The October 3 ‘Daily Dairy Report’ reminds us “Dairy producers and processors who dumped milk without compensation due to certain weather disasters over the past three years could be eligible for reimbursement through the new Milk Loss Program run by USDA’s Farm Service Agency.”

“Last month, USDA announced that it would compensate dairy producers for up to 30 days of lost milk that could not be marketed due to “droughts, wildfires, hurricanes, floods, derechos, excessive heat, winter storms, freeze, and smoke exposure that occurred in the 2020, 2021 and 2022 calendar years. Sign up is underway and lasts through Oct. 16, according to the DDR.

The September Federal order Class III milk price was announced at $18.39 per hundredweight, up $1.20 from August, but $1.43 below September 2022 and the highest since April. The nine-month average stands at $17.13, down from $22.24 a year ago, and compares to $16.75 in 2021.

The September Class IV price is $19.09, up 18 cents from August, $5.54 below a year ago, but the highest Class IV since January. Its average stands at $18.65, down from $24.81 a year ago, and compares to $15.26 in 2021

The August Dairy Products report showed U.S. cheese production totaled 1.155 billion pounds, down 0.1% from July and down 0.2% from August 2022. Output in the first eight months of the year totaled 9.39 billion pounds, up 0.2% from 2022.

Italian cheese totaled 483.9 million pounds, up 0.2% from July but 0.6% below a year ago. Mozzarella totaled 380.4 million pounds, down 0.9% from a year ago.

American output fell to 458.8 million pounds, down 2.0% from the July count which was revised down 6.9 million pounds, but was up 0.3% from a year ago. Year to date American cheese stands at 3.8 billion pounds, up 1.9%.

Cheddar output fell to 314.4 million pounds, down 9 million or 2.8% from July’s total, which was revised 8.1 million pounds lower. It was down 3.7 million pounds, or 1.2%, from a year ago. YTD Cheddar was at 2.7 billion pounds, up 1.7% from 2022.

Butter output dropped to 140.0 million pounds, down 19.3 million pounds or 12.1% from July’s total which was revised up 2.3 million pounds. Output was down 3.0 million pounds or 2.1% from a year ago. YTD butter production stood at 1.4 billion pounds, up 3.6% from a year ago.

Yogurt production totaled 413.2 million pounds, up 2.7% from a year ago, with YTD at 3.2 billion pounds, up 3.5%. Hard ice cream output, at 66.2 million pounds, was up 1.1% from 2022.

Dry whey production totaled 83.4 million pounds, down 4.5 million pounds or 5.1% from July, but up 8.1 million pounds or 10.7% from year ago. YTD whey stands at 638.2 million pounds, up 3.4%. Stocks crept to 88.7 million pounds, up 1.3 million or 1.5% from July and up 21.6 million or 32.1% from 2022.

 Nonfat dry milk output dropped to 113.4 million pounds, down 21.7 million or 16.1% from July and down 20.2 million or 15.2% from a year ago. Stocks fell to 266.6 million pounds, down 19.1 million pounds, or 6.7% from July, and down 46.2 million pounds or 14.8% from a year ago.

Skim milk powder production slipped to 57.2 million pounds, down 3.5 million pounds or 5.7% from July, and 8.4 million or 12.7% below a year ago.

StoneX says the cheese, butter, and powder numbers were lower than expected. “Either these numbers are low or milk production data for August is overstated.”

Butter set a new record high to start October and cheese was mixed. 

 Midwestern cheesemakers continue to report limited milk offers, according to Dairy Market News. Loads did change hands at lower prices than in previous weeks, but at mid-week were at least slightly higher than Class III. 

Grade A nonfat dry milk saw its Friday finish at $1.18 per pound, down a half- cent on the week and 36 cents below a year ago, with 10 loads trading hands. 

Dry whey oscillated some but closed the week 0.75 cents higher, at 29.75 cents per pound, 12.50 cents below a year ago, on 55 CME sales for the week.

Speaking of the powder; StoneX reports that the U.S. Mexican border headed into week 3 of “more stringent efforts by the Texas governor to slowdown immigration which has slowed down inspections of trucks, causing congestion of trade flow at El Paso. This is starting to affect Mexican nonfat buyers who are beginning to get more concerned above the availability of product.”

We see how big an issue this is in August data. Milk powder exports totaled 150.6 million pounds, up 4.2% from August 2022 and topped a year ago for the third consecutive month, mainly due to Mexico, which set an August record, according to HIghGround Dairy. Year-to-date, Mexico holds slightly more than a 50% market share, against weaker demand from Southeast Asia and China.

Cheese exports unfortunately, only totaled 82.1 million pounds, down 2.9% and the fifth consecutive month to be below a year ago. Shipments to South Korea were down 50%, according to HGD, with notable losses to Saudi Arabia, Indonesia, and Chile. Gains into other regions helped offset some of that, with sales to Mexico up 14%, Japan, up 37%, and Australia up 86%. 

Butter exports were down 62.7% and have been down every month of 2023, except January, says HGD, who blamed high prices, which will price the U.S. out of the export market for the foreseeable future. Shipments to Canada, the U.S.’ number one export market for butter was up 32.7%.

Dry whey exports were down 38.3%, down for the fifth month in a row. HGD says volumes to China improved slightly, to five-month highs, but remain well below last year, down 45%.

Volume purchased by North Asia, which includes China, fell from the previous event, but was up from last year, according to analyst Dustin Winston. “The aggressive buyers at this event were Southeast Asia and the Middle East, who both bought significantly more than the previous Event, although SEA purchases were down slightly from last year,” according to Winston.

 Back on the farm, significant drops in feed plus a hefty increase in the All Milk Price moved the milk feed ratio higher. The USDA’s Ag Prices report shows the August ratio at 1.67, up from 1.38 in July, and compares to 1.69 in August 2022. 

The All Milk Price average saw its first advance in 10 months, jumping to $19.70 per hundredweight, up $2.30 from July but $4.40 below August 2022.

The August cull price for beef and dairy combined climbed to an average $115 per cwt., up $4.00 from July, $24.90 above August 2022, and $43.40 above the 2011 base average.

Income over feed costs in August were below the $8 per cwt. level needed for steady to higher milk production for the seventh month in a row, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri. Input prices were lower, he said, but all three commodities were in the top five for August all time. Feed costs were the fifth highest ever for the month and the thirty-seventh highest of all time. The ratio was below the 5-year average for the fifteenth month running, as the average ratio for August is 2.00, says Brooks.

“For 2023, milk income over feed costs (using September 29 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $7.86 per cwt., a loss of 40 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 $4.05 from 2022’s level.”

Meanwhile, dairy margins continued to decline the second half of September despite lower projected feed costs, although price movement between Class III and Class IV milk has deviated drastically, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“Plentiful cheese stocks amidst weak demand led to a selloff in both spot block and barrel Cheddar prices at the CME,” says the MW, “which in turn has pressured the Class III market. On the other, a large decline in butter inventories as milk production plummets in the West has caused spot butter to rally sharply.”

The MW reported highlights from the August Milk Production report, adding that dairy cow numbers “may be further revised down as cow slaughter was elevated throughout the month in response to negative margins and soaring beef prices

The week ending September 23 saw 58,800 dairy cows go to slaughter, up 1,900 from the previous week but 2,500 or 4.1% below a year ago. Year to date 2,321,500 head have been culled, up 101,400 or 4.6% from a year ago.