The Agriculture Department announced the February Federal order Class III benchmark milk price at $13.89 per hundredweight, down 7 cents from January but 49 cents above February 2018 and the first month that the Class III price topped the previous year’s price since November 2017. It equates to $1.19 per gallon, down from $1.20 in January and compares to $1.15 a year ago.

Class III futures late Friday morning portended a March price at $15.22; April, $15.12; May, $15.19; and June at $15.50, with a peak of $16.33 in September.

The February Class IV price is $15.86, up 38 cents from January, $2.99 above a year ago, and the highest Class IV price since August 2017.

Dec. 31 butter stocks totaled a surprising 179.3 million pounds, up a whopping 16.6 percent from November and 6.2 percent above December 2017, according to the delayed USDA Cold Storage report issued Feb. 22.

FC Stone dairy broker Dave Kurzawski says that’s a shocking 42 million pounds heavier than their pre-report expectations and over 1,000 truckloads but adds the caveat that “these numbers are more than 60 days old. If the number was incredibly burdensome we think the markets would have felt it already. This leads us to think revisions following a government shut-down are likely.” The January Cold Storage report will be issued March 7.

The U.S. had less cheese on hand than expected. American cheese stocks were up 7 percent from a year ago and Kurzawski says “What’s a little odd is that the usual build from November to December was nonexistent.”

“Ultimately, we want to see the December Dairy Products numbers to figure out whether it was better demand or slower production that knocked the numbers lower than we expected,” explained Kurzawski.

The USDA issued its delayed December Dairy Products report on Feb. 28 and pegged December cheese output at 1.09 billion pounds, up 1.0 percent from November but 1.2 percent below December 2017, ending 68 consecutive months that cheese output exceeded that of a year ago. Total cheese output for 2018 hit 12.93 billion pounds, up 2.1 percent from 2017.

U.S. churns produced 171 million pounds of butter, up 25 million pounds or 17.0 percent from November but 0.1 percent below a year ago. Total butter output for 2018 was at 1.88 billion pounds, up 2.0 percent from 2017.

Yogurt output hit 344.9 million pounds, was down 2.2 percent from a year ago, with YTD output at 4.4 billion pounds, down 2.0 percent.

Dry whey totaled 74.5 million pounds, down 13.4 percent, with YTD at 1.0 billion pounds, down 2.8 percent. Dry whey for human consumption totaled 73.2 million pounds, up 0.2 percent from November but 13.3 percent below a year ago. Stocks totaled 65.1 million pounds, up 1.0 percent from November but 32.9 percent below those a year ago.

Nonfat dry milk production totaled 142.6 million pounds, up 8.3 percent from November but 13.3 percent below a year ago. YTD output hit 1.7 billion pounds, down 5.0 percent. Stocks slipped to 275.3 million pounds, down 14.2 million pounds or 4.9 percent from November but 44.7 million pounds or 14 percent below the 2017 levels.

Skim milk powder totaled 50.8 million pounds, up 69.9 percent from November and 1.8 percent above a year ago. Skim milk powder output totaled 544.0 million pounds in 2018, up 2.7 percent from 2017.

Milk is readily available in the West and vats are at or near capacity. Cheese makers are employing several strategies to control the size and type of inventory, with some placing more cheese into aging programs as a hedge while cheese prices are low. Others are making more barrels and a few have slowed production to conduct maintenance and limit the growth of stocks. Inventories are still heavy and manufacturers want to keep stocks in check as the spring flush nears. Cheese is moving well through contracts, but extra business is hard to come by. Demand from a few export channels is strong for some, says DMN.

Dairy cow culling was down a bit in December but well above a year ago. The Agriculture Department’s latest Livestock Slaughter report shows an estimated 261,200 head slaughtered under federal inspection, down 6,800 from November but 13,900 or 5.6 percent above a year ago. A total 3.15 million head were culled from the nation’s dairy herd in the year, up 164,600 or 5.5 percent from 2017.

Culling data is indicative of what’s happening economically on U.S. dairy farms. Margins were relatively flat over the first half of February with values still projected below breakeven over the first half of the year, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

“While the milking cow herd as become more efficient to allow for modest production gains, the report reflected continued contraction with a drop of 3,000 head from November to December at 9.351 million. This was the smallest since November, 2016 and down 49,000 head from the previous year,” the MW stated.

“A tough margin environment is prompting more producers to cull cows. Dairy cow slaughter reached above 70,000 head for the latest week of slaughter data ending January 19. This was the largest single week of dairy cow kill since January 2013. Fourth quarter dairy cow slaughter was up 8 percent from 2017, and some weeks towards year-end were as much as 14 percent higher than year-ago comparable figures,” the MW reported.

New Zealand-based Fonterra Co-operative Chairman John Monaghan stated; “Global supply remains above last season’s levels, but growth has slowed due to challenging weather conditions in some of the world’s largest milk producing regions, in particular, Australia’s milk production is forecast to be down 5-7 percent on last season and the EU’s growth has slowed and is now forecast to be up less than 1 percent.”

 In other trade news, HighGround Dairy (HGD) reports that China continues to diversify their supplier list as increased product flows in from South America and Belarus. China will begin allowing dairy products in from Russia as well into the second half of 2019 but HGD says that should not impact Oceania’s market share.

“Anhydrous milkfat imports neared five-year highs (March 2014), according to HGD, counterbalancing concerns of lower fat demand as butter fell back slightly. 2018 was a record year for butter imports into China, leaving room for losses into January due to strong procurement throughout second and third quarter 2018.”

HGD concludes that “Milk powder charts look shockingly strong as both skim milk powder and whole milk powder imports moved to record highs. China’s demand trends are expected to remain supported, yet diverse, for much of the year but move seasonally lower next month. China’s robust milk powder imports set a strong tone for 2019 and recent GDT auction data suggests they have not disappeared from the market with strong purchases during the shoulder of New Zealand’s season,” according to HGD.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.