Here’s an update on economic factors impacting your milk check as we close out the month of August.

Dave Natzke

Editor / Progressive Dairy

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• September 2023 Class I base price rebounds
• July dairy cull cow marketing summarized
• Dairy product inventories decline
• LIP indemnity rates raised
• June 2023 fluid milk sales were down
• Coming up

September 2023 Class I base price rebounds

After falling near a two-year low in August, the Federal Milk Marketing Order (FMMO) advanced Class I base price rebounded for September. At $18.90 per hundredweight (cwt), it is up $2.28 from August and the highest since May but still $4.72 less than September 2022. 

Class I zone differentials are added to the base price at principle pricing points to determine the actual Class I price in each FMMO. With those additions, September Class I prices will average approximately $21.72 per cwt across all FMMOs, ranging from a high of $24.30 per cwt in the Florida FMMO 6 to a low of $20.70 per cwt in the Upper Midwest FMMO 30.

Another change in September is the impact of the Class I mover pricing formula. The spread in the monthly advanced Class III skim milk pricing factor ($7.15 per cwt) and advanced Class IV skim milk pricing factor ($8.64 per cwt) is $1.49 per cwt, the narrowest spread since May.

Based on Progressive Dairy calculations, the Class I mover calculated under the “higher-of” formula would also have resulted in a Class I base price of $18.90 per cwt, equal to the actual price determined using the “average-of plus 74 cents” formula.

July dairy cull cow marketing summarized

July U.S. dairy cull cow marketing remained ahead of last year’s pace, based on latest USDA estimates.

The number of dairy cull cows marketed through U.S. slaughter plants in July 2023 was estimated at 244,200, down 11,500 from June but 14,100 more than July 2022.

July 2022 and 2023 each had 25 non-holiday weekdays and Saturdays. Monthly slaughter averaged 9,800 head per business day this year, up slightly from a year earlier.

The USDA estimated there were 9.4 million dairy cows in U.S. herds in July 2023, down 3,000 from June and putting the July culling rate at about 2.6% of the herd. Based on the monthly data, year-to-date (January-July dairy cull cow slaughter now stands at 1.863 million head, up 112,400 from the same period a year earlier.

Heaviest dairy cow culling during July occurred in the Upper Midwest (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) at 63,500 head. That was followed in the Southwest (Arizona, California, Hawaii and Nevada) at 55,400 head.

Other monthly regional totals were estimated at 34,100 head in Delaware, Maryland, Pennsylvania, West Virginia and Virginia; 33,100 head in Arkansas, Louisiana, New Mexico, Oklahoma and Texas; and 28,500 head in Alaska, Idaho, Oregon and Washington.

Primary data for the USDA’s Livestock Slaughter report is obtained from reports from about 900 federally inspected plants and nearly 1,900 state-inspected or custom-exempt slaughter plants.

Dairy product inventories decline

Lower milk production is helping dip into dairy product inventories in cold storage. According to the USDA’s monthly Cold Storage report, released Aug. 23:

• Total natural cheese stocks were estimated at about 1.49 billion pounds on July 31, down 1% from June and 2% less than July 2022. Stocks of American cheese were estimated at about 838 million pounds, down 3% from the previous year and down 2% from the previous month.
• Butter stocks were estimated at 331.6 million pounds, down 5% from the previous month but still 5% more than the previous year.

LIP indemnity rates raised

Higher beef prices have prompted the USDA’s Farm Service Agency (FSA) to raise Livestock Indemnity Program (LIP) payment rates. The increased rates will provide support livestock producers in the Midwest who have lost cattle to the extreme heat and humidity experienced this summer.

The 2023 LIP payment rate for beef calves over 800 pounds will increase from $1,244 per head to $1,618, an increase of $374.

The LIP provides benefits to livestock owners and some contract growers for livestock deaths exceeding normal mortality from eligible adverse weather events and other factors. Indemnity payments are made at a rate of 75% of the prior year’s average fair market value of the livestock.

The updated LIP payment rate is effective immediately and will be applied retroactively starting Jan.1, 2023, for all eligible causes of loss including excessive heat, tornado, winter storms and other qualifying adverse weather.

Producers who have already received LIP payments for 2023 losses will receive an additional payment, if applicable, commensurate with this updated rate.

Contact your local USDA FSA office for more information.

June 2023 fluid milk sales were down

Fluid milk sales were lower in June 2023, with whole milk again providing some strength, according to monthly data from the USDA Agricultural Marketing Service:

• Total sales: Sales of packaged fluid milk products totaled about 3.29 billion pounds, down 1.3% from the same month a year earlier. At 21.19 billion pounds, year-to-date (YTD) sales of all fluid products were down 2%.
• Conventional products: Monthly sales totaled 3.06 billion pounds, down 1% from the same month a year earlier. YTD sales totaled 19.77 billion pounds, down 2% from January-June 2022. June sales of whole milk and flavored whole milk were up from a year earlier.
• Organic products: June sales totaled 224 million pounds, down 4.5% from a year earlier. At 1.41 billion pounds, YTD sales of all fluid organic products were down 2%. Organic represented about 6.8% total fluid product sales in June and 6.7% YTD. Sales of organic whole milk and flavored whole milk were up from a year earlier and year to date.

The U.S. figures are based on consumption of fluid milk products in FMMO areas, which account for approximately 92% of total U.S. fluid milk sales, and adding the other 8% from outside FMMO-regulated areas. Sales outlets include food stores, convenience stores, warehouse stores/wholesale clubs, nonfood stores, schools, the food service industry and home delivery.

Coming up

Additional dairy economic reports coming up at Progressive Dairy’s deadline:

• The August 2023 FMMO Class II-III-IV milk prices are announced on Aug. 30.
• The July Dairy Margin Coverage (DMC) program margin and potential indemnity payments – along with other monthly average milk, cull cow and feed prices – are released Aug. 31.