Milk price drops $3.34 | TheFencePost.com
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Milk price drops $3.34

Lee Mielke
Mielke Productions

The Federal order benchmark milk price fell for the second consecutive month after peaking in July. The Agriculture Department announced the September Class III price at $16.43 per hundredweight, down $3.34 from August and $1.88 below September 2019. The 2020 Class III average stands at $17.48, up from $16.11 a year ago and $14.62 in 2018.

Futures settlements on Oct. 2 however portended an October price climbing back up to $20.18, November at $19.36, and December at $17.86.

The September Class IV price is $12.75, up 22 cents from August but $3.60 below a year ago. That is the lowest September Class IV price since 2009. Its 2020 average stands at $13.53, down from $16.21 a year ago and $13.95 in 2018.

Unfortunately, through the quirks of federal milk pricing, falling fluid milk sales and a punitive producer price differential (PPD) are expected to “water down many dairy producers’ milk checks once again,” said the Sept. 30 Daily Dairy Report.

The DDR stated that a setback in spot cheese in August and perpetually low Class IV values weighed on the Class I price. USDA announced the October Class I mover at $15.20 per cwt., much lower than October Class III futures, which settled Oct. 1 at $20.18. That $4.98 difference indicates that processors in many federal milk marketing orders will once again de-pool as much milk as possible, the DDR warned.

A small consolation; the DDR adds; “The negative PPD will not be as severe as in June and July, when Class I values lagged Class III by $9.62 and $7.98, respectively, but it will take a bite out of many dairy producers’ revenue.”

U.S. milk prices will likely remain relatively good for a while. StoneX Dairy points out in its Sept. 29 ‘Early Morning Update’ that food box deliveries continue and the first round three boxes showed up in Sept. 24 statistics. The program has delivered over 100 million boxes, according to broker Dave Kurzawski in the Oct. 5 ‘Dairy Radio Now’ broadcast, but he said the program is slowing.

“That is a lot of food going to a lot of people over four months,” wrote Kurzawski, but he asks “Are we going to see a positive bump in retail dairy sales when this program tapers off in late October? Will the government shut down buying programs cold-turkey following the third round? We don’t know yet, but we surmise retail sales will get a bump ahead of the holidays.”

The market on block cheese is still “relatively snug,” according to Kurzawski, who is also bullish on butter and nonfat dry milk. He predicted a surge on butter ahead and reports that a lot of cream is now going into other uses than butter, explaining that “Over the summer retailers who had really strong butter demand early in the pandemic, March, April, and May, had built tremendous inventories, private inventories which we don’t get data on, and they worked off those inventories the past few months. Now, as we get into colder weather and the holiday season, we’re trying to get into a more normal environment.” He believes retailers will have to “come back to the trough and start buying butter again,” and says $1.50-$1.60 per pound butter is “a really good price for buyers to be owning butter.”

The story on powder is international demand, he said, demand from Mexico and Asia in particular, which is being an aggressive buyer on all proteins, so he believes “There’s a good amount of support under the dairy complex right now.”

The falling milk prices are making their way back to the farm. The large drop in the latest All Milk price and a higher soybean price served to lower the August milk feed price ratio, reversing two months of gains. The USDA’s latest Ag Prices report showed the ratio slipped to 2.50, down from 2.69 in July, but compares to 2.26 in August 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 August.

The U.S. All-Milk price averaged $18.80 per cwt., down $1.70 from July and 10 cents below August 2019.

California’s All Milk price slipped to $20.00, down 90 cents from July but $1.30 above a year ago. Wisconsin’s, at $19.40, was down $2.90 from July but was 30 cents above a year ago.

The national average corn price averaged $3.12 per bushel, down 9 cents per bushel from July and 81 cents per bushel below August 2019. Soybeans averaged $8.66 per bushel, up 16 cents from July, after jumping 17 cents the previous month, and were 44 cents per bushel above a year ago. Alfalfa hay averaged $172 per ton, down $2 from July and $7 per ton below a year ago.

Looking at the cow side of the ledger; the August cull price for beef and dairy combined averaged $70.70 per cwt., up 20 cents from July, $2.40 above August 2019, but was 90 cents below the 2011 base average of $71.60 per cwt.

Checking dairy product prices at the Chicago Mercantile Exchange, block Cheddar closed the first Friday of October at $2.61 per pound, up 5.50 cents on the week, after dipping 7.25 cents the previous week, and 61.75 cents above a year ago.

The barrels narrowed the spread, finishing at $1.9550 after jumping 29.50 cents on the week, highest since Aug. 3, 16.50 cents above a year ago, but a still too high 65.5 cents below the blocks. Nine cars of block sold this week and 12 of barrel.

Cheese sales are mixed but generally healthy, according to Dairy Market News. Some cheesemakers say the higher prices are creating buying hesitancy but, when inventories get low, buyers order heavily. Barrel producers continue to report inventories are available but not overly concerned. Contractual milk supplies are fulfilling the needs of most cheese plants. Market tones are mostly bullish, said DMN, but the bearish factor is the large barrel and block price rift.

The western cheese market is struggling to maintain a good balance. Overall sales are good but the market still faces uncertainties related to the pandemic and its impact on customers/sellers’ behaviors. Block inventories are tighter than the barrels and that has translated into higher block prices. Government purchases are impacting prices and availabilities, according to contacts, and U.S. prices are not as competitive internationally as they were a few weeks ago. Cheese output is active in the West with most plants running at full capacity.

Cash butter saw little change, inching up 0.75 cents on the week to a $1.51 per pound close Friday, Oct. 2, 67.50 cents below a year ago, on 10 sales for the week.

Butter production remains steady at Midwestern plants. Cream supplies have begun to tighten in the East but regional butter makers are still finding it locally or from the West. Plant managers expect cream to tighten in the near term. Retail and food service demand is stronger week to week. Retail customers, in some cases, have been given notice that butter quarters may be short in the final quarter of the year. Current retail loss leader promotions may be short lived.

Western retail butter demand is showing signs of a seasonal bump and buyers are asking manufacturers about available supplies. Grocers have let processors know they plan to run instore specials and want to make sure of coverage. The steady pull on print supplies through the summer has some shoppers wondering if warehouse stocks are ready for fall and winter holiday baking. Bulk inventories are heavy, but print stocks are a bit thin for this time of year. Food service sales are weak, according to manufacturers, and while there is a wide range of school activity, from in-person to fully virtual, food service needs are hard to read. Restaurants recognize that as weather changes, having to move indoors may put an end to some businesses unless regulators allow more indoor capacity.

Grade A nonfat dry milk shot up to $1.14 per pound Wednesday, highest since Feb. 21, but closed Oct. 2 at $1.1225, up 2.25 cents on the week and the eighth consecutive week of gain, but was 2.25 cents below a year ago, on 21 sales.

Dry whey finished Oct. 2 at 39 cents per pound, 1.25 cents higher on the week on unfilled bids, and 6.25 cents above a year ago. ❖


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