By Lee Mielke

Happy June Dairy Month. While it is indeed a happier one for dairy farmers looking at milk prices, the luster fades considering rising production costs.

The May Federal order Class III milk price was announced at $25.21 per hundredweight, up 79 cents from April, $6.25 above May 2021, and a record high, besting $24.60 in September 2014 by 61 cents. The 2022 average now stands at $22.67, up from $16.91 a year ago, $15.10 in 2020, and $15.05 in 2019.

Late Friday morning futures portend a June price at $24.34; July, $24.55; August, $24.45; September, $24.34; October, $24.17; November, $23.83; and December at $23.25 per cwt.

The May Class IV price is $24.99, down 32 cents from April, but $8.83 above a year ago. The five-month average is at $24.44, up from $14.54 a year ago, $13.96 in 2020, and $15.81 in 2019.

The April All Milk Price also set another record high. The USDA’s latest Ag Prices report has the April milk feed price ratio at 2.00, down from 2.06 in March, but compares to 1.75 in Apr. 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 only purchase 2.0 pounds of dairy feed of that blend.

The All Milk Price averaged a record high $27.10 per cwt., up $1.20 from March, eighth consecutive increase, and was $8.80 above Apr. 2021.

Speaking in the June 6 Dairy Radio Now broadcast, dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo., said the increase in the All Milk Price was enough to offset all three input commodities, as the income over feed calculation increased for the seventh time in the past eight months. He reported the April income over feed cost moved above $13.50 for the first time since November 2014 and was above $8 per cwt. for the seventh month running.

“Dairy producer profitability for 2021, in the form of milk income over feed costs, was $7.87 per cwt.,” according to Brooks. “The profitability was $2.37 below 2020 and $1.79 lower than the 2016-20 average. In 2021, the decrease in milk income over feed costs was a result of the milk price increasing less than feed prices rose, he said, and income over feed was close to the level needed to maintain or grow milk production.”

April’s national average corn price jumped to $7.08 per bushel, up 52 cents from March, after jumping 46 cents the previous month, and was $1.77 per bushel above Apr. 2021. Soybeans averaged $15.80 per bushel, up 40 cents from March and $1.90 per bushel above Apr. 2021. Alfalfa hay shot up to a record high average of $243 per ton, up $22 from March, highest since May 2014, and a budget busting $58 per ton above a year ago.

Looking at the cow side of the ledger; the April cull price for beef and dairy combined averaged $88.10 per cwt., up $3.40 from March, $17.00 above Apr. 2021, and $16.50 above the 2011 base average.

Brooks predicted 2023 milk income over feed costs, using May 31 CME settling futures prices for milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay, are expected to be $9.74 per cwt., a loss of $3.45 per cwt. versus the 2022 estimate. 2023 income over feed would be above the level needed to maintain or grow milk production, according to Brooks.

The rise in corn and bean prices has slowed, he admitted, but “a lot of what’s going on in the marketplace right now is not fundamental.” Delayed plantings and other factors prompt fears of $10 corn and beans approaching $20, he said, and those conditions, plus what’s happening in Ukraine, could bring that about.

Dairy margins improved over the second half of May, particularly in deferred production periods, as a combination of higher milk prices and lower feed costs increased forward profitability, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“Milk futures prices were supported by both the monthly Milk Production and Cold Storage reports,” according to the MW. The MW stated that “most of the 24 major dairy states reported lower milk production in April, compared to last year, as high feed costs, scarce heifers and regional supply management programs discouraged expansion and complement a trend of declining global milk output.

“Strong spring holiday sales and increased exports likely drew down butter inventories, according to Dairy Market News, with cream supplies tight in northeastern states in April,” the MW stated. “While cheese stocks were record high in April, like butter, the monthly build in cheese from March to April was only half the most recent five-year average,” the MW concluded.

Thankfully, dairy product disappearance remains strong although we wonder how long that will last, considering the rising prices. The May 27 Dairy and Food Market Analyst stated, “Average retail dairy prices are currently up a whopping 19 percent, according to scanner data firm IRI’s Inflation Tracker. This is a serious acceleration. Compare to early March when retail dairy prices were up an average of 10 percent. The increase in dairy prices is outpacing the rest of grocery with all prices up just 11 percent,” according to the Analyst.

The Analyst added that “USDA again raised its estimated inflation predictions for food from 5-6 percent to 6.5-7.5 percent, according to the May Food Price Outlook. The year-on-year increase in food costs is at the highest level in more than 40 years. Average prices of food-at-home are up 11 percent YoY while prices of food away from home were only up 7.2 percent.”

The good news is that Foodservice sales appear to be holding up. Data from tech firm OpenTable showed sales were up 4.9 percent versus 2019 levels during the last week, according to the Analyst.

March U.S. total cheese disappearance topped that of a year ago for the sixth consecutive month, driven by higher performance in both domestic and export categories, according to Chicago-based HighGround Dairy.

Butter disappearance was below a year ago for the second consecutive month, negatively impacted by weaker domestic disappearance, according to HGD, even as export shipments persisted at multi-year highs.

Dairy prices started June Dairy Month divided but StoneX Dairy Group stated in its May 31 Early Morning Update, “There are valid concerns over a lack of fresh milk as we move into summer and Class IV milk strength.”