Benchmark hits 5-year high
The Agriculture Department announced the September Federal order Class III benchmark milk price at $18.31 per hundredweight, up 71 cents from August, $2.22 above September 2018, and the highest it has been since November 2014.
It compares to California’s September 2018 4b cheese milk price of $15.62.
The Class III price equates to about $1.51 per gallon, up from $1.38 a year ago.
The nine-month Class III average stands at $16.11, up from $14.62 at this time a year ago and compares to $16.12 in 2017.
Monday’s Class III futures portended an October price of $18.48; November $18.21; and December at $17.53, which would result in a 2019 average of $16.60, up from $14.61 in 2018 and $16.17 in 2017.
The September Class IV price is $16.35, down 39 cents from August and the lowest since May, but is $1.54 above a year ago. Its 2019 average stands at $16.21, up from $13.95 a year ago and $15.51 in 2017.
After dropping 9 1/2-cents the week of Sept. 23 and 15 1/2-cents the week before that, the CME Cheddar blocks climbed back to $2.02 per pound last Thursday, but closed Friday at $1.9925, 3 3/4-cents higher on the week and 34 1/4-cents above a year ago.
The barrels finished at $1.79, up 13 1/2-cents on the week and 42 1/4-cents above a year ago, but 20 1/4-cents below the blocks after setting a record 43 1/4-cent spread on Sept. 23.
The blocks inched a quarter-cent lower Monday but jumped 2 1/2-cents Tuesday, to $2.0150. The barrels were up 4 cents Monday and tacked on 4 3/4-cents Tuesday, hitting $1.8775. The spread was reduced to 13 3/4-cents, still well above the normal 3-5 cents.
While traders await the USDA’s latest milk production and milk price estimates in Thursday’s World Agricultural Supply and Demand Estimates report, milk offers are few and far between in the Midwest, according to Dairy Market News. Spot milk prices ranged from Class to $1.50 over. Cheese demand reports were more positive and some expect demand to remain strong the rest of the year and into 2020. Cheese output is slower due to scanter milk supplies.
Western contacts report that current price trends are taking U.S. cheese out of the loop when it comes to international sales. Others suggest that export demand has improved.
Butter closed Friday at $2.1850 per pound, up 3 3/4-cents on the week but 10 1/2-cents below a year ago.
The butter dropped 5 3/4-cents Monday and lost 2 1/2-cents Tuesday, dropping to $2.1025, lowest since Feb. 16, 2018.
Central butter manufacturing is steady, says DMN. Cream remains available and in a comfortable price range for butter plants. Inventories are reportedly in balance and will meet the increase in ordering expected near term. But contacts do not expect cream to remain at current availability for long. Cream cheese production is expected to dip into the cream pool. Butter markets are steady, edging on bearish, but some contacts foresee continued price drops.
Western contacts suggest the butter market has a “downside feel.”
“Even now, when market activity is usually at its annual peak, demand is less than hoped for,” says DMN. Buyers have filled some of their required purchases, according to contacts, but can wait for deals to finish off fourth quarter needs. Cream is readily available and butter inventories, while being drawn down seasonally, are larger than preferred.
FC Stone warned in its Oct. 1 Early Morning Update: “The likelihood of seeing sub-$2.00 butter prices by the end of fourth quarter is growing. Strong production and strong imports have resulted in larger than expected butter stocks that look like they are going to drag CME prices lower.”
Spot Grade A nonfat dry milk closed Friday at $1.1450 per pound up 3 1/2-cents on the week and 28 1/2-cents above a year ago.
Monday’s powder was up a half-cent and stayed there Tuesday at $1.15, highest CME price since March 2, 2015.
Weaker butter prices are being offset by firming nonfat dry milk prices, according to FC Stone, which are leaving Class IV prices in a holding pattern for now. “U.S. powder continues to find underpinning support principally in global demand that seems to be improving by the week lately,” however, “there is chatter about a proposal, by the Mexican government, to create a tax on skim milk powder imports. If they put an import tariff on SMP it would be a violation of NAFTA and the U.S. would, theoretically, be able to retaliate,” says FC Stone.
CME dry whey closed Friday at 32 3/4-cents per pound, down 2 cents on the week and 23 1/2-cents below a year ago, with a whopping 80 cars sold last week.
The whey lost a penny Monday but was unchanged Tuesday, holding at 31 3/4-cents per pound; 14 cars exchanged hands Monday with 10 more on Tuesday.
The whey market is heavily influenced by African swine fever which has devastated the world’s largest hog herd, namely China. The Daily Dairy Report’s Sarina Sharp wrote in the Sept. 27 Milk Producers Council newsletter that “Amidst sky-high pork prices producers are surely looking to boost production. They are investing in piglet health, which would likely boost whey purchases.”
She reports that “Chinese whey imports were just shy of 100 million pounds in August, highest volume since January and just 3.6% less than in August 2018. However, there are still reasons to be concerned about global demand for feed whey. The Chinese pig herd is considerably smaller than it was a year ago, and the disease is spreading quickly through South Korea, Vietnam and the rest of Southeast Asia.”
You’ll recall that preliminary data showed August 50-State milk output at 18.3 billion pounds, up just 0.2% from August 2018. The August Dairy Products report shows that more milk went to the cheese vat. Total cheese output hit 1.11 billion pounds, up 1.6% from July and 2.2% above August 2018. Year-to-date output is at 8.68 billion pounds, up just 0.9% from a year ago.
Wisconsin produced 290.5 million pounds of the total, up 2.9% from July and 2.0% above a year ago. California output fell to 199.6 million pounds, down 5.2% from July and 5.7% below a year ago.
Idaho contributed 88.1 million pounds, up 1.1% from July and 14.8% above a year ago. Minnesota output slipped to 59.8 million pounds, down 1.1% from July and 2.3% below a year ago. New Mexico, at 90.5 million, was up 18% from July and 20.2% above a year ago.
Italian cheese totaled 457.1 million pounds, down 1.8% from July but 0.8% above a year ago, and brought year to date output to 3.75 billion pounds, up 2.2%.
American type totaled 457.7 million pounds, up 4.7% from July and 5.1% above a year ago, the first gain all year says FC Stone, and a record high for any one month of production in almost 100 years. YTD is 3.0 billion pounds, down 1.5%.
Cheddar, the cheese traded at the CME, totaled 322.3 million pounds, up 14.4 million pounds or 4.7% from July and 10.3 million pounds or 3.3% above a year ago. YTD Cheddar is at 2.5 billion pounds, down 2.3%.
Butter output fell to 136.4 million pounds, down 6.1 million pounds or 4.3% from July but was 2.8 million pounds or 2.1% above a year ago. YTD butter is at 1.28 billion pounds, down 0.8% from 2018.
Yogurt output, at 362.6 million pounds, was down 8.5% from a year ago, with YTD at 2.9 billion pounds, down 3.1%.
Dry whey totaled 84.5 million pounds, down 1.9% from July but 7.2% above a year ago, with YTD at 637.4 million pounds, down 8.8%. Stocks totaled 72.4 million pounds, up 7.1% from July but 1.8% below those a year ago.
Nonfat dry milk output totaled 132.2 million pounds, down 21.4% from July but 2.8% above a year ago. YTD powder is at 1.3 billion pounds, up 1.7% from 2018. Stocks fell to 269.8 million pounds, down 18.9 million or 6.5% from July and were 10.7 million pounds or 3.8% below the 2018 level.
Skim milk powder climbed to 51.4 million pounds, up 14.7 million or 40.0% from July and was 3.8 million or 7.9% above a year ago. YTD skim hit 324.7 million pounds, down 14.2% from a year ago.