All Milk price average continues to slip

This column was written for the marketing week ending May 5.

Farm milk prices are climbing but have a ways to go to hit profitability for most U.S. dairy farms. The U.S. Department of Agriculture announced the April Federal order Class III benchmark at $18.52 per hundredweight. This is 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.

Mielke Market Weekly

By Lee Mielke

Late morning on May 5, Class III futures portended a May price at $16.56; June, $17.03; July, $17.79; and August at $18.52, with a peak of $19.40 in November.

“With on-farm expenses at all-time highs, many dairy producers are bracing for their worst losses since the 2009 dairy crisis,” the Daily Dairy Report 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.”

Marketing

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 USDA’s latest Ag Prices report; but another drop in the All Milk price pulled the milk feed ratio to 1.56. This is down from 1.58 in February, the 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 percent corn, 8 percent soybeans and 41 percent 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.

Alfalfa hay averaged $267.00 per ton, up $1.00 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 points out China has cancelled orders to buy U.S. corn. “Through April 20, before the cancellations, Chinese commitments to buy U.S. corn were 39 percent lower than at this point last year and 63 percent less than in April 2021.” Corn exports to other destinations are also down, according to the Daily Dairy Report

Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo., says, “Income over feed costs in March were below the $8 per hundredweight 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 40 at the 43rd highest recorded.”

Looking at 2023, milk income over feed costs, using April 28 Chicago Mercantile Exchange 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 vs. 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 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 Margin Watch 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 on May 2, then climbed the next day to $1.69, but closed May 5 at $1.6125. That’s down 7.5 cents on the week, the sixth consecutive week of decline, the lowest they’ve been since Nov. 5, 2021, and 73.75 cents below a year ago.

The barrels fell to $1.5575 on May 2, hit $1.5850 May 3, but closed May 5 at $1.53. This is 6 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. 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 Dairy Market News.

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 May 5 finish at $2.445 per pound. This is up 9.25 cents on the week, but 19.5 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 on May 1 after it made no revisions to the February data in its April 25 report. Feb. 28 total cheese stocks were reduced 9 million pounds and the butter inventory was lowered 1 million. March estimates were left unchanged.

Midwest butter demand and churning were busy this week, says Dairy Market News. 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 Dairy Market News

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 Dairy Market News, but “demand is on the steady to light end of the spectrum.”

Grade A nonfat dry milk lost 1.75 cents on May 1, but May 2’s GDT jump started a recovery which climbed to $1.1975 per pound on May 5. This is 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 2.5 cents on the week and 25.75 cents below a year ago, with a 54 sales put on the board for the week.

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 percent above a year ago. Year to date, 1.05 million head have been culled, up 43,300 head or 4.3 percent above a year ago.