The USDA announced the January 2023 Federal order Class III benchmark milk price at $19.43 per hundredweight, down $1.07 from December and 95 cents below January 2022, lowest Class III price since December 2021.

Late Friday morning Class III futures portended a February price at $17.92; March, $17.85; and April at $18.22, with a peak at $20 in October.

The January Class IV price is $20.01, down $2.11 from December, $3.08 below a year ago, and the lowest Class IV price since December 2021.

Dairy farm profitability here at home took a hit in December, according to the Agriculture Department’s latest Ag Prices report. The December milk feed price ratio dropped to 1.84, down from 1.93 in November, lowest since September, and compares to 1.96 in December 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 1.84 pounds of dairy feed of that blend.

The All-Milk Price average fell to $24.70 per hundredweight, down 90 cents from November, but was $3 above December 2021.

California’s price averaged $25.50 per cwt., down 90 cents from November, but $4.10 above a year ago. Wisconsin’s, at $23.30, was down 30 cents from November, but $1.80 above a year ago.

The December national corn price averaged $6.58 per bushel, up 9 cents from November and $1.11 per bushel above December 2021. Soybeans jumped to $14.40 per bushel, up 40 cents from November, after gaining 50 cents a month ago, and were $1.90 a bushel above December 2021. Alfalfa hay averaged $269.00 per ton, up $2 from November, after dropping $14 per ton the previous month, and is $52 per ton above a year ago.

Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo., said, “The gain in feed costs offset the highest ever December All-Milk price and dropped the income over feed from the previous month. Income over feed costs in December were above the $8 per cwt. level needed for steady to increasing milk production for the fifteenth month running. Soybeans and alfalfa hay set new all-time record high prices in December and all three commodities were in the top two for December all time. Feed costs were the highest ever for the month of December and the fifth highest all time. The All-Milk price was in the top twenty at the fourteenth highest recorded.,

Milk income over feed costs (IOC) for 2022 are $12.21 per cwt., a gain of 4 cents per cwt. versus the previous month’s estimate, according to Brooks, and “2022 income over feed was above the level needed to maintain or grow milk production and $4.42 per cwt above the 2021 level.

“Looking at 2023, using January 31 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay, IOC is expected to be $7.63 per cwt., a loss of 55 cents per cwt. versus last month’s estimate. 2023 income over feed would be close to the level needed to maintain or grow milk production,” Brooks concludes, “but down $4.58 per cwt. from 2022’s level.”

Meanwhile, the National Cattle Herd report, released Tuesday, showed 2.77 million dairy heifers are expected to calve and enter the milking herd this year. StoneX broker Dave Kurzawski said in the February 6 Dairy Radio Now broadcast that’s down 2 percent from 2022, seventh year in a row to be down, and the smallest heifer inventory since 2004.

That doesn’t necessarily mean smaller herd growth, however, because you have to factor in the slaughter number, he charged. “If we’re killing cows faster than we can replace them, with the available supply of heifers, then obviously, the herd should fall. If slaughter falls below the supply of heifers, then the herd should grow and that remains to be seen,” he concluded.

Dairy cow slaughter, the week ending Jan. 21, saw over 70,000 head retired from the dairy industry. Currently slaughter is running nearly as high as in 2020.

Dairy margins continued to deteriorate through the second half of January as milk prices declined further while projected feed costs held steady, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“USDA’s December Milk Production report reflected a continued build in milk output, while the Cold Storage report showed increased inventories,” the MW stated, and detailed the latest Milk Production and Cold Storage reports which I have previously reported.

The MW referenced the January semiannual Cattle Inventory report and pointed out the report also showed fewer than 29 million beef cows as of Jan. 1, the lowest figure since 1963. “There are also fewer beef heifers and cows to rebuild the herd, which will lead to a tighter cattle market over the next 2 years,” the MW concluded.

Cash dairy prices in Chicago started February a little stronger, except for the Cheddar blocks which lost 9.50 cents on the week, closing at $1.8650 per pound. That’s 3.50 cents below a year ago when they jumped 11 cents.

The barrels finished the week at $1.63 per pound, 7.75 cents higher on the week, 26.50 cents below a year ago when they jumped 15.25 cents, but the spread was lowered to 23.50 cents. The week saw 7 cars of block sold and 27 of barrel.

Cheese demand varies, according to Dairy Market News. Some plants are running widely available milk to fulfill strong orders while others are not. Barrel cheesemakers say there is concern about inventory growth, as demand has seasonally slowed. Production is busy, but for various reasons more plant downtime has been reported in the upper Midwest. Milk is widely available and spot prices reached $10 under Class III, which has been the case all year. Cheese market tones are in search of some stability, says DMN.

The Jan. 30 Daily Dairy Report points out that Midwest milk production is growing substantially and dairy processors are overwhelmed.

Demand for cheese is steady to lighter in the West. Retail sales are unchanged, though some report lighter food service sales. Export demand is softening, as sellers in Europe are, reportedly, offering cheese for lower prices. Sales are steady to Asian markets for second and third quarter. Barrel inventories are larger than blocks and likely contributing to the large block-barrel price spread.

StoneX stated in its Jan. 30 Early Morning Update: “European cheese prices continued to fall last week while U.S. and Oceania prices were rather steady relative to that. This will inevitably make U.S. cheese much less competitive in the export market given the low EU cheese prices, which could lead to U.S. milk supplies shifting from mozzarella cheese, which we export the most of, to Cheddar which could put further pressure on spot cheese prices. Oversupply of milk has been an issue in Europe but with margins expected to move back to average to lower type levels, we could see that change into the summer months.”

CME butter closed Friday at $2.3750 per pound, up 10.25 cents on the week but 12.50 cents below a year ago.