Farming Finances Are Tightening
Published: Friday, August 12, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Finances are getting tighter on the farm. The Agriculture Department announced the July federal order Class III benchmark milk price at $22.52 per hundredweight, down $1.81 from June but $6.03 above July 2021 though it's the lowest Class III since March. The seven-month average stands at $22.89, up from $16.90 at this time a year ago, $17.30 in 2020 and $15.58 in 2019.
Last Friday morning, Class III futures portended an August price at $19.94; September, $19.40; October, $20.05; November, $20.40; and December at $20.20. That would result in a $21.68 average for the year $1.12 shy of the USDA's latest projection of $22.80.
The Class IV price is $25.79, down 4 cents from the record high June price, but is $9.79 above a year ago and the highest July Class IV price ever. Its seven-month average is at $24.83, up from $15.01 a year ago, $13.78 in 2020, and $16.11 in 2019. USDA predicts a $24.70 Class IV average for 2022.
You'll recall preliminary USDA data showed June milk production was up .2 percent from June 2021. StoneX adds that fat and protein in the milk was up as well giving us about 1.3 percent more milk solids to make dairy products with. The June Dairy Products report shows where that milk went or didn't.
June cheese production totaled 1.157 billion pounds, down 2.3 percent from the May total which was revised 4 million pounds lower, but is 2.7 percent above June 2021, 20th consecutive month output topped that of a year ago. Cheese output year-to-date (YTD) stands at 7 billion pounds, up 2.5 percent from a year ago.
Italian cheese totaled 484.6 million pounds, down .4 percent from May, but 4.2 percent above a year ago. American-type cheese, at 462 million pounds, was down 4 percent from May, but up 1 percent from a year ago. Mozzarella totaled 385.2 million pounds, up 5.7 percent from a year ago.
Cheddar output, the cheese traded at the CME, slipped to 333.5 million pounds, down 1.1 million pounds, or .3 percent, from May, but was up 3.7 million pounds, or 1.1 percent, from June 2021, ending three consecutive months it was below a year ago. YTD Cheddar is at 1.96 billion pounds, down 2.5 percent from a year ago.
June butter totaled 160.5 million pounds, down 19.6 million pounds, or 10.9 percent, from May, but 3.5 million, or 2.3 percent, above a year ago. YTD butter output is at 1.1 billion pounds, down 2.9 percent from a year ago.
Yogurt output totaled 391.4 million pounds, up .5 percent from a year ago.
Dry whey production slipped to 82 million pounds, down 2.2 million pounds, or 2.6 percent, from May, but 5.6 million, or 7.4 percent, above a year ago. YTD, whey is at 482.8 million pounds, up 3 percent. Stocks totaled 69 million pounds, down 3.2 million pounds, or 4.4 percent, from May but 7.4 million pounds, or 12 percent, above a year ago.
Nonfat dry milk dropped to 169.7 million pounds, down 23.3 million pounds, or 12.1 percent, from May and 15.9 million, or 8.6 percent, below a year ago. YTD powder was at 1.1 billion pounds, down 7.2 percent. Stocks crept to 317.4 million pounds, up 900,000 pounds, or .3 percent, from May, but down 31.8 million, or 9.1 percent, below a year ago.
Skim milk powder output climbed to 45.2 million pounds, up 6.5 million pounds, or 16.8 percent, from May, but down 9 million, or 16.6 percent, from a year ago. YTD SMP was at 225.4 million pounds, down 25.7 percent from 2021.
Don't look to the Global Dairy Trade for any rally just yet. The Aug. 2 weighted average did a repeat of the previous event, dropping 5 percent, making it the fourth decline in a row.
Declines occurred in every product offered, led this time by buttermilk powder, down 9.2 percent. Whole milk powder was down 6.1 percent, after dropping 5.1 percent on July 19, and skim milk powder was down 5.3 percent, after leading the declines last time with an 8.6 percent drop. Butter was down 6.1 percent, after slipping 2.1 percent, and anhydrous milkfat was off 1.4 percent, following a 2.1 percent slip. GDT Cheddar saw the smallest decline, down .7 percent, after dropping 2 percent on July 19.
StoneX Dairy Group says the GDT 80 percent butterfat butter price equates to $2.2987 per pound U.S., down 14.8 cents, and compares to CME butter which closed last Friday at $3.01. GDT Cheddar, at $2.1763, was down 1.2 cents, and compares to CME block Cheddar last Friday at $1.7850. GDT skim milk powder averaged $1.5983 per pound, down 8.4 cents. Whole milk powder averaged $1.6077 per pound, down a dime. CME Grade A nonfat dry milk closed last Friday at $1.5025.
North Asia market share remained weaker than last year, according to StoneX, falling below 40 percent in this event, but "SE Asia, Middle East and Europe picked up purchases bringing their market share levels higher than year-ago levels."
Aug. 9 will be the first "GDT Pulse," an effort with Fonterra to "enhance liquidity in GDT," according to its website. It will run on the opposite weeks of the normal event for six to 12 months and only offer Fonterra whole milk powder.
On a brighter note, June U.S. dairy exports remained impressive, despite all of the shipping challenges. Speaking in the Aug. 8 Dairy Radio Now broadcast, HighGround Dairy's Lucas Fuess said cheese exports, were at 96.8 million pounds. That surpassed the record set in March, he said, and were up 30.8 percent from a year ago. The top 10 buyers saw increases, with Mexico remaining the biggest.
Butter totaled 12.9 million pounds, also impressive, he said, up 63.1 percent from a year ago, after a slight dip in April and May. Canada was the top destination.
Unfortunately, nonfat dry milk exports were down from a year ago for the seventh consecutive time, falling to four-month lows at 152.6 million pounds, down 14 percent, which explains the weakness at the CME, Fuess said.
Dry whey exports totaled 41 million pounds, up 7.5 percent, according to the USDA.
Cooperatives Working Together member cooperatives accepted three offers of export assistance last week to help capture sales of 952,000 pounds of American-type cheese. The product is going to customers in Asia and Middle East-North Africa, and will be delivered through January 2023.
Lack luster demand with ample supplies sums things up at the CME. Cheese was down for the fifth week in a row. Block Cheddar fell to $1.7650 per pound last Thursday, lowest since Jan. 27, but regained 2 cents last Friday to close at $1.7850, down 9.50 cents on the week, 61.25 cents below its April 18 peak, but 15 cents above a year ago.
The barrels fell to $1.7475 last Thursday, lowest since Jan. 11, but regained 4.50 cents last Friday to finish at $1.7925, also 9.50 cents lower on the week but 48.25 cents above a year ago. CME sales totaled six cars of block and 16 of barrel.
Midwest cheesemakers say milk is available despite summer heat drawdowns. Spot prices ranged $3 to $1 under Class III at midweek. Cheese demand received a shot in the arm in recent weeks, says Dairy Market News, as customers are more willing to pay sub-$2 per pound prices.
Cheese demand is softening in the west in retail and food service. Some restaurants in the region have reduced hours and cheese purchases due to labor shortages and higher costs, while International demand is unchanged.
CME butter shot up to $3.06 per pound last Wednesday, highest since Sept. 25, 2015 when it set a record at $3.1350. Last Wednesday's price was 7.50 cents shy of that but fell to a Friday finish at $3.01, up 2 cents on the week and $1.3625 above a year ago. There were 11 sales on the week. Interestingly, the butter also saw the biggest single day collapse in December 2015, plunging 49 cents.
Central butter producers report that cream is still available regionally and from the West. Butter sales are ticking up as summer progresses and customers prepare for fall demand. The $3-plus prices are expected to put a damper on buying, says DMN. Potential buying slowdowns in the fall will only push more demand in the winter. Most expect butter to maintain firmness near to mid-term.
Milk Output Down
High temperatures in the west are contributing to lower milk output and reduced components. Cream availability is tightening but demand is strong. Scheduled maintenance, labor shortages and high temperatures are contributing to reduced butter output. Retail and food service butter demand is steady to lower.
Grade A nonfat dry milk did not have a good week, closing last Friday at $1.5025 per pound, down 13.75 cents on the week, lowest since Oct. 13, 2021, but still 24.75 cents above a year ago. There were 16 sales reported.
Dry whey fell to 42 cents per pound last Wednesday but closed last Friday at 43.50 cents, down a penny on the week and 10.50 cents below a year ago, with one sale.
Getting back to farm finances, feed inputs keep rising as milk prices slide. The USDA's latest Ag Prices report shows the June milk feed price ratio at 1.93, down from 1.98 in May, but compares to 1.59 in June 2021.
The U.S. All Milk Price average, after hitting a record high in May, slipped to $26.90 per hundredweight, down 40 cents, ending nine consecutive increases, but is $8.70 above June 2021.
The June cull price for beef and dairy combined averaged $90.20 per hundredweight, up $3.50 from May, $16.30 above June 2021 and $18.60 above the 2011 base.
Quarterly milk cow replacements averaged $1,710 per head in July, up $140 from April, and $330 above July 2021. Cows averaged $1,750 per head in California, up $310 from April, and $400 above a year ago. Wisconsin's average, at $1,870 per head, was up $160 from April, and $390 above July 2021.
Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo., said "June's drop in the income over feed calculation was the third decline the past 10 months. June's income over feed costs dropped below $13 for the first time since February, but were above $8 per hundredweight for the ninth month running.
"For 2022, milk income over feed costs (using July 29 CME settling futures prices for milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $12.42 per hundredweight, a loss of 99 cents per hundredweight versus the previous month's estimate. 2022 income over feed would be above the level needed to maintain or grow milk production and $4.55 per hundredweight above the 2021 level," according to Brooks.
In the week ending July 23, 57,500 dairy cows were sent to slaughter, up 2,000 head from the previous week, but 100 head, or .2 percent, below a year ago.
The latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC says, "Dairy margins weakened slightly over the second half of July as milk prices were largely flat while projected feed costs rose a bit."
The report detailed the June Milk Production and Cold Storage reports, adding, "Feed markets were relatively quiet although corn has caught a bid recently with updated near-term weather forecasts suggesting above-normal temperatures with below-normal precipitation across the Corn Belt as 68 percent of the U.S. remains under some degree of drought."
Farm Expenditures Up
Meanwhile, U.S. farm expenditures were estimated at $392.9 billion for 2021, up from $366.2 billion in 2020, according to the USDA's Farm Production Expenses Summary. The 2021 expenditures were up 7.3 percent compared with 2020, and for the 17 items included, 15 increased from the previous year, while two showed a decrease. The four largest expenditures totaled $189.4 billion and account for 48.3 percent of total expenditures. They included feed at 16.6 percent; farm services, 11.5 percent; livestock, poultry and related expenses, 10.8 percent; and labor at 9.4 percent.
The U.S. average per farm was $196,087, up 7.7 percent from $182,130 in 2020. On average, U.S. farms spent $32,540 on feed, $21,161 on livestock, poultry and related expenses, $22,458 on farm services, and $18,366 on labor.
The 2020 average for feed was $28,250, $22,232 on farm services, $19,695 on livestock, poultry and related expenses, and $18,253 on labor. Total fuel expense was $12.9 billion.
Diesel, the largest sub-component, at $8.4 billion, accounted for 65.3 percent. Diesel expenditures are up 18.6 percent from the previous year. Gasoline, at $2.4 billion, was up 22.7 percent. LP gas, at $1.4 billion, was up 11.6 percent.
The Midwest region contributed the most to U.S. total expenditures at $124.9 billion (31.8 percent), up from $112.8 billion in 2020. Other regions, ranked by total expenditures, are the Plains at $99.2 billion (25.2 percent), West at $86.7 billion (22.1 percent), Atlantic at $42.9 billion (10.9 percent), and South at $39.2 billion (10 percent).
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