Mielke: Benchmark milk price drops
August 17, 2018
The Agriculture Department announced the July Federal order Class III benchmark milk price at $14.10 per hundredweight (cwt.), down $1.11 from June, $1.35 below July 2017, and the lowest Class III since February 2018. It equates to $1.21 per gallon, down from $1.31 a month ago and $1.33 a year ago.
The seven month Class III average is at $14.37, down from $16.02 at this time a year ago and compares to $13.73 in 2016.
The Aug. 10 Class III futures settlements portended an August price at $14.88; September, $15.68; October, $16.18; November, $16.23; and December $16.02.
The July Class IV price is $14.14, down 77 cents from June, $2.46 below a year ago, and the lowest Class IV since April 2018. Its seven month average is at $13.73, down from $15.30 a year ago and compares to $13.42 in 2016.
California's July Class 4b cheese milk price is $14.09, down 34 cents from June, $1.20 below a year ago, a penny below the FO Class III price (smallest differential since February's 2-cents) and the lowest 4b price since March 2018. Its seven month average is at $14.06, down from $15.14 a year ago and compares to $13.02 in 2016.
The July Class 4a butter-powder milk price is $13.72, down 50 cents from June and $2.69 below a year ago. Its seven month average is at $13.42, down from $15.07 a year ago and compares to $13.11 in 2016
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Dairy product prices are under pressure from the ongoing tariff wars and have seen ups and downs the past several weeks. The block Cheddar cheese closed Aug. 3 at the Chicago Mercantile Exchange at $1.5875 per pound, up 6 3/4 cents on the week and the highest block price since June 18, but is 11 cents below a year ago. The barrels, after gaining 25 cents the previous week, finished July 10 at $1.4750, down 4 1/2 cents on the week, 5 1/2 cents below a year ago, and 11 1/4 cents below the blocks, with three cars of block sold on the week and 52 of barrel.
FC Stone's Kurzawski wrote in his Aug. 2 Early Morning Update; "The relationship between blocks and barrels has been exacerbated by trade wars as less cheese exports means more surplus milk will move into barrel production that will have to find a home domestically. Although there are some headlines that the U.S. is making progress on trade deals with Mexico on autos. If there's a deal made with Mexico that could significantly change the perception of the cheese markets as we will have more certainty on the U.S. export prospects."
He talked about the reasons for the block/barrel relationship in the Aug. 6 Dairy Radio Now broadcast but especially on other export destinations for U.S. dairy products that might help offset some of the losses to Mexico and China.
Dairy Market News reports that some Midwest specialty cheese producers plan to cut production by a day per week during their slower period while pizza cheesemakers are gearing up for heavier sales as schools and colleges prepare to open their doors, and football season draws near. Cheese producers are "slightly anxious, but hopeful regarding some steadiness moving forward in the cheese markets." A majority of spot milk purchases moved closer to flat market, while some discounts and premiums were reported. The range was $3 under to $1 over Class III but producers who took on discounted spot milk did not expect the same deals the following week.
Western cheese output is steady, and manufacturers have plenty of milk. Even with summer heat suppressing milk volumes and components, cheese output has been active. Inventories were at record levels in June. Cheddar stocks are in "relatively good balance, while mozzarella and hard Italian cheeses are long." "Cheese purveyors describe demand as not good enough but are hopeful that as schools start up and football seasons begin, institutional food service sales may improve and pizza sales may start to draw down mozzarella stocks."
CME butter finished Aug. 10 at $2.32 per pound, up 5 3/4 cents and the fourth consecutive week of gain, but is 41 cents below a year ago. 25 carloads found new homes on the week.
Butter makers continue to sell cream to the spot market instead of churning. Butter producers maintain that retail and food service sales are meeting summer expectations. Fall outlooks are mixed but most lean bullishly, with suggestions that the lack of churning currently will lead to "a balanced, if not favorable, supply/demand ratio."
Tighter cream stocks are restricting western butter manufacturing as ice cream and butter makers compete for available cream. Issues with truck obtainability combined with higher temperatures are making it tougher to move cream in some areas. Some processors are selling part of their cream to take advantage of the higher premiums and to save on storage. As a result, butter stocks, although still abundant, are not building. Butter demand is mixed, according to DMN.
Cash Grade A nonfat dry milk closed a penny higher on the week, at 82 3/4 cents per pound, 3 1/2 cents below a year ago, with 21 cars selling on the week.
Spot dry whey closed Aug. 10 at a fresh high for the brand new market at 43 1/2 cents per pound, also up a penny on the week, with no sales reported.
A slightly higher U.S. All Milk price average and lower feed prices pushed the June milk feed price ratio up for the first time in six months. The Agriculture Department's latest Ag Prices report shows the June ratio at 1.98, up from 1.90 in May but down from 2.31 in June 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 1.98 pounds of dairy feed containing that blend.
The U.S. All-Milk price averaged $16.30 per cwt., up a dime from May but a dollar below June 2017. Michigan was on the bottom, with $14.80, unchanged from May; California was at $15.63, down 3 cents from May; and Wisconsin was at $16.50, down 20 cents from May.
June corn averaged $3.58 per bushel, down 9 cents from May but is 15 cents per bushel above June 2017. Soybeans averaged $9.55 per bushel, down 29 cents from May but 45 cents per bushel above a year ago. Alfalfa hay averaged $181 per ton, down $8 from May but $27 per ton above a year ago.
Looking at the cow side of the ledger; the June cull price for beef and dairy combined averaged $66.30 per cwt., up a dime from May, $10.20 below June 2017 and $5.30 below the 2011 base average of $71.60 per cwt.
The Daily Dairy Report's Sarina Sharp added that "The price being paid across the country for quality Holstein springers has averaged $1,200 per head over the past month, putting the cost of replacement heifers at lows not seen in decades." ❖
Meanwhile; dairy margins generally deteriorated over the second half of July, as rising feed costs more than offset higher milk prices, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.
"With the exception of spot third quarter, margins are projected positive and above average though based on the previous decade," Hedging LLC said. "While the milk market has recovered recently, gains have been modest with limited features to provide much direction." ❖