Mielke: Milk Prices looking bleak
November 9, 2018
The Agriculture Department announced the October Federal order Class III benchmark milk price on Halloween, a price that has dairy farmers and their bankers spooked, being below most dairy operation's cost of production.
The price is $15.53 per hundredweight (cwt.), down 56 cents from September, $1.16 below October 2017, and equates to $1.34 per gallon, down from $1.38 in September and $1.44 a year ago. The 10 month average is $14.72, down from $16.18 at this time a year ago and compares to $14.42 in 2016.
The news doesn't get better any time soon. Nov. 2's Class III futures settlements portended a November Class III at $14.78; December, $15.18; January, $15.18; February, $15.24; and March at $15.39.
October's Class IV price is $15.01, up 20 cents from September, 16 cents above a year ago, and the highest Class IV since September 2017. Its 10-month average is $14.10, down from $15.44 a year ago and compares to 13.65 in 2016.
California's final Class 4a and 4b milk prices were announced Nov. 1 by the California Department of Food and Agriculture as the nation's No. 1 milk producer became part of the Federal Milk Market Order system on the first.
The October 4b cheese milk price is $15.43 per cwt., down 19 cents from September, 74 cents below a year ago, and 10 cents below the Federal order Class III price. The 10 month 4b average stands at $14.45, down from $15.33 a year ago and compares to $13.72 in 2016. The 4a butter powder price is $14.49, up 40 cents from September, 2 cents below a year ago, and the highest 4a since October 2017. Its 10 month average is at $13.66, down from $15.24 a year ago and compares to $13.25 in 2016.
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Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, said in the Nov. 5 Dairy Radio Now broadcast that while 2018 is the fourth year in a row of poor farm level milk prices, there are some positives; strong domestic demand for cheese and butter plus global dairy demand is "robust."
"It's not an issue of demand," he explained, "It's an issue of, can we access that demand." The trade war with China and the tariff spat with Mexico has been the driver of low prices this year, he said, and the silver lining might be a repeal by President Trump of his tariff spat with Mexico as "That would be supportive."
When asked about pending new trade agreements, Gould said such agreements with Japan, the Philippines, and the United Kingdom once they do Brexit, would be beneficial as they are large dairy markets.
"The tailwinds of the dairy industry are global population growth and rising per capita consumption by those that can afford dairy," he concluded, "So the long term outlook is certainly positive."
Cash dairy prices started November looking for direction. The Cheddar blocks fell to $1.4550 per pound Nov. 1, lowest level since June 25, 2018, but closed that Friday at $1.4575, down 5 3/4 cents on the week, 25 3/4 cents below a year ago, and 29 cents lower than they were Oct. 1.
The barrels, which the previous week had fallen within an earshot of a nine year low, jumped 8 1/4 cents Oct. 31, then added 4 1/2 cents the next day, but gave back 3 1/2 cents Friday and closed at $1.34, 9 cents higher on the week, 37 1/2 cents below a year ago, 8 cents lower on the month, and 11 3/4 cents below the blocks.
That price spread is closer to the normal 3 to 5 cents but is still too high. And, lots of cheese came to Chicago with 14 carloads of block trading on the week, 82 on the month, plus 23 cars of barrel; 183 cars on the month.
Dairy Market News says "Choppy cheese markets continue to permeate the narrative in the Midwest. The barrel price jump was a sign of positivity, being above $1.30 for the first time since mid-October. Specialty cheese producers suggest demand is near peak ahead of the fall holidays. Mozzarella and provolone producers also suggest demand is steady to up. Supplies are mixed but freshly produced cheese is moving well.
Western cheese production is "within the norm of what the industry anticipated," says DMN. With ample manufacturing milk available, cheese output is ongoing. Cheese stocks are above previous year levels, according to some but overall inventories seem mixed. Export sales to the Middle East are up.
Cash butter shot up mid-week and closed Nov. 2 at $2.30 per pound, up 6 3/4 cents on the week, 6 3/4 cents above a year ago, and a quarter-cent higher than Oct. 1. There were 28 sales reported on the week and 173 on the month.
Cream supplies have diminished, DMN said. Bulk butter remains available but some contacts suggest supplies may be tight by the end of the year. Cream prices have trended up sharply for two consecutive weeks. Analysts suggest if butter is to reach the $2.40 range, it will have to be soon as the holidays approach. They also suggest imports from Oceania may have a larger effect in 2019 than they have in recent years.
Western butter markets are steady ahead of the holiday baking season. Cream is in adequate supply. After a flurry of activity to get butter on hand, retail orders have backed off a little as marketers wait to see how the market responds. Butter makers are eager for stores to kick start their holiday butter promotions and make additional restock orders. Inventories are heavy but getting pulled lower as one would expect during the season. Some western butter makers report inquiries from other parts of the country for bulk butter, but truck and driver availability makes this challenging.
Grade A nonfat dry milk closed Nov. 2 at 90 cents per pound, up 3 1/4 cents on the week, up 2 cents on the month, and 18 cents above a year ago, with 30 cars finding new homes on the week and 54 on the month.
Dry whey closed at a 12 week low of 44 1/2 cents per pound, down 2 1/2 cents on the week and 10 1/2 cents lower on the month, with 26 sales reported on the week and 56 on the month.
A higher U.S. All Milk price average nudged the September milk feed price ratio a little higher, highest level since January 2018, though feed prices crept higher as well. The Agriculture Department's latest Ag Prices report shows the September ratio at 2.10, up from 2.03 in August but down from 2.46 in September 2017.
The U.S. All-Milk price averaged $16.70 per cwt., up 80 cents from August but $1.20 below September 2017. New Mexico again had the low end at $15, followed by Michigan at $15.40. California was at $15.97, up 52 cents from August; and Wisconsin was at $17.40, up $1.20 from August.
The national average corn price in September averaged $3.39 per bushel, up 3 cents from August and 12 cents per bushel above September 2017. Soybeans averaged $8.77 per bushel, up 18 cents from August but 58 cents below a year ago. Alfalfa hay averaged $180 per ton, up $3 from August and $31 per ton above a year ago.
The U.S. milk-over-feed margin gained 84 cents from August, hitting $8.26 per cwt. based on the dairy Margin Protection Program calculation. While that is the highest margin of the year, the Daily Dairy Report points out that it's still lower than any monthly margin in 2017 and $1.73 less than a year ago.
Looking at the cow side of the ledger; the September cull price for beef and dairy combined averaged $60.80 per cwt., down $2.20 from August, $9.10 below September 2017 and $10.80 below the 2011 base average of $71.60 per cwt.
Tough times on the farm have forced some tough decisions for many dairy operations around the country. Domestic dairy demand is good but plenty of milk is flowing and so are cheese vats, butter churns, and dryers and inventories are bulging. Dairy product export volumes while still good, are clouded with uncertainty from the current tariff and trade wars which have kept exports from being a lot better. ❖