Many dairy producers are bracing for the worst as farm expenses are at an all-time high
Farm milk prices are climbing but have a way to go to hit profitability for most U.S. dairy farms. The U.S. Department of Agriculture (USDA) announced the April Federal order class III benchmark at $18.52 per hundredweight (cwt.), up 42 cents from March but $5.90 below April 2022. The four-month average stands at $18.46, down from $22.04 a year ago, and compares to $16.40 in 2021.Late Friday morning class III futures portended a May price at $16.56, June at $17.03, July at $17.79 and August at $18.52 with a peak of $19.40 in November.The April class IV price is $17.95, down 43 cents from March, $7.36 below a year ago and the lowest class IV since October 2021. Its four-month average is at $18.80, down from $24.31 a year ago and compares to $14.14 in 2021.Feed prices showed some relief in March, according to the Department of Agriculture’s latest Ag Prices report, but another drop in the all milk price pulled the milk feed ratio to 1.56, down from 1.58 in February, lowest since August 2021 and compares to 2.02 in March 2022. 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 this case, one pound of milk would only purchase 1.56 pounds of dairy feed of that blend.The all milk price average fell for the fifth month in a row, slipping to $21.10 per hundredweight, down 50 cents from February, after losing $1.50 the month before, and is $4.50 below March 2022.California’s average, at $21.20, was down $1.00 from February and $3.70 below a year ago. Wisconsin’s, at $20.50, was up a dime from February but $4.80 below a year ago.Corn averaged $6.67 per bushel, down 13 cents from February, after jumping 16 cents the month before, but is still 11 cents per bushel above March 2022.Soybeans fell to $14.90 per bushel, down 20 cents, after jumping 60 cents to a record $15.10 the previous month but were still 50 cents above a year ago.Alfalfa hay averaged $267.00 per ton, up $1 from February and $39 per ton above a year ago.The March cull price for beef and dairy combined continued to climb, averaging $95.70 per cwt., up $6.20 from February, after gaining $7.80 the month before. Its $11.00 above March 2022 and $24.10 above the 2011 base average.Quarterly milk cow replacements averaged $1,720 per head in April, unchanged from January but $150 above April 2022. Cows averaged $1,655 per head in California, down $165 from January, but $215 above a year ago. Wisconsin’s average, at $1,840, was up $30 from January and $130 above April 2022.The lower feed costs are partly due to China. The April 28 Daily Dairy Report (DDR) points out that China has cancelled orders to buy U.S. corn. “Through April 20, before the cancellations, Chinese commitments to buy U.S. corn were 39% lower than at this point last year and 63% less than in April 2021,” Corn exports to other destinations are also down, according to the DDR.“With on farm expenses at all-time highs, many dairy producers are bracing for their worst losses since the 2009 dairy crisis,” the DDR somberly concluded. “Eventually, pain on the farm will result in weaker milk production and rising prices. But today, by all accounts, milk is abundant and prices remain low.”Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, says “Income over feed costs in March were below the $8 per cwt. level needed for steady to increasing milk production for the second month in a row. Input prices backed away from all-time record high prices in March, but all three commodities were in the top two for March all time. Feed costs were the highest ever for the month of March and the eighth highest all time. The all milk price was just outside the top forty at the forty-third highest recorded,” says Brooks.Looking at 2023, milk income over feed costs, using April 28 CME settling futures prices for class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay, are expected to be $8.03 per cwt., a loss of 46 cents versus last month’s estimate. 2023 income over feed would be close to the level needed to maintain or grow milk output, but down $3.96 per cwt. from 2022,” says Brooks.Dairy margins improved modestly the second half of April as a sharp decline in projected feed costs more than offset weaker milk prices, according to the latest Margin Watch (MW) from Chicago based Commodity and Ingredient Hedging LLC.“The milk market continues to be pressured by abundant cheese inventories combined with lower cash trade in the spot market,” the MW stated. It detailed the large quantity of cheese sold at the CME, the March Milk Production and Cold Storage reports and concluded, “Feed prices declined sharply as increasing corn export cancelations by China and a large second corn crop out of Brazil pressure the market.”CME cheese prices started May hesitating. The blocks fell to $1.6625 per pound Tuesday, then climbed to $1.69 Wednesday, but closed Friday at $1.6125. That’s down 7.50 cents on the week, sixth consecutive week of decline, the lowest they’ve been since November 5, 2021, and 73.75 cents below a year ago.The barrels fell to $1.5575 Tuesday, hit $1.5850 Wednesday, but closed Friday at $1.53, six cents lower on the week, 85 cents below a year ago and 8.25 cents below the blocks. The week’s CME sales totaled 34 of block and 31 of barrel.Midwestern cheesemakers report mixed demand to Dairy Market News (DMN). Milk availability remains wide open with mid-week spot milk prices ranging $11 to $4 under class and offers reportedly growing. Plant downtime continues to play its part in keeping milk available, according to DMN.Cheese demand from Western food service and retail is strong to steady, with reports of tight inventories. Some report stronger export sentiment with recent spot price decreases. Demand from Mexico and South America is strong to steady, while an uptick in interest for additional fourth quarter bookings from Asian purchasers is indicated. Cheese vats are running strong with plentiful milk.Cash butter climbed to a Friday finish at $2.4450 per pound, up 9.25 cents on the week, but 19.50 cents below a year ago, with 14 sales reported on the week.In what may be a first time occurrence USDA released a revised March Cold Storage report Monday, after it made no revisions to the February data in its April 25 report. February 28 total cheese stocks were reduced nine million pounds and the butter inventory was lowered one million. March estimates were left unchanged.Midwest butter demand and churning were busy this week, says DMN. Demand has not ebbed despite some expectation of bearish pressure on markets due to reported supply increases. Plants are still working through readily available cream at similar prices to previous weeks. Milkfat component levels from the farm are “keeping cream supplies somewhat hearty,” says DMN.Cream demand is strong in the west and some butter manufacturers report plants are more balanced with regional cream supplies compared to class IV needs. Cream multiples moved higher this week. Churns are operating at strong schedules with some at max capacity. Contract sales are steady and retail demand is strong to steady, with some upticks reported. Upticks from Canada is indicated, says DMN, but “demand is on the steady to light end of the spectrum.”Grade A nonfat dry milk lost 1.75 cents Monday, but Tuesday’s GDT jump started a recovery that climbed to $1.1975 per pound Friday, up 2.25 cents on the week, highest since Feb. 27, but still 54.25 cents below a year ago. There were 13 sales on the week.Dry whey closed Friday at 32.75 cents per pound, down 2.50 cents on the week and 25.75 cents below a year ago, with 54 sales put on the board for the week.The USDA’s latest Crop Progress report shows U.S. corn plantings at 26%, as of the week ending April 30, up from 14% the previous week, 13% ahead of a year ago and dead even with the five-year average. 6% was emerged, up 3% from the previous week and previous year, and 1% ahead of the five-year average.The report shows 19% of the soybeans are in the ground, up from 9% the week before, 12% ahead of a year ago, and 8% ahead of the five-year average. Cotton plantings were at 15%, same as a year ago and 1% ahead of the 5-year average.The week ending April 22 saw 60,800 dairy cows head to slaughter, up 500 from the previous week and 4,400 head or 7.8% above a year ago. Year to date, 1.05 million head have been culled, up 43,300 head or 4.3% above a year ago.The international dairy market saw more good news Tuesday as the Global Dairy Trade weighted average rose 2.5%, following the 3.2% jump on April 18. Traders brought 51.3 million pounds of product to market, up from 50.1 million on April 18 and the average metric ton price climbed to $3,506 U.S., up from $3,362.00.The gains were led by whole milk powder, up 5.0%, following a 1% advance on April 18. Skim milk powder was up 1.5%, after jumping 7.0% last time. Buttermilk powder inched 0.8% higher. GDT cheddar was up 4.5%, after jumping 5.7% last time and butter was up 2.4%, following a 4.9% advance. The one decline was on anhydrous milkfat, down 2.4%, after advancing 4.7% in the last event.StoneX Dairy Group says the GDT 80% butterfat butter price equates to $2.1893 per pound U.S., up 5.6 cents after gaining 10 cents on April 18 and compares to CME butter which closed Friday at a pricey $2.4450. GDT cheddar, at $2.0690, was up 6.8 cents and compares to Friday’s CME block cheddar at a bargain $1.6125. GDT skim milk powder averaged $1.2641 per pound, up from $1.2590 and whole milk powder averaged $1.4650 per pound, up from $1.4012. CME grade A nonfat dry milk closed Friday at $1.1975 per pound.Dustin Winston reports “Quantity oﬀered in this auction fell by roughly 500 metric tons while purchase quantity grew by roughly the same level. North Asian purchases grew from the last event’s levels but were down from a year ago.”Betty Berning, contributing dairy economist with HighGround Dairy, reported in the May 8 Dairy Radio Now broadcast that she’s a bit skeptical of the rise in powder. Demand is weak globally, she said, and the buying came primarily from Asia, particularly on whole milk powder, as perhaps there isn’t as much available.When asked about the U.S. breakeven milk price, Berning said it depends a lot on whether you are buying feed. The range is $18 on the low end to the mid $20s if purchasing feed. Last year farmers were able to pay down some debt or defer some income, she concluded. “Bankers seem willing to work with farmers despite milk prices being below breakeven, but it’s not fun when you feel squeezed.”Cooperatives Working Together (CWT) member cooperatives accepted 15 offers of export assistance this week that helped them capture sales of 783,000 pounds of American type cheese, 55,000 pounds of butter, 6.6 million pounds of whole milk powder and 714,000 pounds of cream cheese. The product is going to customers in Asia and South America through September and raised CWT’s 2023 exports to 15.6 million pounds of American type cheeses, 495,000 pounds of butter, 2,000 pounds of anhydrous milkfat, 24.5 million pounds of whole milk powder and 3.4 million pounds of cream cheese. The products are going to 18 countries and the equivalent of 361.4 million pounds of milk on a milkfat basis.U.S. dairy exports fell in March from a year ago on a volume basis, however HighGround Dairy points out that historically speaking, exports were in the top three, just behind 2022. I’ll have more details next week.In politics, the National Milk Producers Federation (NMPF) submitted its proposal for modernizing the Federal Milk Marketing Order system to the USDA this week. NMPF President and CEO Jim Mulhern stated, “Dairy farmers and their cooperatives need a modernized Federal Milk Marketing Order system that works better for producers. By updating the pricing formulas to better reflect the value of the high-quality products made from farmers’ milk, by rebalancing pricing risks that have shifted unfairly onto farmers and by creating a pathway to better reflect processing costs going forward, we are excited to submit this plan as a path toward a brighter future for dairy.” Upon official acceptance, USDA will have 30 days to review the plan and decide whether and how to move forward with a federal order hearing to review the plan, according to NMPF.The plan calls for updating dairy product manufacturing allowances contained in USDA milk price formulas, discontinuing the use of barrel cheese in the protein component price formula, returning to the “higher of” class I mover, updating milk component factors for protein, other solids and nonfat solids in the class III and class IV skim milk price formulas, and updating the class I differential price system to reflect changes in the cost of delivering bulk milk to fluid plants.NMPF will also pursue two other components outside of the hearing process, that don’t involve changing federal order regulations. They would extend the current 30-day reporting limit to 45 days on forward priced sales on nonfat dry milk and dry whey to capture more exports sales in USDA product price reporting. NMPF also seeks to develop legislative language for the farm bill to ensure the make allowance is regularly reviewed by directing the USDA to conduct mandatory plant cost studies every two years.Lee Mielke is a graduate of Brown Institute in Minneapolis, Minnesota. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at firstname.lastname@example.org.