By Lee Mielke

 U.S. farm milk prices keep heading higher, but they need to. The USDA announced the March Federal order Class III benchmark price at $22.45 per hundredweight, up $1.54 from February, $6.30 above March 2021, and the highest Class III since November 2020. The three-month average stands at $21.25, up from $15.98 at this time a year ago and $16.77 in 2020.

Class III futures portend another $1.36 rise in April to $23.81; May, $24.84; June, $24.66; July, $24.38; August, $24.10; and September was at $23.84.

The March Class IV price is a record high $24.82, up 82 cents from February, the previous high, and is a whopping $10.64 above a year ago. The three-month Class IV average is at $23.97, up from $13.71 a year ago and $15.91 in 2020.

A small gain in February’s All Milk price could not offset sharply higher corn, soybean and hay prices, and reversed five consecutive gains in the USDA’s milk feed price ratio, though it was still above February 2021.

The USDA’s latest Ag Prices report shows the ratio at 2.07, down from 2.18 in January, and compares to 1.80 in Feb. 2021. The index is based on the current milk price in relationship to feed prices for a ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk would purchase 2.07 pounds of dairy feed of that blend.

The U.S. All Milk Price averaged $24.70 per cwt., up just 50 cents from January, but was $7.60 above Feb. 2021.

Looking at the cow side of the ledger; the February cull price for beef and dairy combined averaged $77.90 per cwt., up $6.30 from January, $12.30 above February 2021, and $6.30 above the 2011 base average.

Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, does not see any Dairy Margin Coverage payment for the remainder of 2022.

In the week ending March 19, 64,100 dairy cows were sent to slaughter, down 900 from the previous week, but 1,800 head or 2.9 percent above a year ago.

StoneX stated in its March 29 Early Morning Update: “Normally when we model our producer margin we have looked at the gross difference between feed costs and milk price. Given the recent increase of non-feed inputs impacting farmer margins recently, we have taken a dive into the net margin that producers may be experiencing in order to provide a clearer perspective.

“We have been expecting that the high Class III and IV prices should be able to offset the increases in input values, however given the continued growth in feed, energy and labor costs, that may no longer be the case. The decline in Class III and IV (futures) prices will press on already tight margins,” StoneX warned.

“Given the data that we have available we expect that the average sized dairy in the U.S. is likely experiencing a negative margin at the moment and will most likely continue to do so through the next year to year and a half.”

Speaking in the April 4 Dairy Radio Now broadcast, broker Dave Kurzawski said the war in Ukraine is influencing the market because “the news cycle is hour to hour” however, while a lot of the risk premium is “baked in,” the day to day fundamentals continue. The key takeaway in March, he said, was that “The availability of dairy products seems to be increasing, not decreasing.”

The risks remain quite substantial as we progress beyond first quarter, he said, however, whether it’s cheese, butter, nonfat dry milk or whey, “there’s more product on offer in the U.S. today than there was a month ago,” and “while that doesn’t mean a bear market is looming, it does mean that price pullbacks can happen, for different reasons.” The key, of course, is what happens to milk production globally as well as in the U.S. but Kurzawski warned “There may be headwinds ahead on dairy prices.”

Tough economics have already taken a toll. The March 30 Daily Dairy Report said, “Relentless consolidation in the dairy industry persisted across the country last year as farms continued to get larger and cows became more productive.

“USDA data shows the total number of licensed dairy herds in the U.S. fell by 1,794 to 29,858, a 5.7 percent overall decline,” according to the DDR. “At the same time, cow numbers climbed 0.6 percent, or 56,000 head, to 9.448 million, and milk per cow rose 0.7 percent to 23,948 pounds.” Wisconsin lost 340 herds, according to the DDR, followed by Pennsylvania down 230.

That plentiful volume Kurzawski referred to drove prices lower this week but another part of the blame, according to StoneX, is “Chinese demand, or rather a fear that Chinese demand will be reduced as a result of their lockdowns.”

Chinese imports are currently tracking 2.2 percent below last year through the first two months of the year, StoneX warned, plus, “The U.S. dairy herd reductions that we’ve been seeing, look to be transitioning to a growth stage.

CME cheese prices saw some ups and downs the last week of March. After jumping 14.50 cents the week before, the Cheddar blocks fell to $2.17 per pound Tuesday, then rallied to close April Fool’s Day at $2.2950, up 2 cents on the week, 26.50 cents above their March 1 perch, and 52 cents above a year ago.

CME butter got down to $2.70 per pound Thursday but saw its Friday finish at $2.71, down 8.50 cents on the week, 17.50 cents above the March 1 post, and 86.50 cents above a year ago. There were 27 cars sold on the week and 99 for the month, up from 69 in February. StoneX reminded us that domestic butter sales were up 15 percent in January.

Checking those all-important restaurant sales; data from OpenTable shows reservations are hovering near pre-pandemic levels, according to the March 25 Dairy and Food Market Analyst. “In the last week, reservations were down 4 percent after being flat during the previous week,” the Analyst stated. “This is a significant rebound from the 30 percent declines that were experienced in January.”