Class III benchmark milk at $19.37, highest December price since 2007
The Agriculture Department announced the December Federal order Class III benchmark milk price on January 2 at $19.37 per hundredweight (cwt.), down $1.08 from November, $5.59 above December 2018, and the highest December price since 2007. That put the 2019 Class III average at $16.96, up from $14.61 in 2018 and $16.17 in 2017.
Late Friday morning Class III futures portended a January price of $16.93; February, $17.04; and March at $17.25. The January price was the low for 2020, with the peak at $17.65 in September and October.
The December Class IV milk price is $16.70 per cwt., up 10 cents from November, $1.61 above a year ago, and the highest Class IV price since August. Its 2019 average is $16.30, up from $14.23 in 2018 and $15.16 in 2017.
Another higher All Milk price and lower feed prices pushed the November milk feed price ratio higher for the fifth consecutive month. The USDA’s latest Ag Prices report put the ratio at 2.61, up from 2.39 in October and compares to 2.21 in November 2018.
The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51% corn, 8% soybeans, and 41% alfalfa hay. In other words one pound of milk today purchases 2.61 pounds of dairy feed containing that blend.
The US All-Milk price averaged $21.00 per cwt., up $1.10 from October and $3.80 above November 2018. California’s All Milk price was $19.50, up 60 cents from October and $2.29 above a year ago. Wisconsin’s, at $22.40, was up $1.90 from October and a whopping $5.40 above a year ago.
The national average corn price averaged $3.68 per bushel, down 16 cents from October but 27 cents per bushel above November 2018. Soybeans averaged $8.59 per bushel, down a penny from October but 23 per bushel above a year ago. Alfalfa hay averaged $173 per ton, down $6 from October and dead even with a year ago.
Looking at the cow side of the ledger; the November cull price for beef and dairy combined averaged $57.70 per cwt., down $3.20 from October, $5 above November 2018, but $13.90 below the 2011 base average of $71.60 per cwt.
The US dairy industry saw many ups and downs in 2019, including the loss of hundreds of dairy farms, despite milk prices reaching highs not seen in five years which ironically came too little, too late for many.
I posed the question whether the supportive milk prices would remain in 2020, even as the December Class III price fell, to FC Stone dairy broker Dave Kurzawski in the January 6 Dairy Radio Now broadcast.
Kurzawski began by warning that “We’re in highly volatile markets right now,” but added that we need to “strip away the noise of the holidays,” and the weakness that we had in December, and even the high over $2 cheese prices we saw in September, October, and November.
“The question we need to think about is; where should dairy commodity prices really be right now,” he said. He believes the answer lies in looking over the previous 12 months. He reminded us that we saw tighter supplies of milk (up just 0.3% through November from 2018), less Cheddar cheese production, we saw problems on dairy farms that haven’t totally been resolved, and fewer cows.
“There seems to be some stable reasons out there, even amidst these volatile milk markets that we’ve seen lately,” Kurzawski stated, “That would suggest that prices should be higher than they normally would be as we start a new year.”
He said that “The milk markets should be at a level that brings some profitability back to dairies because, while it’s taken a couple of years, the signal to tighten up the supply of milk has occurred. It occurred in 2019 and probably in the later part of 2018, and I think we walk into 2020 uncertain of what demand will look like but pretty well certain that we’re not going to see the spigot turn on for milk production in the US any time real soon.”
Meanwhile, Chicago-based Commodity and Ingredient Hedging LLC’S latest “Margin Watch” (MW) reports that “Dairy margins improved over the second half of December as milk prices recovered from a mid-month swoon while feed costs held mostly steady in quiet, year-end holiday trading. Margins remain strong, above the 90th percentile of historical profitability through the first half of 2020, and over the 80th percentile of the past decade in the back half of the year. Strength in milk prices continues to be a theme supporting strong margin.”
“USDA reported November milk production at 17.44 billion pounds, up 0.5% from last year with the milking cow herd in November unchanged from October at 9.33 million head, but down 27,000 from 2018. While the milking cow herd continues to decline year-over-year, efficiency has increased as smaller operations exit the business and larger dairies expand. Milk per cow during November was estimated at 1,869 pounds, which would be 15 pounds above 2018.”
“Growth in milk production has been declining this past year while demand has been robust. Through November, year-to-date milk output was up 0.3% from the prior year, with much of the slowdown occurring in the second half of 2019.”
EU milk collections from January through October were up only 0.4% from 2018 while New Zealand milk production lagged the prior year by 0.5%. Drought in Australia also sharply reduced milk output to its lowest level in decades.”
“USDA’s Cold Storage report showed November month-end cheese inventories of 1.32 billion pounds, down 2.1% from last year with American cheese inventories of 740 million pounds down 7.4% from 2018. The smaller inventories likely provided support for the CME spot Cheddar market following a recent collapse in spot barrels. November butter inventories meanwhile of 180.7 million pounds were up 17.1% from last year and the largest November stockpile since 1993,” the MW concluded.
Cash dairy product prices at the Chicago Mercantile Exchange started 2020 mixed as traders awaited the November Dairy Products report on January 6 and the first Global Dairy Trade auction on January 7.
The Cheddar blocks climbed to $1.91 per pound New Year’s Eve but closed the first Friday of the New Year at $1.89, up 6 cents on the holiday shortened week and 47.25 cents above a year ago. The barrels hit $1.70 New Year’s Eve but finished Friday at $1.6425, up 4.25 cents on the week and reversing four weeks of decline, 34 cents above a year ago, but 24.75 cents below the blocks.
6 cars of block traded hands on the week at the CME, 37 in the month of December, down from 49 in November. 16 cars of barrel sold on the week and 103 for the month, up from just 16 in November.
FC Stone’s Kurzawski expects the Dairy Products report to show overall cheese production growth to be “a bit better.” He looks for a small shift from mozzarella into Cheddar and American, with Italian stocks still running well above last year.
“Butter production growth might slow a little with cheese taking more fat along with whole milk powder and ice cream,” wrote Kurzawski in his January 3 Early Morning Update, “But given how big November butter stocks were, it won’t be surprising to see butter production come in higher than forecast.”
Nonfat dry milk and skim milk powder “will be an interesting one,” he said. “We’re lapping over a 3.4% drop last year when a lot of protein went missing, so we could see some pretty strong growth numbers this year.”
Central cheese makers told Dairy Market News that orders were slow to return in the second shortened week of the holidays. Blocks and barrels are both readily available and milk for processing is “abundant.” Spot loads were offered at $6 to $8 under Class III. Cheese manufacturers picked up a few extra loads at discounted prices to fill processing runs, says DMN, others scheduled downtime, while other plants ran straight through the week.
Western cheese output is also active amid ample amounts of milk. Contacts reported discounted milk was still available in parts of the region. Cheese orders slowed during the Christmas and New Year’s weeks but retail demand leading up to the festivities pulled at cheese stocks. Cheese makers are hopeful that the pro football playoffs will spur the need for more cheese for pizza. Cheese inventories are “in good balance with customer needs,” says DMN.
Butter fell below the $2 per pound price tag again, closing the week at $1.95, 8.5 cents lower on the week and 30 cents below a year ago. Only 3 cars exchanged hands New Year’s Week and 29 in December, down from 58 in November.
Readily available cream was driving production at butter plants in the Central region, according to DMN, and a slowdown is not likely as manufacturers expect to see high butter output well into the week after New Year’s. Demand varies from flat to sluggish, as domestic buyer interest remained light early in the week. Retail orders improved slightly from Christmas Week. Bulk interest was light to moderate as buyers continue to assess their supply situation following the year-end holidays. The market is “unsettled” as prices edge lower, says DMN.
Western butter manufacturing was active due to increased cream offers in the New Year’s Week. Cream was moving to any processing plant that had room and was willing to take it. Manufacturing facilities that were open the first day of 2020 were prepared for the cream churning rush that usually takes place. Butter inventories are adequate to satisfy the needs of buyers, says DMN, and demand for the holiday was good. Market players report that some bulk butter buyers are still looking to get coverages for first and second quarter, meanwhile, “The condition of the butter market is within seasonal expectations,” DMN concludes.
Spot Grade A nonfat dry milk saw a Friday closing at $1.2325 per pound, unchanged on the week but 25.75 cents above a year ago. 7 cars traded hands on the week, with 27 on the month, down from 69 in November.
CME dry whey finished Friday at 31.5 cents per pound, also unchanged on the week but 17.5 cents below a year ago. There were 38 carloads traded on the week, 88 for the month, 28 less than in November.
The week after New Year’s will provide plenty of fodder for the markets, starting with the November Dairy Products report and the GDT. The Agriculture Department will issue its monthly World Agricultural Supply and Demand Estimates report Friday morning, January 10, and will include the department’s latest milk production and milk price estimates, and the December Milk Production report is issued that afternoon.
Leftovers from 2019 include the ramifications of the United Kingdom’s Brexit in 2020, President Trump’s reported singing on January 15 of the Phase One trade deal with China, the hoped for Senate passage of the USMCA trade agreement with Mexico and Canada, and the US Japan trade agreement which went into effect on January 1.
By the way, Japan is the second largest net importer of cheese in the world, according to the International Dairy Foods Association, importing nearly $1.3 billion worth in 2018. Hopefully, the US dairy industry will get a bigger share of that purchase in 2020.
Lee Mielke is a graduate of Brown Institute in Minneapolis, MN. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at email@example.com.