In your October issue . . .
DAIRY DEMAND CLIMBED TO THE HIGHEST LEVEL since 1959, as Americans ate 667 pounds of milk in the form of dairy products last year, reported USDA. That’s up a robust 12 pounds in the past 12 months.
CHEESE ANCHORED THAT GROWTH, as per capita consumption grew by 1 pound to reach 39.4 pounds. If the trend holds, the U.S. consumer market could move past 40 pounds this year. For perspective, U.S. cheese sales pushed by 30 pounds in 2001 and passed 20 pounds in 1982.
OVER THE COURSE OF 60 DAYS, USDA economists raised their 2023 All-Milk price projection by 40 cents. In making the move from a $22.50 to a $22.90 per hundredweight (cwt.) forecast, economists pinned the hopes of higher prices to the Class IV portion of the milk check.
CME FUTURES INDICATE NEARLY A $1 SPREAD between Class III and Class IV prices for the first six months of the new year. Class III contracts traded for a $20.35 average at the magazine’s close, while Class IV netted $21.25. For November and December futures contracts, the difference was much larger with a $20.80 Class III and a $22.70 Class IV.
AS FOR USDA 2023 PRICE PROJECTIONS, it forecast a $19.80 Class III price and a $21 Class IV. Both outlooks are softer than the CME.
BUTTERFAT SET A FOURTH STRAIGHT RECORD in September milk checks at $3.57 per pound. The new high builds on three previous watermarks under federal order provisions: $3.40 in August, $3.36 in July, and $3.33 in June. Given spot butter prices remain near $3.20, there’s a strong chance October could be a fifth straight record.
AT THE MOMENT, THE U.S. BUTTER PRICE is well above the world market, and that value has been buoying Class IV prices. It’s projected that those figures could fade after this fall and early winter’s holiday baking season. As that unfolds, dry milk powder supply-and-demand dynamics could help hold Class IV prices in high territory.
A WILD CARD IS NATURAL GAS supplies and prices, and the situation could impact both dairy processing costs and fertilizer production. At times this fall, natural gas prices in Europe have spiked 3,000%, reported Nate Donnay of StoneX. That’s nearly 15% of Europe’s GDP.
THE SITUATION COULD MIRROR THE OIL CRISIS of the 1970s. If that scenario unfolds, milk drying towers could run under capacity or even be shuttered. Some European fertilizer plants have already shut down as natural gas is 90% of the cost to make nitrogen-based urea.
HISTORICALLY HIGH FERTILIZER COSTS could make next year’s feed prices hard to predict. Earlier this year, few industry experts projected payments from the Dairy Margin Coverage (DMC) program.
IN AUGUST, FEED COSTS SPIKED to $7.24 per bushel corn, $510.90 per ton soybean meal, and $343 per ton for Premium and Supreme alfalfa. Even a $24.30 All-Milk price could not maintain a margin to preclude DMC payments. Topside $9.50 coverage yielded a $1.42 per cwt. payment.
“ECONOMISTS WORK HARD AND TRY THEIR BEST to project future commodity markets, but none are perfect,” shared the University of Missouri’s Scott Brown. “Let 2022 be yet another example of the merits of risk management strategies and not profit maximization.”
“DAIRY WILL BE THE MOST VOLATILE COMMODITY in agriculture moving forward,” shared Torsten Hemme at the Global Dairy Summit. “Don’t fight volatility. Manage it,” he advised World Dairy Expo attendees.
BY VOLUME, U.S. DAIRY EXPORTS CLIMBED 6% in August. It also marked the sixth straight month that exports held over $800 million.
