Cheese Aside, Dairy Prices Up in September

10/12/2013 7:00 AM

The Chicago Mercantile Exchange block cheese price fell by 1.5 percent in the past month, ending 2 cents lower at $1.78 per pound.

The price rose in mid-September but quickly slipped lower, hitting $1.75 a pound before rebounding a few cents.

Butter rose in the first half of September but has flattened out since, ending the period at $1.61 a pound, up 17 cents, or 11.8 percent, since last month.

Butter inventories are high, yet the price is up as well. Butter exports have been high and presumably will continue to be high, given the weaker dollar and prices relative to New Zealand prices.

Skim milk powder continues to creep up, rising another 2.6 cents per pound in gradual steps. Dry whey prices are down 0.13 cents at 53.9 cents per pound, continuing a long period of stability.

The September Pennsylvania all-milk price was 30 cents higher than August at $21.30 per hundredweight. The September Class III price was 23 cents higher at $18.14 per hundredweight.

The Class III futures price for October is $18.09. Class III futures prices for the rest of 2013 are up a bit from last month, averaging $17.71 per hundredweight for the remainder of 2013. The Class III futures for the first half of 2014 are below $17, averaging $16.59.

A sharp increase in August milk production and lower feed prices are expected to trigger increased production.

I would have expected that the events of the past few weeks would have hurt futures prices more than they have.

The September Class IV price was up 36 cents from August at $19.43 per hundredweight. The Class IV futures price for October is $20.26, and the prices of Class IV futures average $20.02 per hundredweight for the rest of 2013. This is up about 50 cents from a month ago, as the strong butter market has buoyed Class IV prices.

The U.S. dollar is down in the past month against the euro and the Australian and the New Zealand dollars.

The latest Global Dairy Trade Auction had the prices of all of the common dairy commodities that the U.S. exports higher than two weeks earlier, so the current market is positive for milk prices in that regard.

Corn and Soybean Markets

Corn, soybeans and soybean meal all have fallen recently. The latest stocks report showed a surprisingly high level of corn and soybean stocks, knocking about 12 cents a bushel off the December corn contract and 50 cents off November soybeans.

December futures are $4.39 a bushel and November beans are at $12.74 a bushel, so corn has lost 38 cents since last month and beans have lost $1.30. The harvest is progressing pretty well for both crops.

The government shutdown will affect the many USDA reports the industry follows, and decision-making will be more challenging in the absence of this impartial data.

The dairy analysts have been missing the milking herd reports during the budget sequestration, but that is nothing compared with no reports whatsoever.

A major advantage of government reporting is that it evens the playing field for interpreting market conditions, partially offsetting the information advantage the major players have.

Income Over Feed Costs

Penn State’s measure of income over feed costs rose by 8.3 percent in September. This is an increase of 69 cents per cow per day. The September value is $8.95 per cow per day, which is the highest value in 2013, and the highest since November 2012.

The income over feed costs level for September is the best September value other than 2011 in the past four years.

The increases in September resemble those of August and are the result of essentially the same factors, mostly lower feed prices, which fell by 9.2 percent from August levels.

Pennsylvania corn prices are down sharply from $6.10 to $5 per bushel, and hay prices fell 5.8 percent. The soybean meal price rose, reflecting the dry conditions in the western Corn Belt in August and September.

The September Pennsylvania all-milk price rose by 30 cents from August to $21.30 per hundredweight. The cost of feeding a cow fell by 49 cents a day to $4.90.

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 September Pennsylvania milk margin was 8.3 percent higher than August.

Milk Production

Milk production for August was 2.6 percent more than the previous year. In addition, August milk production was higher than July, for the only time in the data I have, starting in 1930.

Certainly, the higher production compared with a year ago is not a good sign for milk prices, although the market response has not reflected that.

The lower feed prices will benefit those producers who buy most their feed, so a further growth in milk production is certainly likely.

So far, the export levels are supporting the prices. Some improved producing conditions in the Southern Hemisphere may undermine exports, although so far exports are strong.

The milk production report continues to lack cow numbers and milk per cow because of the federal budget sequester, so until it returns to normal in two months, interpreting the report involves a certain amount of guessing as to what degree any changes are from cow numbers or milk per cow.

This of course assumes the government shutdown ends before that.

Jim Dunn is a Penn State professor of agricultural economics.

Does milk have a lot of untapped potential in today’s competitive beverage market?

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