The Chicago Mercantile Exchange block cheese price fell by 1.6 percent in the past month, ending 3 cents lower at $1.87 a pound.
The price fell sharply in early November, only to rise steadily throughout the rest of November, spiking at $1.9475 on Dec. 4, before settling back to its present level.
This early weakness was a response to a 2.3 percent increase in the September report on cheese production, but the market seems to have realized that the demand side was still strong enough to justify the price being around $1.85.
Seasonal usage is always high and exports continue to be strong. CME butter prices rose by 6.4 percent, or 10 cents, in the past month.
Export demand is still strong, and like cheese, butter markets are buoyed by the high usage over the holidays.
Skim milk powder continues strong, rising another 5 percent since last month. China is buying a lot of powder as it considers a change in its long-standing one-child policy, which would certainly increase the need for dry-milk products. Chinese milk production is also down.
Dry whey prices rose 2 percent to 55.25 cents per pound..
The November Pennsylvania all-milk price was 23 cents higher than October at $22.50 per hundredweight.
The November Class III price was 61 cents higher than in October at $18.83 per hundredweight.
The Class III futures price for December is $19.11. Average Class III futures prices for the first half of 2014 are up about $1 from last month at $17.91.
My hypothesis is that the small increase in the latest milk production report gave market participants a sense that with the strong butter demand, cheese production will remain moderate.
The November Class IV price was up 35 cents from October at $20.52 per hundredweight.
The Class IV futures price for December is $21.44. The prices of Class IV futures average $20.88 per hundredweight for the first half of 2014, up over $2 from last month, riding the surge of strength in butter and powder markets.
The forecast all-milk prices for the first half of 2014 are above the corresponding values from 2013, which — given the lower feed prices — is positive for dairy farmers.
The U.S. dollar was mixed in the past month against Australian and New Zealand dollars, and down against the euro.
Being down against Australian and New Zealand dollars is especially important for Asian trade, which is carrying the high dairy prices now.
Corn and Soybean Markets
Corn has remained low, but soybeans and soybean meal have risen recently. Corn and beans have moved in opposite directions, in part because of export problems in Brazil and Argentina.
If corn and bean prices stay as far apart as they are now, 2014 will see a big shift in acreage from corn to beans, which will be supported by rotation reasons.
In any case, the lower corn prices have helped feed prices remain low, despite little change in the other feed components.
Income Over Feed Costs
Penn State’s measure of income over feed costs rose by 3.7 percent in November. This is an increase of 36 cents per cow per day.
The November value is $9.91 per cow per day, the highest in several years, mainly because of a higher milk price, which rose by 2.3 percent from October.
Pennsylvania corn prices are down once again from $4.15 to $4.02 per bushel, but hay prices rose 3 percent. The soybean meal price fell by 8.7 percent.
The November Pennsylvania all-milk price rose by 50 cents from October to $22.50 per hundredweight. The cost of feeding a cow fell by 3 cents per day to $4.72.
Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day.
The milk margin is the estimated amount from the Pennsylvania all-milk price that remains after feed costs are paid. As does income over feed cost, this measure shows that the November Pennsylvania milk margin was 3.7 percent higher than October.
Milk production for October was 1 percent more than the previous year. This was about the same increase of September over September 2012.
Given the drop in feed costs as the new crops became available, this is a very small increase. The October cow numbers were 0.1 percent above the October 2012 value, which is not an issue, and cow numbers have been declining for the last three months, which is significant.
This decrease is despite the continuing high milk prices and the lower feed costs as the 2013 corn and soybean crops are being harvested.
Despite the better measure of income over feed costs here in the East, the high hay and meal prices have meant that western producers are not facing the same improvements is income over feed costs.