Class 3 Milk Prices Take A Spill, Down from September Estimates
Published: Friday, October 25, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
As reported last week, the Agriculture Department has again lowered its 2024 and 2025 milk production forecasts in its World Agriculture Supply and Demand Estimates report, citing slightly less growth in milk per cow.
Class III and IV milk prices were also lowered, based on the latest dairy product price projections. The 2024 Class III price was projected to average $19.05 per hundredweight, down 40 cents from last month's estimate, and compares to $17.02 in 2023 and $21.96 in 2022. The 2025 average was estimated at $18.95, down 65 cents.
The 2024 Class IV average was estimated at $20.80, down 20 cents from last month's estimate, and compares to $19.12 in 2023 and $24.47 in 2022. The 2025 average was projected at $20.35, down 85 cents from a month ago.
The U.S. corn outlook's projected beginning stocks were lowered 52 million bushels. Production was forecast at a near record 15.2 billion bushels, up 17 million from last month on a .2-bushel increase in yield to 183.8 bushels per acre, but down 1% from a year ago. Harvested area was unchanged at 82.7 million acres. Total use was raised to 15 billion bushels reflecting greater exports. Ending stocks were cut 58 million bushels to 2 billion. The season-average corn price was unchanged at $4.10 per bushel.
Soybean production was forecast at a record 4.6 billion bushels, down 4 million on lower yields but up 10% from 2023. Harvested area was unchanged at 86.3 million acres, up 5% from 2023. Soybean yield was projected at a record 53.1 bushels per acre, down .1 bushel from September's forecast but up 2.5 bushels from a year ago. With lower production partly offset by slightly higher beginning stocks, supplies were lowered 2 million bushels to 4.9 billion. Ending stocks were unchanged at 550 million. The season-average soybean price was unchanged at $10.80 per bushel, according to the USDA.
The U.S. corn harvest was at 47%, as of the week ending Oct. 13, up from 30% the previous week, 5% ahead of a year ago, and 8% ahead of the five-year average. The latest Crop Progress report rated the corn 64% good to excellent, unchanged from the previous week, but that compares to 53% a year ago.
Sixty-three percent of the soybeans were rated good to excellent, down 1% from the previous week, but compares to 51% a year ago. Sixty-seven percent had been harvested, up from 47% the previous week, 10% ahead of a year ago, and 16% ahead of the average.
Dairy cow slaughter for the week ending Oct. 5 totaled 51,400 head, down 700 from the previous week, and 5,700, or 10%, below a year ago. Year to date, 2,100,500 dairy cows had been culled, down 334,700 head, or 13.7%, from 2023.
Dairy demand looked strong in August, based on the USDA's latest Supply and Demand Utilization data. Total cheese disappearance was up 1.2%, up 1.3% domestically while exports were up 14.8%. HighGround Dairy points out that "CME spot Cheddar prices continued to climb throughout August as months of
limited production finally collided with rising domestic demand."
Butter was up 9.3%, most of it in domestic utilization which totaled 196.4 million pounds, up 9.1%. Exports were up 17.3% but only amounted to 6.1 million. HGD said, "For the second month in a row, stateside usage grew year-over-year, and exports logged their third month of an increase."
Nonfat dry milk and skim milk powder utilization was still dragging, the seventh time in eight months, totaling just 176 million pounds, down 7.2% from a year ago. Domestic use was down 31.3% while exports were down 1.1%.
Dry whey usage was down 15.5%. Domestic disappearance was down 33.5% while exports were up 14.1%. HGD says USDA revised July's total whey use down 15.1% year over year. Disappearance sank 15.5% and ended up being the lowest monthly volume since April 2023. HighGround says plant outages in August limited production thus supporting CME prices near 60 cents per pound.
Fluid milk sales may have turned the corner after decades of decline. Sales have topped those of a year ago in six out of 2024's first eight months. The USDA's latest data shows August packaged sales totaled 3.6 billion pounds, up 1.6% from August 2023. Conventional product sales totaled 3.4 billion pounds, up 1.3% from a year ago. Organic products, at 261 million pounds, were up 5.5%, and represented a typical 7.2% of total sales for the month.
Whole milk sales totaled 1.3 billion pounds, up 1.5% from a year ago, up 2.4% year to date, and represented 35.8% of total sales for the month. Skim milk sales, at 160 million, were down 5.1% from a year ago and down 11.5% YTD.
Packaged fluid sales in the eight-month period totaled 28.3 billion pounds, up 1.2% from 2023. Conventional product sales totaled 26.3 billion pounds, up .8% from a year ago. Organic products, at 2 billion pounds, were up 6.6%, and represented 7.1% of total milk sales in the eight months.
The Oct. 14 "Daily Dairy Report" adds that "Fluid milk sales also climbed in 2020 when the government distributed food donation boxes that included milk. With that exception, this year marked the first increase in milk demand since 2009. The dairy industry has worked hard to promote milk's nutritional benefits. At the same time, consumers have grown increasingly focused on health and wellness."
More milk going into the jug means less milk going to vats, churns and dryers, and puts more cash in farm milk checks. But, the uncertainty of the U.S. milk supply is very real, as avian influenza continues to take a toll on California herds.
Ninety-two cases have been detected in the past month, according to USDA's Animal and Plant Health Inspection Service. HighGround Dairy says that brings the state's total to 100, out of about 1,100 in the nation's No. 1 milk producer.
The Los Angeles Times reports that some cows have died but there's also been heat waves the past six weeks in the Central Valley and temperatures have exceeded 100 degrees, "further compounding the impacts."
"Veterinarians familiar with the cases noted that HPAI is not the direct cause of death," according to HGD, "but pneumonia and bloat, occurring secondarily to the disease, are responsible."
Speaking in the Oct. 21 "Dairy Radio Now" broadcast, StoneX broker Dave Kurzawski said they expect September milk, which will be announced Oct. 21, to be down .3%, largely driven by what's happening in California where about 20% of U.S. milk is produced. He expects an even bigger impact in October.
The rest of the U.S. is doing well, he said. Herd size is looking better and milk per cow is improving however, when asked about rising milk components, Kurzawski admitted they are up but, "If you look at the past five to seven years, they've been up about 2%. They're now running about 1.5%. Genetics changes the last decade or two, feed changes, cow comfort, all the things that dairy producers do day in and day out to make high quality milk, make a difference. Components are helping," he concluded, but "Doubtful it erases headline milk output which is still negative."
After four consecutive weeks of decline, CME block Cheddar closed mid-October at $1.9250 per pound, up 3.75 cents on the week and 13.75 cents above a year ago, as traders anticipated last Monday's September Milk Production report. The barrels finished at $2.01, 12.25 cents higher, 30 cents above a year ago, and 8.50 cents above the blocks. Sixteen loads of block were traded and eight of barrel.
Dairy Market News reports cheese demand remains about the same, according to Midwest cheesemakers. Some say orders are strong, particularly for retail. Others say demand is slow seasonally. Some plants were running busy schedules while others scheduled downtime last week. Spot milk prices were still all above Class III at mid-week. Some cheesemakers reported that Class I needs have continued to keep overall milk availability somewhat snug.
Milk demand is stronger from western cheese manufacturers however in parts of the West, weaker milk output is leaving less available. Cheese output is steady to stronger. Domestic demand is steady for most varieties. Cream cheese demand is moderate and Mozzarella demand has been, and continues to be strong this year. Demand from international buyers is also stronger, according to DMN.
Lots of butter found its way to Chicago last week, setting a new record and saw its first gain in six sessions last Wednesday. It closed last Friday at $2.66 per pound.
That's 3.50 cents higher on the week, ending five weeks of losses but is 70 cents below a year ago. A record 161 loads traded hands on the week. The last three days of the previous week had double digit sales and buyers stepped up the pace even more last week with 33 sales on Monday, 46 on Tuesday, 48 on Wednesday, 33 Thursday and only one on Friday.
Butter production in the Central region remains busy but in line with cream availability, which was notable this week in the region. Processors say retail demand is busy, meeting seasonal expectations, while food service is not as bullish. Stocks are stable to long, according to DMN.
Retail and bulk butter production in the West is steady to strong. Some plants were running heavier due to upcoming equipment projects. Milk production is weaker in parts of the region but cream is plentiful. Domestic butter demand is steady to lighter while international interest is stronger. Domestic prices have been more competitive with international prices thus far in October, says DMN.
Grade A nonfat dry milk closed last Friday at $1.38 per pound, up 2.75 cents on the week and 14.75 cents above a year ago, on 24 sales for the week.
Dry whey saw its Friday closing at 60.25 cents per pound, up 75 cents on the week and 20.75 cents above a year ago, with 21 sales put on the CME board.
"Dairy margins were mixed over the first half of October, declining slightly in nearby periods while strengthening slightly further out on the curve," according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.
"CME milk futures slumped early in the month but then recovered with deferred Class III contracts moving to new contract highs as concerns mount that production will be restrained with a lack of dairy replacement heifers aging the milking herd while a recent slump in butter and cheese makes U.S. prices more competitively priced on the global market," the MW stated.
"After spending most of the summer above $3 per pound after breaching that level back in May, butter prices plunged nearly 60 cents to just over $2.60 as buyers backed away from the market after securing holiday needs early. August butter production was up 14.5% from last year and cumulative year-to-date production through the first eight months of 2024 was up 4.8% from last year. Rising production caused inventories to eclipse prior year levels for seven consecutive months, with August stocks of 323.3 million pounds up 10.8% from last year."
"Cheese prices have also dropped sharply since mid-September, with Cheddar barrel plunging 78 cents from an all-time high of $2.6225 before recovering slightly to $2. While cheese production was also strong over the summer, a preference for Italian varieties left cumulative YTD Cheddar production through August down 6.6% from last year. Meanwhile, August cheese exports of 90.6 million pounds were up 14% from last year with strong sales to Mexico pacing the gains," the MW concluded.
The Global Dairy Trade auction's weighted average slipped .3% in the second event of October, down from a 1.2% rise on Oct. 1. Volume, which has topped 80 million pounds the past three events, totaled 85.9 million, up slightly from 85.6 million on Oct. 1. The average metric ton price, at $3,852 U.S., was up $1.
Lactose was down 5.8%, following a 6.7% gain on Oct. 1. Skim milk powder was down 1.8%, after slipping .6%, and whole milk powder was unchanged, after rising 3%. Butter was off .3%, following a 1.4% drop, while anhydrous milkfat was up .3% following a .1% slip. Cheddar was up 4.2%, which follows a 3.8% rise Oct. 1, while GDT Mozzarella was down 8.2% after dropping 7.7%.
StoneX says the GDT 80% butterfat butter price equates to $2.8741 per pound, up 3.9 cents from Oct. 1, and compares to CME butter which closed last Friday at $2.66. GDT Cheddar, at $2.1327, was up 4.3 cents, and compares to last Friday's CME block Cheddar at $1.9250. GDT skim milk powder averaged $1.2452 per pound, down from $1.2676, and whole milk powder averaged $1.6115, down from $1.6144. CME Grade A nonfat dry milk closed last Friday at $1.38 per pound.
In politics, as part of National School Lunch Week, the International Dairy Foods Assn. reported that its Healthy School Milk Commitment is responsible for reducing added sugar levels by 10% in flavored school milk between the 2023 and 2024 school years.
"The Commitment was launched in April 2023 by 37 school milk processors representing approximately 95% of the school milk volume in the United States," said the IDFA. "Since that time, added sugar in flavored school milk, such as chocolate milk, has declined from 8.2 grams per serving to 7.4 grams. In the past year alone, school milk processors have removed 2.7 billion grams of added sugar, equal to 5.9 million pounds," according to the IDFA.
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