Inflationary pressures and cost impacts are factors reducing profit margins at the farm
The Agriculture Department announced the June Federal order Class III milk price at $24.33 per hundredweight, down 88 cents from May but $7.12 above June 2021. That put the 2022 Class III average at $22.95, up from $16.96 at this time a year ago, $16.09 in 2020, and $15.25 in 2019.
Late Friday morning futures portended a July price at $22.36; August, $22.26; September, $22.66; October, $22.88; November, $22.80; and December $22.25.
The June Class IV price set another new record high at $25.83, up 84 cents from May, and $9.48 above a year ago. Its average sits at $24.67, up from $14.84 a year ago, $13.78 in 2020, and $15.98 in 2019.
The May All Milk Price set another record high but feed, fuel, and fertilizer prices continue to consume much of the increased income. The USDA’s latest Ag Prices report has the May milk feed price ratio at 1.98, down from 2.00 in April, but compares to 1.69 in May 2021.
The index is based on the current milk price in relationship to feed prices for a ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. In other words, one pound of milk would only purchase 1.98 pounds of dairy feed of that blend.
The U.S. All Milk Price averaged a record $27.30 per cwt., up 20 cents from April, ninth consecutive increase, and is $8.20 above May 2021.
California’s All Milk Price rose to $27.50 per cwt., up 50 cents from April and $8.90 above a year ago. Wisconsin’s, at $27.30, was up 30 cents from April and $7.60 above a year ago.
Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, said “The income over feed calculation decreased for the second time in the past nine months. May’s income over feed costs stayed above $13.50 for the second month in a row and was above $8 per cwt. for the eighth month running.”
“For 2022, milk income over feed costs (using June 30 CME settling futures prices for milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $13.41 per cwt., a gain of 22 cents per cwt. versus the previous month’s estimate. 2022 income over feed would be above the level needed to maintain or grow milk production and $5.54 per cwt above the 2021 level, according to Brooks.
The May national average corn price hit $7.26 per bushel, up 18 cents from April, after jumping 52 cents the previous month, and was $1.35 above May 2021.
Soybeans averaged $16.10 per bushel, up 30 cents from April, after gaining 40 cents the previous month, and were $1.30 per bushel above May 2021.
Alfalfa hay averaged a record $244 per ton, up $1 from April, and $50 per ton above a year ago.
The May cull price for beef and dairy combined averaged $86.70 per cwt., down $1.40 from April, but $15.90 above May 2021, and $15.10 above the 2011 base.
The USDA’s latest Grain Stocks report shows June 1 corn stocks at 4.35 billion bushels, up 6% a year ago. Soybeans totaled 971 million bushels, up 26%.
This week’s Crop Progress report shows 67% of U.S. corn was rated good to excellent, as of the week ending June 26, down 3% from the previous week, but 3% ahead of a year ago.
Soybean plantings were 98% complete, up from 94% the previous week, 1% behind a year ago, but 1% ahead of the latest five year average. 91% have emerged, up from 83% the previous week, 4% behind a year ago, and mirrors the five year average. Ratings put the crop at 65% good to excellent, 3% behind the previous week, but 5% ahead of the five year average.
Meanwhile, the June 30 Daily Dairy Report stated; “In March, farmers told USDA they intended to plant just shy of 91 million acres of soybeans and 2.16 million acres of canola, record high acreage for both,” according to the June 30 Acreage report, however “The high price of corn and other grains convinced farmers to consider other crops. In the Dakotas and Minnesota, soggy spring conditions forced farmers to switch to small grains that don’t suffer as much from a late start. The war in Ukraine also spurred a steep uptick in sunflower acres. In these three states, farmers planted 340,000 more acres of sunflowers than in 2021.”
USDA will re-survey farmers in the Dakotas and Minnesota due to this year’s late plantings, according to the DDR, “but for now, the agency estimates that U.S. farmers planted 88.325 million acres of soybeans and 1.958 million acres of canola, well below expectations.”
In yet another USDA report this week, the Cattle on Feed inventory marked the highest volume ever recorded during June since record keeping began. StoneX stated in its Early Morning Update; “This has been a trend over recent months with several back-to-back months of record breaking Cattle on Feed inventory. Cattle on feed numbers are falling in-line with seasonal levels. Marketing levels are now outpacing placements, supported by strong slaughter levels in the beef market. May placements fell from last year’s levels by just over 2%, but the large volume of cattle on feed continues to carry for the most part.”
They add; “Fed cattle marketed in May grew to nearly a 2.5% surplus from last year. Currently, year-to-date marketings are even with marketings up to this point in 2021. Placements were expected to be slightly higher than year-ago levels, but ended up lower than expected, supporting the observation in the market that the cattle herd is contracting,” StoneX concluded.
In the week ending June 18, 54,100 dairy cows were sent to slaughter, up 3,700 head from the previous week, and 900 or 1.7% above a year ago.
A key question right now is whether dairy markets are supply directed or demand directed. HighGround Dairy’s Lucas Fuess reported in the July 4 Dairy Radio Now broadcast that milk supply in most parts of the globe is down from a year ago and has been so for a few months.
“A few weeks ago, I would have said it’s more supply driven,” Fuess said. That kept prices supported as demand exceeded supply, but he foresees milk output topping year ago levels sometime this summer or fall. Weather has affected milk volume and components in select regions of the U.S., he said. “It gets hot every summer and so far, the affect hasn’t been huge, but we will keep an eye on it.”
He warned that demand is becoming the key driver as we face “some significant economic headwinds” how the economy will shape consumer behavior, be it inflation, retail spending, or food service demand. We are seeing warning signs on the demand side, he concluded, and that will likely make the market a little bit bearish the next several months, but he doesn’t see prices collapsing.
The CME Cheddar blocks shot higher, ending five weeks of loss, and closed the first Friday of July at $2.1725 per pound, as traders anticipated the afternoon’s May Dairy Products report and the long 4th of July holiday weekend. The price was up 8.25 cents on the week, 7.50 cents below its June 1 stand, but 61.75 cents above a year ago.
The barrels finished at $2.2050, up 5.75 cents on the week, 9.75 cents below its June 1 perch, 70.50 cents above a year ago, and an inverted 3.25 cents above the blocks.
There were 2 sales of block on the week and 22 for the month of June, down from 34 in May. Barrels totaled 9 for the week and 57 for the month, down from 61 in May.
Milk was widely available to Midwestern cheesemakers, with discounts as low as $6 under at midweek and expected to continue. Cheese sales were “variant,” says Dairy Market News, but production at fully running plants was at capacity.
Western cheese demand continued to decline in food service this week, though contacts were hopeful for increased purchasing during the holiday weekend. Demand for cheese is steady to lower in retail markets. Export demand remains strong with Asian purchasers steadily buying loads for shipment in late first quarter 2023. Record levels of cheese are available according to the latest Cold Storage report. Milk continues to be available in the region, allowing busy schedules, if plants have the labor and production supplies needed, says DMN.
Cash butter saw its Friday finish at $3.01 per pound, up 9.50 cents on the week, highest CME price since Sept. 28, 2015, 12 cents above the June 1 post, and $1.27 above a year ago. There were 28 sales on the week and 112 for the month of June, down from 116 in May.
Butter producers were clearing cream from regional sources, as the holiday weekend approached. Butter sales were seasonally quieter, but generally meeting expectations. Contacts are looking at export growth but there continues to be uncertainty over fall demand availability. Early-to mid-week churning was increasing due to cream loosening up due to the holiday, according to DMN.
Cream was available this week in the West as some plants prepared for downtime during the weekend. Cream demand has been strong from butter and ice cream makers in recent weeks and they expect strong demand to remain after the holiday. Butter output is steady, though labor shortages are still preventing some plants from running full schedules. The Cold Storage report showing inventories down 22% from a year ago has contributed to increased demand. Food service demand continues to decline in the West and retail sales are lagging due to higher grocery store prices, according to DMN.
Grade nonfat dry milk closed Friday at $1.8025 per pound, up 1.25 cents, 6.50 cents below its June 1 level, but 54.50 cents above a year ago. There were 12 sales on the week and 40 for the month, down from 57 in May.
CME dry whey closed the week at 50 cents per pound, 0.25 cents higher, 5 cents below where it was on June 1, and a nickel below a year ago. Sales totaled 9 for the week and 47 for the month of June, same as in May.
Warmer temperatures are affecting farm milk output throughout the U.S., according to USDA’s weekly update. Milk declines in the East were being reported in most areas as a downswing also occurs in the Central region. Western output is level to moderately elevated.
Strong demand for dairy products facing weak supply has helped profitability in the Australian dairy industry, according to DMN, but inflationary pressures and cost impacts are increasingly being noticed as factors reducing profit margins at the farm level. Continuing farm and plant labor shortages are also cited.
New Zealand pastures are showing signs of recovering, with a turnaround that supports numbers that are in line with year ago pasture growth levels, says DMN.
Some have an optimistic outlook for milk output as the new season begins. “The export market's appetite for milk protein and milk fats drives the effort, as New Zealand's dairy export revenue tracked a 13% growth rate,” says DMN.
The June 27 Daily Dairy Report stated; “New Zealand’s dairy industry kicked off the 2021-22 season at a sprint, with record setting milk collections in both June and July 2021. But then the pace slowed. Output fell below year-ago levels for 10 straight months. Kiwi dairy producers wrapped up the season in May with collections down 6.5% from the prior year. For the 2021-22 season, milk collections fell 4.2% below 2020-21 on a fluid basis and down 4.1% on a milk solids basis. That brought milk output to its lowest level since 2017-18.”
Cooperatives Working Together member cooperatives accepted 24 offers of export assistance this week to help capture sales contracts for 3.2 million 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.
Year to date CWT sales now total 86.9 million pounds of American-type cheeses, 348,000 pounds of butter, 28.5 million pounds of whole milk powder and 5.0 million pounds of cream cheese. The products are going to 18 countries in six regions and are the equivalent of 744 million pounds of milk on a milkfat basis, according to the CWT.
In politics, Wisconsin-based Edge Dairy Farmer Cooperative, announced its priorities for reforming the federal milk pricing system, stating that it is focused on “strengthening the relationship between farmers and processors in a way that increases transparency, fairness and competition, and gives farmers a reasonable amount of price certainty,” according to CEO Tim Trotter.
"Differences across the Federal Milk Marketing Orders (FMMO) require added flexibility to meet their respective needs, and current markets driving milk outside the FMMO system point to a need for a standard set of ‘contracting principles’ to build a more fair and equitable pricing system,” Trotter said.
Edge proposes 10 contracting principles that would “cover timeliness of payments, transparency in pricing formulas, incentive payments, competitive risk management and other aspects of business between farmers and processors.” Complete details are posted at the cooperative’s website.
The National Milk Producers Federation led eleven national agricultural, anti-hunger, nutrition and medical groups in a virtual listening session Thursday urging the White House to “place a high priority on access to affordable, diverse and nutritious foods” when it holds September Conference on Hunger, Nutrition, and Health.
The session offered expertise and lived experience from a range of organizations on how important increased access to food and a diverse range of food choices are to fight nutrition insecurity and improve nutrition-related health.
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.