Farm Milk Prices Slipping, but Margins Should Improve in 2025
Published: Friday, December 13, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Farm milk prices continue to fall. The USDA announced the November federal order benchmark Class III price at $19.95 per hundredweight, down $2.90 from October, $2.80 above November 2023, and the lowest since July. The 11-month average is $18.92, up from $17.11 a year ago, and compares to $22.09 in 2022.
Last Friday morning, Class III futures portend a December price at $18.85, which would result in a 2024 average of $18.91, up from $17.02 in 2023 and compares to $21.96 in 2022.
The November Class IV price is $21.12, up 22 cents from October and 25 cents above a year ago. Its average stands at $20.75, up from $19.11 a year ago but compares to $24.68 in 2022.
You'll recall October milk production was up .2% from a year ago. Components were up as well. The October Dairy Products report shows where the milk went.
Cheese production totaled 1.226 billion pounds, up 5.6% from September and up 1% from October 2023. Year to date 11.9 billion pounds had been produced, up .6% from 2023.
Wisconsin vats provided 315.2 million pounds of the October total, up 11.4% from September and 4.3% above a year ago. California output, at 204.5 million pounds, was up 2% from September but .6% below a year ago. Idaho produced 94.3 million pounds, up 5.2% from September and 5.7% above a year ago. New Mexico provided just under 76 million pounds, up 1.3% from September but 10.8% below a year ago.
Butter production climbed to 167.5 million pounds, up 7 million pounds, or 4.4%, from September and up 5 million pounds, or 3.1%, from a year ago. YTD butter hit 1.86 billion pounds, up 5.7% from 2023. The 3.1% increase in October was strong but well below the 11.3% increase in September and 14.5% in August.
Yogurt production totaled 419.3 million pounds, up 11.9% from a year ago. Hard ice cream, at 62.5 million pounds, was up 11.8%.
Dry whey output slipped to 66.3 million pounds, down 1.7 million pounds, or 2.5%, from September, and down 9 million, or 11.9%, from a year ago. YTD whey was at 727.8 million pounds, down 8.7%. Stocks fell to 50.5 million pounds, down 5.2 million, or 9.4%, from September and down 24.8 million, or 32.9%, from a year ago.
Nonfat dry milk climbed to 125.1 million pounds, up 9.6 million, or 8.4%, from September, but was down 3.5 million pounds, or 2.7%, from a year ago. YTD NFDM was at 1.4 billion pounds, down 11.6%. Stocks fell to 234.4 million pounds, down 16.1 million, or 6.4%, from September, but were up 16.1 million pounds, or 7.4%, from 2023.
Skim milk powder production fell to 41 million pounds, down 12.4 million pounds, or 23.2%, from September, and down 13 million, or 24.1%, from a year ago. YTD SMP stood at 455.9 million pounds, down 18.5% from 2023.
StoneX said, "The fat and protein that didn't go into cheese or butter ended up in milk protein concentrate, up 84% year over year, and in miscellaneous products like ice cream, sour cream and yogurt."
CME dairy prices were mostly higher the first week of December. The Cheddar blocks closed last Friday at $1.70 per pound, up 5.75 cents on the week, reversing six consecutive weeks of decline, and is 18 cents above a year ago. The barrels finished at $1.69, 8.50 cents higher, 17 cents above a year ago, and a penny below the blocks. Sales on the week totaled 18 loads of block and 10 of barrel.
Cheese demand and milk availability varies according to Midwest cheesemakers, says Dairy Market News. Demand for barrels, curds and some European-style cheese has ticked lower in recent weeks. Cheddar and Italian cheesemakers say demand is steady to strong. Milk availability has shifted to what it was prior to the Thanksgiving holiday. Offers were above-Class III. Cheesemakers in the eastern edge of the Central region said milk was more available than it was in November. Spot milk prices mid-week were at or near $1-over Class III for the most part.
Cheese output is mixed in the West, with some plants in unplanned downtime. Milk demand from cheese makers is steady to stronger and comparatively tighter for the southwest part of the region. Domestic cheese demand is mixed from spot buyers but steadier contractually, while international interest is steady says DMN.
Butter saw its Friday finish at $2.5450 per pound, up 5.25 cents on the week, reversing five weeks of decline, but 11 cents below a year ago, with 33 sales.
Midwest churning was active after some allotted downtime over the holiday week, reports DMN.
Cream suppliers reported only minimal issues finding homes for the extra product. Butter is available, particularly the 80% milkfat salted variety. Market tones are uncertain with some contacts expecting more downward price pressure while others see a range bound price around $2.50 moving forward.
Western butter production is mixed. Wind conditions led to power loses that caused significant unplanned downtime for some while other reduced capacity was due to churn maintenance. Cream is tighter in the southwest part of the region but widely available in most of it. Demand is steady to lighter, says DMN.
Grade A nonfat dry milk closed last Friday at $1.39 per pound, down a half-cent on the week, but 21 cents above a year ago, with 28 sales for the week.
Dry whey hit 72.75 cents per pound last Monday, highest since March 24, 2022, but fell to a Friday close at 71 cents per pound, unchanged on the week, but 31 cents above a year ago. There were nine CME sales logged on the week.
A small drop in the All Milk Price and a slightly higher alfalfa price pulled the October milk feed price ratio lower, for only the second time in 2024. The latest Ag Prices report shows the ratio at 2.96, down from 3.00 in September, and compares to 2.01 in October 2023.
The All Milk Price averaged $25.20 per hundredweight, with a 4.26% butterfat test, down 30 cents from September, which had a 4.15 test, but was $3.70 above October 2023, which had a 4.21% test. It was the first drop since April.
Looking at the cow side of the ledger, the October average cull price for beef and dairy combined was at $128 per hundredweight, down $8 from September but $20 above October 2023, and $56.40 above the 2011 base average.
"Milk production margins moved away from the second highest level ever at $16.70 per hundredweight and were 29 cents per hundredweight below September," according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo.
"Income over feed costs were above $16 per hundredweight for just the fourth time in history at $16.70, and above the $8 per hundredweight. level needed for steady to higher milk production for the twelfth month in a row," said Brooks. "Input prices were mostly higher with all three input commodities remaining in the top ten for October all-time. Feed costs were the ninth highest ever for the month of October and decreased one cent per hundredweight from September."
"Milk income over feed costs for 2024, using Nov. 29 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay, are expected to be $13.30 per hundred-weight," said Brooks, "a loss of 23 cents per hundredweight versus last month's estimate. Income over feed in 2024 would be above the level needed to maintain or grow milk production, and up $5.30 from 2023's level."
"Milk income over feed costs for 2025 is expected to be $13.38 per hundred-weight, a gain of 8 cents per hundredweight versus 2024," said Brooks. "Income over feed in 2025 would be above the level needed to maintain or grow milk production, and down $1.03 per hundredweight from last month's estimate," Brooks concludes.
Meanwhile, the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC, states, "Dairy margins were flat to slightly weaker over the last half of November, as milk prices traded steady to lower across the curve while feed costs were roughly unchanged. A recent uptick in U.S. milk production and weakness in cheese and butter are weighing on CME milk futures contracts," the MW warned, "keeping the market under pressure."
The MW detailed USDA's October Milk Production report, stating, "A larger dairy herd was primarily responsible to for the increase in milk production, with the U.S. dairy cow inventory estimated at 9.365 million, up 19,000 from September and 10,000 more than last year which represented the first year-over-year increase since May 2023. The herd has expanded 46,000 head the past three months, with yield increasing by 3 pounds to 1,996 pounds per cow."
The MW reported, "U.S. butter prices have declined 22% from their peak earlier this summer while CME Cheddar barrels are down 48% from mid-September and blocks are 32% lower. While this pressure has weighed on CME milk futures, it is also making U.S. supplies more competitive in the export market," the MW said.
Decent Margins Ahead
Rabobank sees good news for dairy farmers in 2025, according to analyst Lucas Fuess in the Dec. 9 "Dairy Radio Now" broadcast. Milk prices won't be as high as they were in September and October, he said, but they will be profitable and "Feed prices should be at four-year lows, creating decent margins."
"Critical watch factors" include the threatened tariffs from incoming President Trump as well as increased cheese making capacity. The tariffs are a huge unknown, he said, however, while developing the U.S., Mexico, Canada Free Trade Agreement in the first Trump term, the dairy industry was able to make it clear that Mexico is our No. 1 exporting market and needs to be maintained.
Rabobank sees bullish cheese prices ahead, as the production of Cheddar is still down and stocks are low but the market knows additional cheese is coming, he said. "That will keep prices a little lower than they would be otherwise."
He admitted that U.S. milk output has returned to growth. However, it's against a really low prior year and down from two years ago but, "As long as producers continue to drive revenue from beef on dairy, that will limit the number of cows available to enter the herd, keeping a lid on production growth," he concluded.
October U.S. dairy exports tumbled 1.9% from October 2023, second-lowest monthly total of 2024, according to HighGround Dairy. Shipments to Mexico were up 14.1% and up 21% to South Korea, while exports to Canada were down 2%, down 1% to China, Japan down 16% and down 25% to Southeast Asia.
Cheese exports totaled 88.8 million pounds, up 12.4%, increasing for the tenth consecutive month, as U.S. prices were competitive globally. October's exports were likely booked in July or August, according to HGD.
Nonfat-skim milk powder sailings totaled 136.5 million pounds, down 4.3% from a year ago, with whole milk powder down 48%. Shipments to Southeast Asia were down 31%, says HGD, as "demand from the region has been highly volatile."
Dry whey exports totaled 31.4 million pounds, down 1.6%.
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