The farm benchmark milk price took a temporary step backward in July on a slightly lower cheese price. The Agriculture Department announced the July Federal order Class III price at $19.79 per hundredweight, down 8 cents from June, but is $6.02 above July 2023. The seven-month average stands at $17.33, up from $16.95 at this time a year ago, and compares to $22.89 in 2022.

Late Friday morning Class III futures portended an August price at $20.34; September, $20.51; October, $20.61; November, $20.20; and December $19.45.

The July Class IV price is $21.31, up 23 cents from June, $3.05 above a year ago, and the highest Class IV since October 2023. The seven-month average, at $20.33, is up from $18.55 a year ago, and compares to $24.83 in 2022.

Cash cheese prices weakened as traders awaited the Aug. 5 June Dairy Products report. StoneX “Early Morning Update” pointed out, “Slightly weaker milk production along with a small slowdown in fat content and the better cheese production limit the amount of fat left for butter production.” It adds that Class I demand is starting to pick up as schools get closer to resuming.

After gaining 6.50 cents the previous week, cheddar block cheese climbed to $1.95 per pound Monday but closed Friday at $1.85, down 8 cents on the week, 5 cents below where they were on July 1, and 11.50 cents below a year ago.

Central region contacts tell Dairy Market News that retail demand for cheese is steady but from food service purchasing is soft. Export demand is steady. Cheese inventories are somewhat tight in the Central region and cheesemakers are running active schedules, though some note tightening milk availability is contributing to lighter output. Class III milk prices in the Central region ranged flat to $2-over Class, compared to $6-under to flat Class III a year ago.

Cheese production is seasonally weakening in the West. Class III milk demand is strong from cheese manufacturers. However, milk availability is tighter throughout the region. Domestic cheese demand varies from steady to lighter, according to DMN.

Butter continues to impress, closing at $3.1050 per pound, up 1.50 cents on the week, 3.25 cents below its July 1 post, but 48.50 cents above a year ago. Sales totaled 39 for the week and 137 for the month, up from 44 in June.

Grade A nonfat dry milk saw its highest CME price since Feb. 13, 2023, on Thursday, hitting $1.2475 per pound, but closed Friday at $1.24, still 0.75 cents higher on the week, 6 cents above its July 1 perch, and 11.50 cents above a year ago. Sales for the week totaled 25, and 76 for the month, down from 84 in June.

Dry whey hit 62.50 cents per pound Thursday, highest CME price since April 22, 2022, but closed Friday at 61 cents, up 4 cents on the week, 12 cents higher on the month, and 33.75 cents above a year ago. There were five sales for the week and 11 for the month of July, down from 13 in June.

Meanwhile, a higher All Milk Price and lower corn, soybean, and hay prices gave another lift to the milk feed price ratio. The latest Ag Prices report shows the June ratio at 2.36, up from 2.24 in May, and compares to 1.35 in June 2023.

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. One pound of milk would purchase 2.36 pounds of dairy feed of that blend.

The All Milk Price averaged $22.80 per hundredweight (cwt.), with a 4.10 percent butterfat test, up 80 cents from May, and $5 above June 2023, which had a 4.01 percent test.

Milk production margins moved to the highest level since April 2022 at $13.15 per cwt. and were 98 cents per cwt. above May, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo.

“Income over feed costs in June were above the $8 per cwt. level needed for steady to higher milk production for the tenth month in a row,” says Brooks. “Input prices were lower in June with all three input commodities remaining in the top nine for June all-time. Feed costs were the ninth highest ever for the month of June and the 78th highest of all time. The All-Milk price moved into the top 25 all-time at the 25th highest recorded.

“Dairy producer profitability for 2023 in the form of milk income over feed costs, was $8.01 per cwt. The profitability was $3.90 below 2022 and $1.71 lower than the 2018-22 average. In 2023, the decrease in milk income over feed costs was a result of the milk price decreasing more than feed prices dropped. Income over feed in 2023 was around the level needed to maintain or grow milk production.

“Milk income over feed costs for 2024 (using July 31 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $13.55 per cwt., a gain of 53 cents per cwt. versus last month’s estimate. Income over feed would be above the level needed to maintain or grow milk production, and up $5.54 per cwt. from 2023.”

There’s been a lot of frustration in the global dairy market over China’s lack of purchases and a big part of the reason is China’s increased domestic milk production. Rabobank Global Sector Strategist, Mary Ledman, addressed the topic in a recent report entitled “The Dairy Dominoes, How China’s Increased Self Sufficiency is Reshaping Global Trade.”

Speaking in the Aug. 5 “Dairy Radio Now” broadcast, Ledman said it’s been a work in progress since 2018 when China released its five-year agricultural plan, which she likened to a U.S. Farm Bill.

They established a goal of increasing milk output by nearly 11 million metric tons, she said, or about 25 billion pounds, equivalent to Idaho, Washington State, and maybe even Oregon. “And they did it ahead of schedule,” she said.

They added a million head to their herd, and they were high producing dairy cows on farms of 5,000-10,000 cows, comparable to U.S. herds of that size. She reported that China imported about a million head of replacement heifers from New Zealand and Australia from 2018-2023.

“To continue on this path,” Ledman warned “They need to increase their animal husbandry of replacement heifers, but that’s yet to be determined. There are feed constraints, water constraints, and land constraints,” Ledman explained, however “The last five years shows us that, with China, where there’s a will, there is a way.”

Can other countries make up for China’s smaller purchases? Ledman answered, “Yes. We have a growing world population and while China’s absence is large, as they are the world’s largest dairy importer, it has particularly impacted whole milk and skim milk powder. The whey market is still very important to the United States and China has not developed its domestic cheese industry that would produce that whey. The powder deficits are being absorbed by Algeria, Southeast Asia, Mexico, and others,” she concluded.