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Benchmark Milk Price Climbs in April; May Price Should Be $16.38

by Lee Mielke

Published: Friday, May 10, 2019

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

The Agriculture Department announced the April federal order Class III benchmark milk price at $15.96 per hundredweight, up 92 cents from March, $1.49 above April 2018 and the highest Class III price since September 2018. The four-month average stands at $14.71, up from $14.02 a year ago and compares to $16.17 in 2017.

Last Friday morning, Class III futures portended a May price at $16.38; June, $16.55; July, $16.74; and August at $17.05, with a peak of $17.19 in September.

The April Class IV price is $15.72, up a penny from March, $2.24 above a year ago and the highest April Class IV since 2014. The Class IV average now stands at $15.69, up from $13.13 a year ago and $15.03 in 2017.

You'll recall that preliminary data showed March 50-state milk output at 18.9 billion pounds, down .4 percent from March 2018 and that was evidenced in the May 2 Dairy Products report which pegged March cheese output at 1.1 billion pounds, up 11 percent from February but .7 percent below March 2018. Year-to-date cheese output is now at 3.2 billion pounds, down .3 percent from a year ago.

Cheese output had been moving relentlessly higher since September 2015 but ended its 28-month streak in January, according to the Daily Dairy Report. The DDR stated, "Although USDA initially reported year-over-year increases in cheese output in January and February, the agency revised upward its assessment of 2018 cheese output, resulting in year-over-year declines in the first two months of this year."

Italian cheese totaled 483.5 million pounds, up 9.6 percent from February and .1 percent above a year ago. YTD Italian stands at 1.4 billion pounds, up 1.4 percent.

Mozzarella, at 378 million pounds, was up 1.4 percent from a year ago, with YTD at 1.1 billion pounds, up 3.6 percent.

American-type cheese totaled 435.1 million pounds, up 11.3 percent from February but 1.8 percent below a year ago, with YTD at 1.27 billion pounds, down 2.5 percent.

Cheddar, the cheese traded daily at the CME, totaled 309.9 million pounds, up 29.1 million pounds, or 10.4 percent, from February but 10.4 million pounds, or 3.2 percent, below a year ago. YTD Cheddar hit 913.9 million pounds, down 4.2 percent.

U.S. churns gave us 174.8 million pounds of butter, up 10.3 million pounds, or 6.3 percent, from February but 7 million pounds, or 3.9 percent, below a year ago. YTD butter is at 529 million pounds, down .5 percent from this time in 2018.

Yogurt output, at 398.6 million pounds, was up 2.2 percent from a year ago, with YTD at 1.1 billion pounds, down 1.3 percent.

Dry whey totaled 78.4 million pounds, down 14.2 percent, with YTD whey at 234.6 million pounds, down 13.6 percent. Stocks totaled 80.2 million pounds, up 5.5 percent from February and 16.3 percent above those a year ago.

Nonfat dry milk production totaled 163.7 million pounds, up 6.4 percent from February but 8 percent below a year ago. YTD powder is at 490.2 million pounds, down .8 percent. Stocks fell to 288.8 million pounds, down 21.6 million pounds, or 7 percent, from February and 8.5 million pounds, or 2.9 percent, below the 2018 level.

Skim milk powder totaled 49.6 million pounds, up a whopping 39.2 percent from February and 17.9 percent above a year ago. YTD skim hit 125 million pounds, up .7 percent from a year ago.

A higher U.S. all-milk price pushed the March milk feed price ratio higher for the third consecutive month. The Agriculture Department's latest Ag Prices report marks the March ratio at 2.14, up from 2.07 in February and tops the 1.09 in March 2018, the second month to top the previous year since October 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 2.14 pounds of dairy feed containing that blend.

The U.S. all-milk price averaged $17.50 per hundredweight, up 70 cents from February and $1.80 above March 2018.

New Mexico again had the low end at $15.90, followed by Michigan at $16.50. California, at $17.30, was up 80 cents from February and Wisconsin, at $17.30, was up $1 from February.

The national average corn price averaged $3.61 per bushel, up a penny from February and 10 cents above March 2018. Soybeans averaged $8.52 per bushel, unchanged from February but $1.29 per bushel below a year ago. Alfalfa hay averaged $184 per ton, up $4 from February and $19 above a year ago.

The March cull price for beef and dairy combined posted another increase, averaging $62.80 per hundredweight, up $3.90 from February, following a $4.70 gain last month, but is $6.10 below March 2018 and $8.80 below the 2011 base average of $71.60 per hundredweight.

Milk cows averaged $1,140 per head in April, unchanged from January 2019 but $220 below April 2018. They averaged $1,100 in California, unchanged from January but $200 below a year ago. Wisconsin cows averaged $1,130 per head, up $10 from January but $190 per head below April 2018.

The U.S. milk-over-feed margin climbed 64 cents above February's margin to $8.85 per hundredweight based on the Dairy Margin Coverage Program calculation, "making it the largest margin since last October," according to the Daily Dairy Report, "and $2.09 higher than March 2018's pathetic $6.77."

Traders liked what they saw in the Dairy Products report. CME block Cheddar, after slipping to $1.6550 per pound by last Thursday, jumped 2 cents last Friday, to $1.6750, down a penny on the week but a penny above a year ago. The barrels, after holding at $1.63 for five consecutive sessions, shot up 3¼ cents last Friday, to $1.6625, up 3¼ cents on the week and 6¼ cents above a year ago. Twenty-five cars of block exchanged hands on the week, 22 on Friday alone, the largest single day trade since March 24, 2011 and 57 cars for the month of April. Twenty-five cars of barrel were sold on the week and 100 in the month.

Milk remains available for cheesemakers in the Midwest, according to Dairy Market News, but not at the discounts it has seen in spring flushes of the past. Cheese demand reports remain mixed, with some cheesemakers seeing improved sales throughout April and expect similar results for May. Others say orders are slow and point to plentiful supplies as a bearish pull on orders. DMN says "market tones are maintaining that bullish push from early in the year."

Butter closed last Friday at $2.2725 per pound, up a quarter-cent on the week but 8 cents below a year ago, with 25 sales on the week, 52 for the month of April.

Cream is still headed for Midwestern churns, but plant managers say current prices are nearing their limit and intakes have begun to ebb. Some are primarily finding cream from the West. Producers churning organic cream say those supplies are becoming scant.

The latest data indicate that March Chinese imports were up 4.8 percent from 2018, "a bit light in comparison to expectations," according to FC Stone dairy broker Dave Kurzawski in the May 6 Dairy Radio Now broadcast.

He believes the figure underestimates food grade imports going into China. FC Stone had expected something like 9 percent, he said, but he points out that about 80 percent of the imports are food grade and most come from Oceania.

New Zealand exports were up 50 percent in February, according to Kurzawski, and up 80 percent in March and what may have weighed down the Chinese estimate was the feed grade side of the equation. He blamed the African swine fever situation for the lower imports, which has especially hurt U.S. whey exports to that country.

Tariff issues also remain between the U.S. and China. An FC Stone staffer in their Singapore office recently returned from China and described the tone there as "quietly pessimistic," according to Kurzawski, who also reported that China's first quarter gross national product showed a nice 6.4 percent growth.

"We don't know how accurate that number is," he said, "but it did come in stronger than expected. Bottom line: People in China are still eating food."

Speaking of Oceania, DMN reports that dairy industry leaders in Australia are urging dairy producers to increase milk production. "The overall trend the last decade or so has been lower milk output in Australia; the Australian population has grown during the same period. Concerns being voiced are that milk production increases will better buffer a potential need for Australians to import more dairy products as a matter of necessity," said DMN.

Very severe dry weather has arrived in New Zealand, especially the North Island as the season winds down and has "noticeably impacted milk production," according to DMN. "Many herds are now being dried off early in response. The overall season is still expected to yield more milk than last season, as most of the seasonal milk has already been produced. But it increasingly appears the season which began with a bang, may end with a whimper," concludes DMN.

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