U.S. milk production continues to rev higher. Preliminary data in September’s Milk Production report shows output at 18.0 billion pounds, up 2.3 percent from September 2019, highest increase since March. Output in the top 24 producing states totaled 17.2 billion pounds, up 2.4 percent from 2019. 

Revisions lowered the original August 50-state total 5 million pounds however the 24 state total was revised up 1 million pounds, now put at 17.8 billion, up 1.9 percent from August 2019. The report was a surprise to most analysts who pointed to output per cow as a significant factor.

Third quarter milk output totaled 55.3 billion pounds, up 2.0 percent from a year ago. Cow numbers averaged 9.36 million, up 39,000 from the same period last year.

September cow numbers totaled 9.366 million head in the 50 states, up 5,000 from August and 33,000 above a year ago. Output per cow averaged 1,923 pounds, up 38 pounds from a year ago or a hefty 2.0 percent.

HighGround Dairy points out “farmers in most regions of the country spent government Corona Virus Food Assistance Program payments to drive milk production and components higher and take advantage of a profitable milk price.” It was the first time since March that milk volume exceeded prior year by more than 2 percent, according to HGD, and HGD’s Lucas Fuess reported in the October 26 ‘Dairy Radio Now’ broadcast that milk per cow exceeded predictions and that September marked the third consecutive month of milking herd growth.

The 2 percent increase in milk per cow growth is double the long term 1 percent growth, according to Fuess. He also pointed to California’s 3.2 percent increase, calling it “staggering,” and said a lot of that likely went into butter and nonfat dry milk. 

Midwest state’s output was also higher, he said, including Wisconsin, Minnesota, Illinois, Indiana, Michigan, and Ohio, plus a new cheese plant came on line this week in St. Johns, Michigan. He said he sees continued growth in milk output into 2021 and said it will be “tricky not to move into an oversupplied situation,” warning that milk prices could dip to unprofitable levels, depending on what happens to the government Food Box program. 

Dairy cow culling jumped in September, according to the latest Livestock Slaughter report, but was below a year ago. An estimated 249,900 head were sent to slaughter under federal inspection, up 24,600 head or 10.9 percent from August but 5,700 or 2.2 percent below September 2019. A total of 2.3 million head have been culled in the first 9 months of 2020, down 115,500 head or 4.8 percent from 2019.

Americans spread on the butter in September, likely due to restaurants recovering. The Agriculture Department’s latest Cold Storage report shows September 30 butter stocks fell to 343.9 million pounds, down 27.6 million pounds or 7.4 percent from August, but were still a weighty 53.3 million or 18.3 percent above September 2019, 15th consecutive month they topped the level of a year ago. 

American type cheese stocks slipped to 772.6 million pounds, down 17 million pounds or 2.2 percent from August, and 2.2 million pounds or 0.3 percent below a year ago.

The “other” cheese inventory totaled 566.9 million pounds, down 771,000 pounds or 0.1 percent from August, and 5.8 million pounds or 1.0 percent below a year ago.

The total cheese inventory slipped to 1.36 billion pounds, down 17.6 million or 1.3 percent from August, and 13.6 million pounds or 1 percent below September 2019, ending five consecutive months total cheese stocks topped the prior year level.

The dairy markets had a feeding frenzy of information this week from the GDT plus the Milk Production, Cold Storage, and Slaughter reports. The Cheddar blocks closed the fourth Friday of October at $2.7725 per pound, up 5.25 cents on the week and 64.50 cents above a year ago. Hard to believe they were in the $1 per pound range just a few months ago. 

Spot milk trading was fairly quiet this week, according to Dairy Market News, with prices remaining close to the previous week, hovering around Class. Customers who let their pipelines run dry are returning to the buying fold, says DMN, and cheese production rates remain steady and closer to normal. Cheese producers are not trying to add inventory in case buying slows and or markets ebb. COVID-19 is affecting some production facilities, as employees are quarantining. Cheese market tones continue to show steadiness to slight bullishness, says DMN.

Meanwhile, Friday morning, the National Milk Producers Federation issued a press release applauding USDA for “deciding to fund an additional $500 million for combination food boxes to be delivered through the end of the year.”

Grade A nonfat dry milk also saw weakness in the market, closing Friday at $1.0975 per pound, down 4.25 cents, ending 10 consecutive weeks of gain, and is 5.5 cents below a year ago. 23 sales were reported for the week.

StoneX stated in Friday’s Early Morning Update; “U.S. nonfat dry milk is at an enormous discount to world skim milk powder prices, it is surprising to see this much weakness after only a slightly weaker GDT.”

Dry whey finished at 38.50 cents per pound, down a quarter-cent on the week but 10.25 cents above a year ago, with only 1 sale reported on the week.

StoneX equated the GDT 80 percent butterfat butter price to $1.6277 per pound U.S., up 5.2 cents from the last event. CME butter closed Friday at $1.4350. Cheddar cheese equated to $1.7249 per pound, up 4.9 cents, and compares to Friday’s CME block Cheddar at $2.7725. GDT skim milk powder averaged $1.2933 per pound, down from $1.2996, and whole milk powder averaged $1.3776, down from $1.3796. CME Grade A nonfat dry milk closed Friday at $1.0975 per pound.

One other global note; Farm Journal’s Jim Dickrell reports that Canadian Prime Minister Justin Trudeau renewed his promise to compensate dairy farmers for losses they might incur due to the U.S.-Mexico-Canada Trade Agreement. He says “Canada began compensating its dairy farmers $1.75 billion last year for trade losses due to recent agreements with Europe and Pacific Rim nations. Compensation for USMCA losses had been promised when the deal was being negotiated,” according to Dickrell, but the level is currently being negotiated.

The Agriculture Department announced the November Federal order Class I base milk price at $18.04 per hundredweight, up $2.84 from October but 10 cents below November 2019. The price equates to about $1.55 per gallon, up from $1.31 in October. The 2020 Class I average stands at $16.64, down from $16.78 at this time a year ago, and compares to $14.82 in 2018.

Meanwhile, dairy margins “continued a mixed trend over the first half of October, strengthening in nearby marketing periods while weakening slightly further out the curve in second and third quarter,” says the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

“Strength in nearby marketing periods continues to be paced by higher trade in cheese, with cash barrel prices in particular leading the charge over the past month after advancing 46 cents or 29 percent,” the MW stated.

The MW warned that “Feed prices have been rising to the detriment of forward dairy margins. Nearby corn futures prices are now trading over $4.00 per bushel after having advanced over 80 cents since late summer while soybean meal futures have likewise risen around $90 per ton recently to about $375 per ton.”