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Benchmark Milk Price Almost 50 Cents Higher Than Last Year

by Lee Mielke

Published: Friday, March 8, 2019

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

The Agriculture Department announced the February Federal order Class III benchmark milk price at $13.89 per hundredweight, down 7 cents from January but 49 cents above February 2018 and the first month that the Class III price topped the previous year's price since November 2017. It equates to $1.19 per gallon, down from $1.20 in January and compares to $1.15 a year ago.

Class III futures last Friday morning portended a March price at $15.22; April, $15.12; May, $15.19; and June at $15.50, with a peak of $16.33 in September.

The February Class IV price is $15.86, up 38 cents from January, $2.99 above a year ago, and the highest Class IV price since August 2017.

Dec. 31 butter stocks totaled a surprising 179.3 million pounds, up a whopping 16.6 percent from November and 6.2 percent above December 2017, according to the delayed USDA Cold Storage report issued Feb. 22.

FC Stone dairy broker Dave Kurzawski says that's a shocking 42 million pounds heavier than their pre-report expectations and over 1,000 truckloads, but adds the caveat that "these numbers are more than 60 days old. If the number was incredibly burdensome, we think the markets would have felt it already. This leads us to think revisions following a government shutdown are likely." The January Cold Storage report will be issued March 7.

The U.S. had less cheese on hand than expected. American cheese stocks were up 7 percent from a year ago. Kurzawski said, "What's a little odd is that the usual build from November to December was nonexistent."

He points out that in seven of the past 12 year's stocks, "we've had some by less than 5 million pounds, but not generally in what we would call aggressively weak market prices like we saw in December."

"Ultimately, we want to see the December Dairy Products numbers to figure out whether it was better demand or slower production that knocked the numbers lower than we expected," explained Kurzawski.

The USDA issued its delayed December Dairy Products report on Feb. 28 and pegged December cheese output at 1.09 billion pounds, up 1 percent from November but 1.2 percent below December 2017, ending 68 consecutive months that cheese output exceeded that of a year ago. Total cheese output for 2018 hit 12.93 billion pounds, up 2.1 percent from 2017.

Italian cheese totaled 479.4 million pounds, up 3 percent from November and 2 percent above a year ago. Year-to-date (YTD) Italian hit 5.5 billion pounds, up 2.8 percent from 2017. Mozzarella, at 378.7 million pounds, was up 3.7 percent from a year ago, with output for the year at 4.3 billion pounds, up 4.1 percent.

American type cheese totaled 424.6 million pounds, up .6 percent from November but 4.4 percent below a year ago, with the year's total at 5.2 billion pounds, up 1.7 percent from 2017.

Cheddar cheese, the kind traded at the CME, totaled 306.3 million pounds, up 4.5 million pounds from November but 20.8 million, or 6.3 percent, below a year ago. Output for 2018 totaled 3.7 billion pounds, virtually unchanged from 2017.

U.S. churns produced 171 million pounds of butter, up 25 million pounds, or 17 percent, from November but .1 percent below a year ago. Total butter output for 2018 was at 1.88 billion pounds, up 2 percent from 2017.

Yogurt output hit 344.9 million pounds, was down 2.2 percent from a year ago, with YTD output at 4.4 billion pounds, down 2 percent.

Dry whey totaled 74.5 million pounds, down 13.4 percent, with YTD at 1 billion pounds, down 2.8 percent. Dry whey for human consumption totaled 73.2 million pounds, up .2 percent from November but 13.3 percent below a year ago. Stocks totaled 65.1 million pounds, up 1 percent from November but 32.9 percent below those a year ago.

Nonfat dry milk production totaled 142.6 million pounds, up 8.3 percent from November but 13.3 percent below a year ago. YTD output hit 1.7 billion pounds, down 5 percent. Stocks slipped to 275.3 million pounds, down 14.2 million pounds, or 4.9 percent, from November but 44.7 million pounds, or 14 percent, below the 2017 levels.

Skim milk powder totaled 50.8 million pounds, up 69.9 percent from November and 1.8 percent above a year ago. Skim milk powder output totaled 544 million pounds in 2018, up 2.7 percent from 2017.

Cheese traders took the Cheddar blocks higher for the fifth week in a row, closing last Friday at $1.61 per pound, up 1½ cents on the week, highest they have been since October 2018, and 5 cents above a year ago. The barrels finished at $1.41, up a half-cent on the week, 6½ cents below a year ago and 20 cents below the blocks. There were two sales of block on the week and 30 of barrel.

Cheese demand reports vary, according to Dairy Market News, but a growing segment of Midwestern cheesemakers reported a seasonal shift slower. A lot of them are not on the spot milk market and those who are open to extra milk are generally finding it at a discount. Cheese inventory is unchanged but long. Continuing winter weather was causing issues with delivery of milk, cheese and whey in the region. Plant managers report that long-haul trucking has been somewhat difficult to manage as snow and ice led to closed roads in Wisconsin and Minnesota.

Milk is readily available in the West and vats are at or near capacity. Cheese makers are employing several strategies to control the size and type of inventory, with some placing more cheese into aging programs as a hedge while cheese prices are low. Others are making more barrels and a few have slowed production to conduct maintenance and limit the growth of stocks. Inventories are still heavy and manufacturers want to keep stocks in check as the spring flush nears. Cheese is moving well through contracts, but extra business is hard to come by. Demand from a few export channels is strong for some, says DMN.

Butter closed last Friday at $2.2875 per pound, up 2¾ cents on the week, highest since Feb. 1, and 8¾ cents above a year ago, with five cars sold.

Central butter plant managers continue reporting widely available cream for the churns, as production marches on but demand is picking up ahead of the spring holidays. Salted and unsalted loads are both selling at premiums and 82 percent butterfat orders have increased. Butter inventories are plentiful, but contacts suggest they are in a good place ahead of increasing seasonal demand.

Spot Grade A nonfat dry milk saw a close last Friday at 98½ cents per pound, down 1¼ cents on the week but 32¼ cents above a year ago, with 30 carloads exchanging hands on the week.

Dry whey saw some ups and downs but finished last Friday at 36 cents per pound, 1¼ cents higher on the week, with a whopping 47 cars sold at the CME.

Dairy cow culling was down a bit in December but well above a year ago. The Agriculture Department's latest Livestock Slaughter report shows an estimated 261,200 head slaughtered under Federal inspection, down 6,800 from November but 13,900, or 5.6 percent, above a year ago. A total 3.15 million head were culled from the nation's dairy herd in the year, up 164,600, or 5.5 percent, from 2017.

Culling data is indicative of what's happening economically on U.S. dairy farms. Margins were relatively flat over the first half of February, with values still projected below breakeven over the first half of the year, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.

The MW pointed out that December milk production totaled 18.2 billion pounds, up .5 percent from 2017 with both October and November production revised down .2 percentage points from preliminary projections. As a result, fourth quarter milk production was up only .5 percent from 2017, the lowest year-over-year growth for any quarter in 5 years.

"While the milking cow herd has become more efficient to allow for modest production gains, the report reflected continued contraction with a drop of 3,000 head from November to December at 9.351 million. This was the smallest since November, 2016 and down 49,000 head from the previous year," the MW stated.

"A tough margin environment is prompting more producers to cull cows. Dairy cow slaughter reached above 70,000 head for the latest week of slaughter data ending Jan. 19. This was the largest single week of dairy cow kill since January 2013. Fourth quarter dairy cow slaughter was up 8 percent from 2017, and some weeks towards year-end were as much as 14 percent higher than year-ago comparable figures," the MW reported.

"Feed markets, meanwhile, continue to be subdued, with hopes for a trade deal between the U.S. and China. The March 1 deadline was expected to slide in order for a summit to be scheduled between Presidents Trump and Xi in Mar-a-Lago towards the end of March. A Bloomberg report cited that China has pledged to secure $30 billion of new U.S. agricultural trade annually, above and beyond pre-trade war levels," the MW concluded.

Meanwhile, a rise in the U.S. All-Milk price average offset some higher feed prices to nudge the January milk feed price ratio slightly higher. The Agriculture Department's latest Ag Prices report puts the January ratio at 2.05, up from 2.04 in December and compares to 2.18 in January 2018.

The U.S. All-Milk price averaged $16.60 per hundredweight, up 20 cents from December and is 50 cents above January 2018.

The national average corn price averaged $3.56 per bushel, up 2 cents from December and 27 cents per bushel above January 2018. Soybeans averaged $8.63 per bushel, up 6 cents from December but 67 cents per bushel below a year ago. Alfalfa hay averaged $180 per ton, up a dollar from December and $28 per ton above a year ago.

Looking at the cow side of the ledger; the January cull price for beef and dairy combined averaged $54.20 per hundredweight, up $2.40 from December, $9.10 below January 2018 and $17.40 below the 2011 base average of $71.60 per hundredweight.

Milk cows averaged $1,140 per head in January, down $90 per head from October 2018 and $380 below January 2018. Cows averaged $1,100 in California, down $100 from October and $400 below a year ago. Wisconsin cows averaged $1,120 per head, down $60 from October and down $350 per head from January 2018.

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