The USDA announced the November Federal order Class III milk price at $23.34 per hundredweight, up $1.73 from October, $2.89 above Nov. 2019, and the highest Class III since July.

The 2020 Class III average stands at $18.39, up from $16.74 at this time a year ago and $14.69 in 2018. The Dec. 4 late morning Class III futures contract was trading at $15.38, which would portend an $18.14 average for 2020.

The Class IV price is $13.30, down 17 cents from Oct. and $3.30 below a year ago. That put the 11-month average at $13.50, down from $16.26 a year ago and compares to $14.15 in 2018.

The large gap between October and November Class III and Class I prices again likely led to processor de-pooling and huge producer price differentials (PPDs), resulting in dairy farmers in many regions losing millions of dollars in revenue.

I asked HighGround Dairy’s Lucas Fuess in the Dec. 7 ‘Dairy Radio Now’ broadcast if it’s time to restructure how we price milk in this country. He said it’s a decades-old question and one of the issues is the complexity of the Federal order program. “When dairy farmers don’t understand exactly how their milk is being priced, there is some resistance to the system,” he said.

Federal orders also make export contracts more difficult, according to Fuess, and “Exports will be a key driver of dairy product disappearance and higher prices for farmers, hopefully in the future, if federal orders can be tweaked to allow longer term contracts to happen.”

As to negative PPDs, Fuess said “They’re a reflection of volatility in milk and for some farmers who are not necessarily seeing those negative PPDS, depending on the region, they have been extremely thankful for record high cheese prices.

“Ultimately it’s the hope, and the system is designed, so PPDs average out close to the zero mark over the long term,” he reasoned. “If there’s something that can be done to even those out better on a month to month basis and allow farmers to receive the higher value of that cheese milk maybe there is something that could be looked at there.”

The system has been around since the 1930s, he said, and has prioritized Class I milk. “Perhaps a discussion can be had around having just one manufacturing class to allow milk to move to its highest value overall.”

It’s important for dairy farmers to consider every risk management tool available, he concluded. “Farmers also have the power to vote orders out or processors can take a look at make allowances to see if there are other tweaks that could be made to the system that would benefit everyone.”

You’ll recall October milk output hit 18.56 billion pounds, up 2.3 percent from 2019. The October Dairy Products report shows that more milk went into powder and butter. Cheese output totaled 1.13 billion pounds, up 3.2 percent from September, but 0.6 percent below Oct. 2019. Year to date total cheese sits at 10.96 billion pounds, up just 0.4 percent from a year ago.

Italian type cheese totaled 469.2 million pounds, up 1.3 percent from September but 3.4 percent below a year ago. YTD Italian was at 4.7 billion pounds, down 1.2 percent. American type cheese totaled 461.1 million pounds, up 6.1 percent from September and 3.5 percent above a year ago. YTD American was at 4.4 billion pounds, up 2 percent. Mozzarella output was at 366 million pounds, down 4.8 percent from a year ago, with YTD at 3.7 billion pounds, down 1.4 percent from 2019.

Cheddar, which trades daily at the CME, climbed to 326.9 million pounds, highest October volume ever, up 19.9 million pounds or 6.5 percent from September and 17.3 million or 5.6 percent above October 2019. YTD Cheddar is at 3.2 billion pounds, up 2.7 percent from a year ago.

Butter churns produced 164.9 million pounds, up 13.3 million pounds or 8.8 percent from September and 2 million pounds or 1.2 percent above a year ago. YTD butter is at 1.7 billion pounds, up 5.9 percent from 2019.

Yogurt production totaled 382.9 million pounds, up 7.1 percent from a year ago, with the YTD total at 3.8 billion pounds, up 2.3 percent.

StoneX called the report “bearish on cheese and non-fat dry milk and neutral butter. Cheese and NFDM were bearish for different reasons. Cheese production has been weak this year, which would not normally be bearish except it is currently coupled with weak demand,” StoneX said. “Non-fat and skim milk powder on the other hand have showed that processors have been very willing to produce powder, which has added on big volume to current stocks. Butter’s neutral reading comes as production came in below our expectations. Demand for butter is not good, but fat continues to flow increasingly into ice cream, sour cream, and yogurt,” StoneX said.

Every product offered saw strong gains, led by lactose, up 13.5 percent, after plunging 18.8 percent on Nov. 17. Whole milk powder was up 5 percent, after rising 1.8 percent last time, and skim milk powder was up 3.6 percent, following a 2.5 percent rise. Butter was up 3.8 percent, after inching 0.4 percent higher, and anhydrous milkfat was up 2.6 percent following a 4.1 percent rise. GDT Cheddar was up 2.4 percent, after dropping 3.5 percent last time, and buttermilk powder was up 1.3 percent.

StoneX equated the GDT 80 percent butterfat butter price to $1.7638 per pound U.S., up 6.5 cents from the last event. CME butter closed Friday at $1.48. GDT Cheddar cheese equated to $1.6935 per pound, up 4.2 cents, and compares to Friday’s CME block Cheddar at $1.5850. GDT skim milk powder averaged $1.3103 per pound, up from $1.2696, and whole milk powder averaged $1.4435, up from $1.3774. CME Grade A nonfat dry milk closed Friday at $1.15 a pound.

Rising global prices and a weak dollar are making U.S. dairy exports increasingly attractive to importers, according to the Daily Dairy Report. “As demand rises globally, as evidenced both by the sharp GDT price advances and recent strong demand from China, U.S. exporters could begin to move larger shipments overseas, which could offer a lift to U.S. dairy product values, especially milk and whey powders.”

Most CME dairy prices entered December a little stronger except cheese. The Cheddar blocks closed Friday at $1.5850 per pound, lowest since Aug. 11. That’s down 9.5 cents on the week and 38.5 cents below a year ago. The barrels finished at $1.40, down 2.25 cents, 82.75 cents below a year ago, and 18.5 cents below the blocks. 8 cars of block sold on the week at the CME and 23 of barrel.

Grade A nonfat dry milk climbed to $1.1575 per pound Thursday, highest since Feb. 21, but closed Friday at $1.15, still 5.5 cents higher on the week and 11.75 cents below a year ago. There were 25 sales reported on the week.