The September Federal order Class III benchmark milk price was announced at $19.82 per hundredweight, down 28 cents from August, but $3.29 above September 2021. Unfortunately, it’s the lowest Class III since December 2021 and put the nine-month average at $22.24, up from $16.75 a year ago, $17.48 in 2020, and $16.11 in 2019.

Late Friday morning Class III futures portend an October price at $22.05, with November at $21.85, and December at $21.19. If realized, the 2022 average would be $22.10. USDA has forecast $21.65 for 2022 and $19.70 for 2023.

The September Class IV price is $24.63, down 18 cents from August, $8.27 above a year ago, and the lowest Class IV since February. The Class IV average is at $24.81, up from $15.26 a year ago, $13.53 in 2020, and 16.21 in 2019.

On a brighter note, CME butter set a record high Thursday, hitting $3.2675 per pound. It closed the next day at $3.2175, up 7.25 cents on the week and $1.4975 above a year ago, with a total 35 loads finding new homes on the week.

“The interest is for use now,” says StoneX, “because building inventory at these levels is expensive.” Dairy Market News says cream availability has grown in recent weeks for Central churns. With hurricane affected states working through the aftermath, cream stayed in the Midwest and Mid-Atlantic areas. Butter demand remains “notably strong,” says DMN, which also reported that cream is tight in the West, though additional loads became available following the storm.

Cheese prices faced headwinds from the GDT this week but the Dairy Products report helped. The Cheddar blocks climbed to $2.03 per pound Thursday but closed Friday at $2.0225 per pound, up 5.50 cents on the week and 21.25 cents above a year ago.

The barrels got to $2.25, highest since June 9, but finished at $2.2250, 2.50 cents higher, 43.50 cents above a year ago, and 20.25 cents above the blocks. There were six sales of block on the week and 13 of barrel.

Milk availability increased this week for Class III production in the upper Midwest, according to DMN. Plant downtime, plus the additional milk brought spot prices lower. Cheese sales are meeting or exceeding expectations. Cheese demand is steady from retail and food service in the West. International demand remains strong, with continued interest from Asia for shipment in second quarter.

Grade A nonfat dry milk closed the week 3 cents lower at $1.54 per pound, 8 cents above a year ago, with seven loads exchanging hands on the week.

The Oct. 3 Daily Dairy Report says the Mexican economy is strong and the combination of a stronger peso and less expensive milk powder is likely to boost U.S. shipments of product there. Let’s hope so.

Dry whey saw a Friday finish at 42.25 cents per pound, down 1.75 cents on the week, and 17.25 cents below a year ago, on 2 sales for the week at the CME.

Dairy farmers saw small declines in feed prices in August; however the All Milk price fell as well. The month’s milk feed ratio was down for the seventh consecutive month, according to the latest Ag Prices report. The August ratio at 1.70, was down from 1.79 in July, but compares to 1.48 in August 2021.

The All Milk Price average fell to $24.30 per hundredweight, down $1.40 from July, after dropping $1.20 the previous month, but is $6.70 above August 2021.

The August national average corn price was $7.24 per bushel, down a penny from July, but 92 cents per bushel above August 2021. Soybeans fell to $15.30 per bushel, down 20 cents from July, but are $1.60 per bushel above August 2021. Alfalfa hay, after hitting a record average $276 per ton in July, was down $1 from July but a whopping $65 per ton above a year ago.

Looking at the cow side of the ledger, the August cull price for beef and dairy combined averaged $90.10 per cwt., down 50 cents from July, $14.10 above August 2021, and $18.50 above the 2011 base average.

Economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo., says “Dairy producers with Dairy Margin Coverage at or above $8.50 will receive a payment for August milk as the margin over feed costs was announced at $8.08.

“August’s drop in the income over feed calculation was the third straight monthly decline,” Brooks says. “Income over feed costs in August dropped to the lowest level since December 2021 but were above $8 per cwt. for the eleventh month running. There were no new all-time record high prices for inputs in August, but all three commodities remain in the top ten for all time high prices, which put feed costs at second highest ever.

“For 2022, milk income over feed costs (using Sept. 30 CME settling futures prices for milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $11.88 per cwt., a gain of 19 cents per cwt. versus the previous month’s estimate. 2022 income over feed would be above the level needed to maintain or grow milk production and $4.09 per cwt above the 2021 level,” according to Brooks.

The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. says “Dairy margins declined slightly over the second half of September on weaker milk prices while feed costs remained largely steady.”

The MW stated that “USDA’s Cold Storage report confirmed a drawdown in dairy product inventories during August which remains a supportive feature for the market,” and said the July to August cheese drawdown was the largest since 2018. “Given strong cheese production in August, the stocks figure implies good domestic and export demand, although stocks were still record high for August.”

Butter inventories remained at multi-year lows, according to the MW, and the lowest August inventory figure since 2017. The MW stated that butter production was lower during the month as cream was utilized elsewhere, “a contributing factor to the lower butter stocks.”

Butter led the declines, dropping 7.0 percent, after inching 0.2 percent lower on Sept. 20. Anhydrous milkfat was down 1.7 percent, after leading the gains the previous two events, up 4.0 percent on Sept. 20 and 13.9 percent on Sept. 6. Whole milk powder was down 4.0 percent, after gaining 3.7 percent, and skim milk powder was down 1.6 percent, following a 0.7 percent loss. Cheddar was down 3.8 percent, after a 2.1 percent gain last time.