Digest highlights

Natzke dave
Dave Natzke
Editor / Progressive Dairy

December 2022 Class I base price lower

December’s Federal Milk Marketing Order (FMMO) advanced Class I base price dipped back below $23 per hundredweight (cwt), hitting a 10-month low. However, the “average-of” Class I mover formula had the smallest negative impact since July.

At $22.58 per cwt, the December 2022 Class I base is down $1.51 from November but still $3.41 above December 2021.

The 2022 average is $23.66 per cwt, up $7.33 from the 2021 average of $16.83 cwt and the highest annual average on record, 37 cents higher than the average in 2014.

Class I zone differentials are added to the base price at principal pricing points to determine the actual Class I price in each FMMO. With those additions, December 2022 Class I prices will average approximately $25.40 per cwt across all FMMOs, ranging from a high of $27.98 per cwt in the Florida FMMO 6 to a low of $24.38 per cwt in the Upper Midwest FMMO 30.

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Analyzing the Class I mover, the spread in the monthly advanced Class III skim milk pricing factor ($9.63 per cwt) and advanced Class IV skim milk pricing factor ($11.78 per cwt) is $2.15 per cwt, the narrowest since July 2022.

Based on Progressive Dairy calculations, the Class I mover calculated under the “higher-of” formula would have resulted in a Class I base price of $22.90 per cwt, 32 cents more than the actual price determined using the average-of plus 74 cents formula.

The economic impact on uniform milk prices within individual FMMOs depends on Class I milk utilization in each FMMO.

U.S. farm wages up another 7%

October 2022 U.S. gross farm wages were up 7% compared to a year earlier, according to the USDA’s latest Farm Labor report. Farm operators paid their hired workers an average of $17.72 per hour during the reference week (Oct. 9-15, 2022). Among individual worker categories:

  • Field workers received an average of $17.04 per hour, an increase of 6%.
  • Livestock workers earned $16.52 per hour, up 7%.
  • The field and livestock worker combined wage rate, at $16.90 per hour, was up 6%.

The quarterly USDA survey analyzes workers numbers and wages in January, April, July and October. For state and regional averages, view the full report here.

Vitaliano: Domestic, export markets were strong

Strengthened use of all cheese was a key driver in pushing domestic dairy consumption growth during the third quarter of 2022, according to National Milk Producers Federation’s Peter Vitaliano. Summarizing dairy markets in the November 2022 Dairy Management Inc./National Milk Producers Federation Dairy Market Report, he said that while U.S. dairy export volumes backed off a bit during the quarter, the U.S. dairy industry is on an almost certain path to set yet another calendar year record.

The U.S. dairy industry has now clearly resumed increasing milk production after many months of below year-ago levels. Chicago Mercantile Exchange (CME) dairy futures and the USDA’s dairy outlook are currently indicating that milk prices will be about $2.50 to $3 per cwt lower in 2023 than this year.

For more information on commercial use, dairy trade, milk production, product inventories, prices and margins, click here.

All-milk, mailbox price spreads held in August

August 2022 “mailbox” prices averaged about 86 cents per cwt less than announced average “all-milk” prices for the same month, based on a preliminary look at two USDA milk price announcements.

  • During August, U.S. all-milk prices averaged $24.30 per cwt, down $1.40 from July 2022.
  • The August 2022 mailbox prices for selected FMMOs averaged $23.54 per cwt, down $1.26 per cwt from July 2022.

The August spread was slightly smaller than July and under the 2022 year-to-date average of 93 cents per cwt.

The August spread between individual states or regions varied widely, with a difference of -$2.62 per cwt in Florida to a +1 cent per cwt in Illinois.

All-milk prices are reported monthly by the USDA National Ag Statistics Service (NASS). Mailbox prices are reported monthly by the USDA’s Agricultural Marketing Service (AMS) and generally lag all-milk price announcements by a month or more. The price announcements reflect similar – but not exactly the same – geographic areas.

Impacts of higher processing costs could drive the spread between all-milk and mailbox prices wider in September, as processors implemented “milk market adjustment” check deductions.

The difference in the two announced prices can affect dairy risk management, since indemnity payments under the Dairy Margin Coverage (DMC) are based on the all-milk price, while Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) programs are based on FMMO class and component prices.

Butter inventories shrink

Despite a slight increase in October milk production, cheese and butter inventories in cold storage were down to end the month. According to the USDA’s monthly Cold Storage report, released Nov. 22:

  • Total natural cheese stocks were estimated at about 1.45 billion pounds, down about 1% from September 2022 and down slightly from October 2021. Stocks of American cheese were estimated at about 830.5 million pounds, down 1% from both the previous month and year.
  • Butter stocks were estimated at 239.6 million pounds, down 14% from October 2021 and down 10% from September 2022. It was the 15th consecutive monthly decrease in butter stocks on a year-to-year basis, according to Erick Metzger with National All-Jersey.

The USDA’s preliminary Milk Production report indicated October 2022 U.S. milk output was up 1.2% compared to October 2021. Read: October U.S. milk production up 1.2%

Dairy cull cow marketing down in October

Marketing of U.S. dairy cull cows through U.S. slaughter plants declined slightly in October and remained behind last year’s pace.

At 252,800 head, the October total was down 7,700 from September and about 3,400 less than October 2021. Both October 2021 and 2022 had 25 non-holiday weekdays and Saturdays. The USDA’s Milk Production report estimated there were 9.418 million cows in U.S. herds in October, up about 31,000 head from the same month a year earlier.

At 2.53 million head, year-to-date (January-October 2022) cull dairy cow slaughter was about 63,200 less than the same period a year earlier. It’s the lowest 10-month total to start the year since 2017.

Heaviest dairy culling during October 2022 occurred in the Upper Midwest (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) at 63,900 head. That was followed by the Southwest (Arizona, California, Hawaii and Nevada), where 59,900 dairy cows were marketed for beef. 

Other regional totals were estimated at 41,600 head in Delaware, Maryland, Pennsylvania, West Virginia and Virginia; 31,000 head in Alaska, Idaho, Oregon and Washington; and 28,400 head in Arkansas, Louisiana, New Mexico, Oklahoma and Texas.

Beef cow marketing increased in October, up 39,400 head from September and 35,800 more than October 2021. Year-to-date beef cow slaughter is up more than 377,000 compared to the same period in 2021, topping 3.28 million head.

The numbers reflect reports from about 900 livestock slaughter plants operating under federal inspection and nearly 1,900 state-inspected or custom-exempt slaughter plants.

Fuel prices end November lower

There was something else to be thankful for during the last week of November. According to the U.S. Energy Information Administration (EIA), the average U.S. on-highway price of diesel was $5.14 per gallon on Nov. 28, down 17 cents in the past two weeks but still $1.42 higher than the corresponding date a year ago. U.S. gasoline prices averaged $3.53 per gallon, down 23 cents over the two weeks but still 15 cents higher than a year earlier.

Farmdoc: Corn, soybean market outlook

Following the 2022 U.S. harvest, corn and soybean prices remain at historically high levels, according to University of Illinois economists Scott Irwin and Joe Janzen, writing in farmdoc Daily’s Weekly Outlook.

Describing current corn and soybean market conditions, they note nearby futures prices at the close of trade on Nov. 28 were $6.69 per bushel for corn and $14.57 per bushel for soybeans. Futures prices for the 2023 crop were slightly lower at $6.11 per bushel for corn and $13.94 per bushel for soybeans, but these too are elevated levels in historical terms.

The Illinois economists see some need for tempered expectations for the 2022-23 U.S. agricultural supply and demand situation, particularly for corn. Current high prices reflect historically tight projected ending stocks, but those tight conditions may be relaxed by both lower use and forthcoming global production. Corn ethanol production and corn exports for the remainder of 2022-23 may be lower than USDA projections. If more optimistic expectations for the South American harvest in early 2023 are realized, lower prices may be necessary to balance global supply and demand.

Read: Tempered expectations for 2022-23 supply and demand for corn and soybeans