The July Federal order Class III benchmark milk price hit bottom, falling to $13.77 per hundredweight (cwt.), down $1.14 from June, $8.75 below July 2022, and the lowest since May 2020. The seven month average stands at $16.95, down from $22.89 at this time a year ago, and compares to $16.90 in 2021. 

Late Friday morning Class III futures portended an August price at $17.24; September, $17.53; October, $17.54; November, $18.21; and December at $18.30.

The Class IV price is $18.26, unchanged from June but $7.53 below a year ago. Its average stands at $18.55, down from $24.83 a year ago, and compares to $15.01 in 2021.

Just as the U.S. credit standing was reduced this week from AAA to AA plus, dairy finances aren’t looking any better either. Corn, soybean, and alfalfa hay prices were down in June but so was the All Milk price. The Ag Prices report shows the milk feed ratio at 1.36, down from 1.42 in April, and 1.92 June 2022. It was the sixth consecutive decline and the lowest since July 2012’s 1.33. 

The All Milk Price average was down for the eighth consecutive month, dropping to $17.90 per cwt., down $1.40 from May, and $8.80 below June 2022.

The June cull price for beef and dairy combined climbed to an average $107 per cwt., up $4 from May, $16.80 above June 2022, and $35.40 above the 2011 base average.

Quarterly milk cow replacements averaged $1,760 per head in July, up $40 from April, and $50 above July 2022. Cows averaged $1665 per head in California, up $10 from April, but $85 below a year ago. Wisconsin’s average, at $1,910 per head, was up $70 from April and $40 above July 2022.

Income over feed costs in June were below the $8 per cwt. level needed for steady to higher milk production for the fifth month in a row, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri. Brooks says “Input prices were lower but all three commodities were in the top five for June all time. Feed costs were the second highest ever for the month of June and the sixteenth highest of all time.” 

 Milk income over feed costs for 2023 (using July 28 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $7.82 per cwt., a gain of 61 cents per cwt. versus last month’s estimate. 2023 income over feed would be below the level needed to maintain or grow milk production, and down $4.17 per cwt. from 2022’s level, says Brooks.

Milk income over feed in 2024 is expected to be $10.86 per cwt., a gain of 97 cents per cwt. versus the 2023 estimate. Income over feed in 2024 would be above the level needed to maintain or grow milk production, according to Brooks. 

He adds that “The current decline in profitability has not negatively impacted milk cow prices and the improved outlook is lending support, as milk cow prices increased after holding steady in April.”

Meanwhile, the June Dairy Margin Coverage (DMC) margin dropped $1.18 per cwt. from a month earlier to $3.65, first time it’s been below $4 per cwt since margin protection became the basic federal safety net mechanism for dairy in 2014, according to the National Milk Producers Federation.

“It will generate a lot of 35 cent per cwt. payments for Tier 2 coverage at the free $4 per cwt. coverage level, as well as payments of $5.85 per cwt. for coverage at the maximum $9.50 Tier 1 coverage level,” says NMPF. Forecasts indicate the margin will improve slightly in July from the June level, then increase rapidly from August through October and approach $9.50 per cwt. by December.

 Dairy margins did improve the second half of July as a continued recovery in milk prices more than offset a slight increase in projected feed costs, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. The MW cited the sharp gains in cheese which helped support Class III futures while gains butter were supportive to Class IV futures.

“USDA’s semi-annual Cattle Report estimated the total U.S. supply of dairy heifers as of July 1 at 3.65 million head,” according to the MW, “down100,000 or 3% below a year ago. The dairy heifer count has dropped for seven consecutive years as dairy producers have been economically incentivized to introduce beef genetics into their breeding programs. The growing trend of beef-dairy crosses continues to reduce the number of dairy heifers, and combined with increasing cull rates, will slow the pace of expansion in the next cycle. Recent rainfall and beneficial forecasts moving into early August have taken risk premium out of the feed markets following a spike in the first half of the month,” the MW concluded.

The week ending July 22 saw 61,200 dairy cows go to slaughter, up 1,600 head from the previous week, and 3,700 or 6.4% more than a year ago. Year to date 1,792,100 cows have been culled, up 97,200 head or 5.7% from a year ago.

CME cheese prices may have shot up too fast and too high. Block Cheddar closed the first Friday of August at $1.9650 per pound, up 5.75 cents on the week, up 63 cents in five weeks, highest since March 28, and 18 cents above a year ago. 

 The barrels jumped almost 11 cents Monday, hitting $1.87, highest since March 30, but fell back Thursday and Friday, closing at $1.7750, up 1.25 cents on the week, 1.75 cents below a year ago, and 19 cents below the blocks. 

Cash butter ended seven consecutive gains and fell to a $2.62 per pound close, losing 6 cents on the week and 39 cents below a year ago when it topped $3. The week saw 33 loads of butter sold and 150 for July, up from just 67 in June.

Butter has tightened significantly in the Central region, says DMN. Brokers say their focus has shifted west for any extra supply. Midwest cream is tight and churning is expected to continue, but locating cream at or below the 1.30 multiple has become a “fruitless endeavor.” That said, cream availability reached further into the summer months than many expected, with milder summer temperatures at least in the evenings and early mornings in the upper Midwest. Not so for Southern Central contacts where cream access quickly tightened. 

 The July 28 Daily Dairy Report had bad news for U.S. whey exports. The DDR stated “African swine fever (ASF) continues to spread in parts of Southeast Asia. The virus has largely run its course in China, home to more than half the world’s pigs, but the United Nation’s Food and Agriculture Organization reported several new outbreaks this month in the Philippines, Indonesia, and Vietnam.” 

China reported its first outbreak in August 2018, according to the DDR, and by 2019, Chinese lactose imports plummeted 20.8% year over year and whey imports dropped 18.6%, according to Trade Data Monitor. Lactose and whey have been important sources of carbohydrates and protein, respectively, for piglets, the DDR said, and by 2020, the Chinese hog herd had shrunk 30%. The swine industries in Southeast Asia have yet to fully recover from the earlier ASF setbacks, according to the DDR.

International dairy trade remains depressed. Tuesday’s Global Dairy Trade auction saw the weighted average drop 4.3%, following the 1.0% decline on July 18, and the 3.3% fall on July 4. Traders brought 71.9 million pounds of product to market, up from 57.2 million on July 18, and the most since Jan.3, 2023. The average metric ton price fell to $3,100 U.S., down from $3,289 on July 18.

Analyst Dustin Winston says “The market share of SE Asia fell below the North Asia market share for the first time in two months. North Asia volume bounced back in a big way this auction, nearly doubling from the last event and up from last year. SE Asia volume on the other hand fell from both last year and last event. Alongside North Asia, the Middle East and South/Central America both increased from last year and last event.” 

August GDT auctions have consistently shown a negative trend since 2017, says HighGround Dairy, and the overall winning price settled at its lowest level in almost three years. HGD anticipated weaker prices due to persistently bearish demand signals, most notably from China. Despite the fact that ‘boots on the ground’ chatter continues to reiterate a quiet Chinese market, the region’s market share did increase, surpassing volumes procured from the region at this time last year, as well as the prior event.”