November Class 3 Milk Price Falls to Its Lowest Point in Nine Years
Published: Friday, December 14, 2018
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. farm milk prices continue to fall. The Agriculture Department announced the November Federal order Class III benchmark at $14.44 per hundredweight, down $1.09 from October, $2.44 below November 2017, the lowest Class III since July 2018, and the lowest November Class III price since the disastrous year of 2009.
Last Friday morning, Class III futures portended a December price at $13.74. That would result in a 2018 average of $14.61, down from $16.17 in 2017 and compares to $14.87 in 2016. The January 2019 contract was at $13.94; February, $14.40; and March at $14.80, with a peak of $16.49 in September.
November's Class III price also equates to $1.24 per gallon, down from $1.34 In October and $1.45 a year ago. Interestingly, a survey of retail prices conducted by Federal Milk Market administrators found conventional whole milk prices for November averaged $3.27 per gallon. Organic whole milk averaged $4.09 per half gallon. Conventional reduced fat (2 percent) milk gallons averaged $3.22 and organic reduced fat (2 percent) milk half-gallons averaged $4.09.
The November Class IV is $15.06, up a nickel from October and $1.07 above a year ago, and the highest Class IV since September 2017. The Class IV average stands at $14.15, down from $15.31 in 2017 and compares to $13.66 in 2016.
The proverbial light at the end of the tunnel was seen in last Tuesday's Global Dairy Trade auction (GDT). The weighted average of products offered jumped 2.2 percent, following a 3.5 percent drop on Nov. 20 and a 2 percent decline Nov. 6, ending seven consecutive sessions of decline. Sellers brought 80.4 million pounds to market, down from 94.7 million in the last event.
Gains were led by buttermilk powder, up 16.9 percent, followed by anhydrous milkfat up 3.9 percent, after plunging 9.4 percent on Nov. 20. Butter was up 2.7 percent, after leading the declines last time with a 9.6 percent drop, and whole milk powder was up 2.5 percent, after dropping 1.8 percent last time. Skim milk powder inched up .3 percent, after it saw a 1.6 percent decline last time.
The only loss was Cheddar, down 2.2 percent, after it inched .2 percent higher in the last event.
FC Stone equates the GDT 80 percent butterfat butter price to $1.6573 per pound U.S., up 4.8 cents from the last session but is 36.7 cents below where it was a year ago. CME butter closed last Friday at $2.2075. GDT Cheddar cheese equated to $1.4443 per pound, down 3.1 cents from the last event, 23.2 cents below a year ago, and compares to Friday's CME block Cheddar at $1.35. GDT skim milk powder averaged 89.35 cents per pound, up from 89.13 cents last time, and whole milk powder averaged $1.2095, up from $1.1789. CME Grade A nonfat dry milk closed last Friday at 88½ cents per pound.
The Daily Dairy Report credited the higher prices to New Zealand-based Fonterra reducing volumes in this auction and, "given that context and higher NZX futures prices in recent weeks, today's GDT results were disappointing."
Meanwhile, October U.S. dairy exports were mostly higher than year-ago volumes, according to the DDR, but continue to lag volumes in the first half of the year, before China and Mexico levied higher tariffs on U.S. dairy products. U.S. cheese prices have been low enough to make up for the tariffs at least for now.
HighGround Dairy reports that Fonterra revised its 2018-19 forecast Farmgate Milk Price from $6.25 to $6.50 per kilogram of milk solids (kgms) to $6 to $6.30. Fonterra Chairman John Monaghan said the revision was due to "the global milk supply remaining stronger relative to demand, which has driven a downward trend on the GDT index since May." "Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. U.S. milk volumes are still forecast to be up 1 percent for the year," said Monaghan.
When asked about low milk prices in the U.S., Jerry Dryer, analyst and editor of the Dairy and Food Market Analyst newsletter, stated in the Dec. 10 Dairy Radio Now broadcast that the U.S. has been playing in a world-wide market the past several years.
Milk output in New Zealand is expected to be up 3-4 percent in the current market year, he said, but it's expected to be flat or down in Europe and flat or down in the U.S. by some time in the first quarter of 2019.
He admits demand is strong right now in the U.S. because of the holidays "but not as strong as it could be and production is even stronger (than demand)."
The supply of milk is and will be impacted, according to Dryer, from weather issues in Europe and weather and economic issues in the U.S., so he expects higher milk prices ahead, "but they're still a few months away."
Dryer gave a small preview of his December forecast, stating: "Given some feed quality issues etc., we're going to see that milk production number get trimmed pretty significantly; the growth in it could turn negative before the end of the first quarter" (in the U.S.), and in response to a comment on how low Class III futures are right now, he said, "The futures aren't always a good forecaster of the future."
He believes we will see some $17 milk by the end of the year and, if his hunch on milk supply becomes reality, "We could see $20 milk by the end of next year."
Cheese Prices Fall
Cash prices headed lower the first week of December. The Cheddar blocks closed at $1.35 per pound, down a penny on the week and 12½ cents below a year ago when they fell almost 9 cents. The barrels finished at $1.2225, down 9¼ cents on the week, 44¾ cents below a year ago, and with the spread at an unsustainable 12¾ cents. Three cars of block sold on the week and 8 of barrel.
Midwest contacts tell Dairy Market News that cheese volumes are "plentiful on the whole but some buyers are holding off, awaiting the potentiality of further market bears." Demand is mixed. Some relay average, or just below average sales for this time of the year, while others suggest orders are fairly robust and last minute holiday orders are keeping production active. Milk availability was a bit more mixed. Some plants were still taking milk at a discount while others find regional milk is a little tighter. Spot milk prices ranged $1 over to $3 under Class III. "Cheese markets remain stagnant, with many contacts pointing to export declines and cheese inventories as market agitators," said DMN.
Western contacts report that export demand "ebbs and flows with the rise and fall of prices. With U.S. cheese prices lower than a few months ago, there has been renewed interest from international buyers but some foreign cheese prices have declined along with U.S. prices, creating stiff competition in a few markets." Domestic demand has been steady, according to DMN, but there is pressure from the heavy stocks at all levels. Contacts say there is plenty of cheese in warehouses, so "buyers have no sense of urgency to make immediate purchases. Instead, they would rather focus their energy on 2019 contracts." Cheese output is heavy and related to plentiful milk intakes with many plants at or near capacity.
Cash butter closed at $2.2075 per pound, down 3½ cents on the week and 1¼ cents below a year ago, with 10 cars sold on the week.
Midwest butter producers say the amount of cream offered has escalated and prices were slightly lower than the previous week but "still above their comfort zone, and they will hold out until further drops, which are expected." Production is mixed and inventories are reportedly lower. Buying interest remains strong but bulk butter is not readily available in the area so some buyers are finding it in the West and paying freight. Butter markets are maintaining steadfastness, says DMN, but there are reports and concern that New Zealand butter will make way into the U.S. in 2019.
The spot Grade A nonfat dry milk finished last Friday at 88½ cents per pound, down 2 cents on the week but 20¼ cents above a year ago, with 6 cars sold.
Cash dry whey closed last Friday at 43¾ cents per pound, up a quarter-cent on the week, with 13 cars sold on the week. By the way, the Ag Marketing Service surveyed whey price a year ago was at 29.13 cents per pound.
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