 million or 7.8% above a year ago.

Skim milk powder output fell to 57.2 million pounds, down 15.3 million pounds or 21.1% from September but 9.8 million pounds or 20.7% above a year ago. YTD skim milk powder is at 510.2 million pounds, up a hefty 11.7% from a year ago.

A sharp jump in the U.S. All Milk price offset higher corn and soybean prices to push the October milk feed price ratio higher. The latest Ag Prices report has the ratio at 2.50, up from 2.28 in September, and 2.42 in October 2019.

The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. One pound of milk could purchase 2.50 pounds of dairy feed of that blend in October.

The U.S. All-Milk price averaged $20.20 per hundredweight (cwt.), up $2.30 from September and 20 cents above the October 2019 average.

California’s All Milk price jumped to $21.20, up $2.50 from September and $2.30 above a year ago. Wisconsin’s, at $21.50, was up $3.80 from September and 80 cents above a year ago.

The national average corn price averaged $3.61 per bushel, up 21 cents per bushel from September but 24 cents per bushel below October 2019. Soybeans averaged $9.63 per bushel, up 39 cents from September and $1.03 per bushel above a year ago. Alfalfa hay averaged $171 per ton, unchanged from September but $6 per ton below a year ago.

Looking at the cow side of the ledger; the October cull price for beef and dairy combined averaged $60 per cwt., down $6.60 from September, 90 cents below October 2019, and $11.60 below the 2011 base average of $71.60 per cwt.



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