The October Federal order Class III benchmark milk price vaulted $5.18, to $21.61 per hundredweight (cwt.) this week, highest October price since 2014, with a little more to come, thanks in large part to Uncle Sam’s Farmers to Families Food Box program. The November futures contract was trading late Friday morning at $23.21 but December was at $18.63, with January 2021 at $17.18 per cwt. 

 The 2020 Class III average is at $17.89, up from $16.37 a year ago. 

The October Class IV price is $13.47 per cwt., up 72 cents from September but $2.92 below a year ago. The Class IV average now stands at $13.52, down from $16.23 a year ago and $14.06 in 2018.

Dairy margins were again mixed over the second half of October, continuing a recent trend of strengthening in nearby marketing periods while weakening slightly further out the curve in second and third quarter, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

The MW stated that “Strength in nearby marketing periods continues to be paced by higher trade in cheese, despite what was generally construed as a bearish monthly production report. USDA reported September milk production at 18 billion pounds, up 400 million or 2.35 percent from 2019 and much higher than anticipated. In addition, USDA reported the milking cow herd at 9.366 million head, up 5,000 from August and 33,000 higher than last year. Moreover, dairy cow slaughter has averaged 9.3 percent less than last year and 5.2 percent lower than the historical average over the past 12 weeks, suggesting that dairy producers have been expanding their herds to increase milk output.”

The MW said Cold Storage data provided some context for the strong cheese market as “Total cheese stocks contracted 1.3 percent in September to 1.36 billion pounds, falling below prior-year levels for the first time since March. The decline was especially pronounced for American cheese which fell 2.2 percent to 772.6 million pounds. Despite the continued challenges for foodservice demand, cheese continues to move strongly through retail channels as well as drawing support from government purchase programs. September butter stocks of 343.9 million pounds dropped by 7.4 percent from August and represented the largest August to September inventory decline in three years. September butter stocks remain 18.3 percent higher than last year,” the MW concluded.

You’ll recall September milk production totaled 18.0 billion pounds, up 2.3 percent from September 2019. The latest Dairy Products report shows where that milk went.

Total cheese output crept to 1.1 billion pounds, up 0.6 percent from August, but a bearish 1.1 percent above September 2019. Year to date total cheese output stands at 9.8 billion pounds, up 0.5 percent from a year ago. 

Wisconsin produced 276.4 million pounds of the September total, up 0.7 percent from August but 1.4 percent below a year ago. California output, at 192.8 million pounds, was up 0.7 percent from August but 5.4 percent below a year ago. Idaho contributed 87.1 million pounds, up 7.0 percent from August and 4.1 percent above a year ago. 

Italian type cheese totaled 462.8 million pounds, up 4.4 percent from August but 1.7 percent below a year ago. YTD Italian output is at 4.2 billion pounds, down 1.0 percent.

American type cheese totaled 432.5 million pounds, down 3.3 percent from August but 4.0 percent above a year ago. YTD American was at 3.97 billion pounds, up 1.8 percent. 

 Mozzarella output climbed to 365.8 million pounds, down 2.6 percent from a year ago, with YTD at 3.3 billion pounds, down 1.0 percent from 2019.

Cheddar, which is traded at the CME, fell to 306.1 million pounds, down 17.9 million pounds or 5.6 percent from August but was 22 million or a whopping 7.7 percent above September 2019. Year to date Cheddar is at 2.85 billion pounds, up 2.3 percent.

Churns produced 152.1 million pounds of butter, up 500,000 pounds or 0.3 percent from August, but was 7.8 million pounds or 5.4 percent above a year ago. YTD butter is at 1.6 billion pounds, up a hefty 6.5 percent from 2019. 

Dry whey totaled 74.9 million pounds, down 4.9 percent from August and 17.3 percent below a year ago, with YTD at 730.6 million pounds, down 0.2 percent. Stocks totaled 74.9 million pounds, down 4.9 percent from August and 17.3 percent below a year ago.

Nonfat dry milk output fell to 124.3 million pounds, down 19.9 million pounds or 13.8 percent from August but 6.5 million or 5.5 percent above a year ago. YTD powder sits at 1.4 billion pounds, up 1.8 percent from 2019. Stocks fell to 233.2 million pounds, down 37.4 million or 13.8 percent from August, and 17.6 million or 7.0 percent below a year ago.

Skim milk powder output jumped to 72.5 million pounds, up 11.3 million pounds or 18.3 percent from August and 13.7 million pounds or 23.3 percent above a year ago. YTD skim milk powder is at 453.0 million pounds, up 10.6 percent from a year ago.

The loud crash you heard the first week of November was Cheddar block cheese plunging 44 cents, to a Friday close of $2.3425 per pound, ending five consecutive weeks of gain, but were still 32.75 cents above a year ago.

The barrels rolled from their new record high $2.53 per pound, to a $2.3175 close, down 21.25 cents on the week, ending seven weeks of gains, 1.25 cents below a year ago, but at a more typical 2.50 cents below the blocks. There were only 2 cars of block traded on the week at the CME and 14 of barrel.

 Midwest cheese producers reported changes in production levels this week to Dairy Market News, as some were seeking less milk and limiting production. Customers were buying hand-to-mouth and, with prices where they were, no one wants to be holding extra stocks, anticipating the price declines. Spot milk was available at prices still around or just under Class III.

Butter climbed to $1.4375 per pound Wednesday, but closed Friday at $1.43, up 4 cents on the week but 60.75 cents below a year ago, on 26 sales on the week.

Plant managers relay that cream availability is opening up from local and Western regions and that cream suppliers are setting Thanksgiving week deals. Butter makers say inventory is moving and churning remains busy. Retail demand has increased seasonally, but food service is doubtful to return to “normal” anytime soon. Market tones remain quiet and some believe they may remain somewhat mum into first quarter 2021.

Grade A nonfat dry milk finished the week 4.25 cents lower, closing at $1.0650 per pound, 14 cents below a year ago, with 13 cars finding new homes. Poor exports and a weak GDT were the likely culprits for the powder downfall.

Dry whey climbed to a 42.25 cents per pound finish, highest since January 22, 2019, and 14.75 cents above a year ago, with 3 sales reported on the week.

The first Global Dairy Trade (GDT) auction of November reversed direction, after three consecutive gains, and saw its weighted average drop 2.0 percent. Powder and anhydrous milkfat were responsible. Sellers brought 78.1 million pounds of product to the auction block, up from 76.4 million on October 20.

 Skim milk powder led the losses, falling 4.4 percent, after inching 0.2 percent lower on October 20. Whole milk powder was down 2.0 percent, after inching up 0.3 percent. Anhydrous milkfat was down 2.6 percent, following a 0.5 percent slippage. Cheddar was off 0.8 percent, after gaining 3.0 percent last time.

Butter led the two gains, up 3.9 percent, after a 3.3 percent rise last time, and buttermilk powder was up 1.2 percent, after not trading in the last event.

StoneX equated the GDT 80 percent butterfat butter price to $1.6913 per pound U.S., up 6.4 cents from the last event. CME butter closed Friday at a bargain $1.43. GDT Cheddar equated to $1.7172 per pound, down 0.8 cent, and compares to Friday’s CME block Cheddar at $2.3425. GDT skim milk powder averaged $1.2348 per pound, down from $1.2933, and whole milk powder averaged $1.3539, down from $1.3776. CME Grade A powder closed at $1.0650.

In other trade news; U.S. dairy exports topped year ago levels for the 13th consecutive month in September. Cheese exports hit 62.7 million pounds, up 4.2 percent from September 2019, fifth month in a row they topped year ago levels, and “somewhat against expectations,” says HighGround Dairy (HGD), “as cheese prices rose to record levels in July, likely impacting export potential.” 

Interestingly, considering the low U.S. butter prices, September exports only totaled 3.3 million pounds, down 10.2 percent from 2019.

Nonfat dry milk-skim milk powder exports hit 135.6 million pounds, down 5.9 percent from a year ago, first time they were down from a year ago since February, and followed several months of record high volume. Powder to Mexico was lower again, says HGD, on trend with recent months and down 33 percent year over year.

Dry whey exports totaled 41.5 million pounds, up 52.3 percent, and the eighth consecutive month they topped the prior year. HGD says the increase was led by China, who took 358 percent or 15.3 million pounds more than a year ago. Chinese demand was down slightly from August but higher than July, according to HGD.

Dairy farm “recovery” is taking a while to get to the farmgate. Another drop in the U.S. All Milk price, plus sharply higher corn and soybean prices, pulled the September milk feed price ratio to the lowest level since May. 

The latest Ag Prices report has the ratio at 2.28, down from 2.50 in August, and down from 2.34 in September 2019. 

The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk purchased 2.28 pounds of dairy feed of that blend in September.

The US All-Milk price averaged $17.90 per hundredweight (cwt.), down 90 cents from August and $1.40 below September 2019. 

Milk cow replacements averaged $1,340 per head in October, up $30 per head from July and $30 above October 2019. They averaged $1350 per head in California, unchanged from July and $50 below a year ago. Wisconsin cows averaged $1,420 per head, up $70 from July and $150 above October 2019

In the week ending October 24, 58,200 dairy cows were sent to slaughter, up 400 from the week before, but 4,000 head, or 6.4 percent, below that week a year ago.