Cooler temperatures lead to increased milk production

The “Mielke” Market Weekly

The August Federal Order Class III milk price was announced by the U.S. Department of Agriculture at $17.24 per hundredweight, down 8 cents from July, $3.42 below a year ago and the lowest Class III since April 2024. The 8-month average stands at $18.57, up from $17.75 a year ago and $16.98 in 2023.

Late Friday morning, Class III futures portend September at $17.64; October, $16.87; November, $16.84; December, $17.15; and January 2026 at $17.13.

The August Class IV price is $18.50, down 39 cents from July and $3.08 below a year ago. Its average stands at $18.82, down from $ 20.49 a year ago, and it compares to $18.59 in 2023.

The U.S. Court of Appeals for the Federal Circuit ruled Aug. 29 that President Trump overstepped his presidential authority with tariffs on every country. Trump has appealed the ruling to the U.S. Supreme Court.

The National Milk Producers Federation says the ruling leaves most tariffs in effect until Oct. 14, allowing for an appeal. Meanwhile, Congress returned this week from its August recess and faces tough issues, including a government funding bill that must be passed by Sept. 30 to avoid a government shutdown.

The markets were closed Monday for the Labor Day holiday. The Chicago Mercantile Exchange block Cheddar closed Friday at $1.69 per pound, down 8.50 cents on the shortened week, as traders anticipated the afternoon’s July dairy products report. That’s the lowest block price in four weeks and 58 cents below a year ago, when it was trading at $2.27. The barrels closed at $1.70, 8 cents lower, 57.50 cents below a year ago and a penny above the blocks. Trades totaled 21 loads of block and one of barrel.

Dairy Market News reports that cool weather in the upper Midwest was contributing to increased cow comfort and improved milk output while output was steady to lighter in the southern portion. The long holiday weekend contributed to increased spot milk availability, and mid-week prices ranged $3-under to $1.50 over class. The holiday weekend also contributed to lighter cheese production, but plant managers said they would run busy schedules the rest of the week.

Bottling demand has picked up in the West, but spot milk was available and adequately meeting the needs of cheesemakers. Cheese output was steady, and some manufacturers reported tight September availability for spot loads.

Butter sunk to $2.0125 per pound Tuesday, the lowest CME price since Dec. 3, 2021, but it closed Friday at $2.0225, 2.25 cents lower on the week, the ninth consecutive week of decline and $1.1525 below a year ago, on five sales.

Cream was plentiful. Down time at some facilities over the long weekend enabled them to purchase cream at lower multiples, and churns were spinning. Domestic butter demand is steady, but some contacts say sales are lackluster. Export demand for 82% butterfat product is strong, but production of it was lagging demand and inventories are tight.

Western butter manufacturers said spot cream is more than ample and demand is mixed. Some were not bringing in any additional cream beyond contractual intakes, despite their churns running under 100% capacity, says DMN.

Grade A nonfat dry milk fell to a Friday finish at $1.22 per pound, down 4 cents on the week, lowest since May 14 and 14.50 cents below a year ago. There were 12 CME sales on the week.

Dry whey closed Friday at 56.50 cents per pound, a half-cent lower and 2.25 cents below a year ago, with no trades for the week.

Dairy margins deteriorated in the last half of August as milk prices declined while feed costs were mixed, with corn prices increasing and soybean meal prices decreasing, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. The MW stated, “A significant increase in milk output and a larger dairy milking herd revealed in the USDA’s August Milk Production report was bearish, although not unexpected.”

Milk futures succumbed to pressure from weaker dairy product prices, the MW stated. “Cash butter slumped 17% during the month of August despite lower inventories indicated in the latest cold storage report.” “Butter prices have declined to their lowest values since late 2021, and while both domestic demand and exports year-to-date have been robust, higher components and increasing butterfat tests will likely keep building supply with more milk,” the MW warned.

Cheese inventories at the end of July totaled 1.416 billion pounds, up 0.9% from last year, with American-style cheese stocks up 2.1% from 2024 to 808.286 million, reflecting a large increase in Cheddar output recently, the MW concluded.

Meanwhile, lower corn, soybean and alfalfa prices offset a lower all-milk price to nudge the July milk feed price ratio higher. The latest ag prices report showed the July ratio at 2.36, up from 2.34 in June, but that compares to 2.50 in July 2024. The index is based on the current milk price in relation to feed prices for a ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. One pound of milk would purchase 2.36 pounds of dairy feed of that blend.

The all-milk price averaged $20.80 per cwt. with a 4.13% butterfat test, down 50 cents from June, which had a 4.19% test and compares to $22.80 in July 2024, with a 4.07% test.

The national corn price averaged $4.29 per bushel, down 18 cents from May, following a 17-cent drop in June, but it is 6 cents above a year ago. Soybeans averaged $10.20 per bushel, down 20 cents from June and $1.10 per bushel below a year ago. Alfalfa hay averaged $173 per ton, down $4 from June and $10 below a year ago.

The July average cull price for beef and dairy combined hit $157 per cwt., up $7 from June, $15 above July 2024 and $85.40 above the 2011 base average.

Beef and cattle prices remain at all-time highs as the supply has fallen to multi-year lows, as I reported last week. The news is good for dairy producers. The Aug. 29 Daily Dairy Report said, “The significant increase in beef incomes leaves dairy producers less exposed to margin pressures from lower milk prices. This means that milk prices must fall to exceptionally low levels before financial strain begins to reduce U.S. milk output.”

“Milk production margins decreased for the second month in the past three but remained at historically high levels with a 22-cent per cwt. loss from June,” said dairy economist Bill Brooks of Stoneheart Consulting in Dearborn, Missouri.

“Income over feed costs in July were above the $8 per cwt. level needed for steady to higher milk production for the 21st month in a row,” Brooks said. “Input prices were lower in July, with one of the three input commodities inside of the top 10 for July all-time. Feed costs were the 10th highest ever for the month of July and decreased 28 cents per cwt. from June. The ratio was above the 5-year average for the 17th month in a row,” he said.

“Milk income over feed costs for 2025 (using Aug. 29 CME settling futures prices for Class III milk, corn and soybeans, plus the Stoneheart forecast for alfalfa hay) is expected to be $12.87 per cwt., a loss of 12 cents per cwt. versus last month’s estimate,” Brooks said. “Income over feed would be above the level needed to maintain or grow milk production, and down 52 cents per cwt. from 2024’s level.”

“Looking at 2026, milk income over feed costs is expected to be $12.77 per cwt., a loss of 10 cents per cwt. versus 2025,” Brooks said. Income over feed costs would be above the level needed to maintain or grow milk output and down 16 cents versus the previous month, Brooks concludes.

Speaking of feed, the USDA’s latest crop progress report shows 90% of U.S. corn in the dough stage as of the week ending Aug. 31, up from 83% the previous week, 1% ahead of a year ago but 1% behind the 5-year average. Fifty-eight percent was dented, up from 44% the previous week, tied with a year ago and 2% behind the average. Sixty-nine percent was rated good to excellent, down 2% from the previous week but 4% ahead of a year ago.

Ninety-four percent of the soybeans were setting pods, up from 89% the previous week, 1% ahead of a year ago and dead even with the average. Sixty-five percent were rated good to excellent, down 4% from the previous week and dead even with a year ago.

Checking slaughter numbers, the weekly update showed 51,300 head were culled in the week ending Aug. 23, down 300 from the previous week and 200 head or 0.4% below a year ago. Year to date, 1,685,400 cows had exited the dairy business, down 106,800 head or 6.0% from a year ago.

Best news this week perhaps was USDA’s latest export numbers. July dairy exports totaled 248,607 metric tons, up 9.6% from July 2024 but down 2.7% from June. HighGround Dairy says, “July’s sales were likely booked in the April/May timeframe when tariffs were being rolled out and negotiations were taking place. While values backed off month over month, they are quite robust and in the top 10 months since 2020. Furthermore, these big values indicate that the U.S. discount to global competitors continues to drive international interest.”

Shipments to Mexico and China grew 3% and 1%, respectively, from a year ago. Mexico’s total of 68,376 MT was the fourth-highest all-time, says HGD. Australia, while not a huge export market for the U.S., ranked ninth, as sailings of 7,526 MT were up 145% and a record high, according to HighGround.

Cheese exports totaled 114.9 million pounds, up 29.3% from a year ago, with Mexico the top destination country. Butter sailings amounted to 18.5 million pounds, up 206.4% and the highest since March 2013. Canada continued to be the No. 1 destination, but shipments surged to Australia, according to HGD, and increased to the Netherlands as nontraditional buyers of U.S. butter took advantage of the U.S. lower prices.

Nonfat and skim milk powder exports totaled 131.9 million pounds, down 15.7%, but dry whey, at 36 million pounds, was up 18.6% from a year ago.

Powder pulled this week’s Global Dairy Trade sharply lower. The weighted average fell 4.3%, the largest drop since May 6, and followed a 0.3% slippage Aug. 19. Volume sold jumped to a whopping 91.4 million pounds, the largest since Nov. 20, 2018, and up from 80.6 million pounds Aug. 19. The average metric ton price fell to $4,043 U.S., down from $4,291.

Skim milk powder was down 5.8%, following its 1.8% fall Aug. 19. Whole milk powder was down 5.3% after inching 0.3% higher last time. Buttermilk powder was down 6.3%. Anhydrous milkfat was down 2.6% after inching up 0.1%, and butter was down 2.5%, following a 1.0% drop. Cheddar was up 3.6% after slipping 0.5% last time, while GDT mozzarella was down 4.6% after dropping 2.7% Aug. 19.

StoneX says the GDT 80% butterfat butter price equates to $3.0840 per pound U.S., down 7.75 cents after dropping 3.1 cents last time, and it compares to CME butter, which closed Friday at a fire sale bargain $2.0225. GDT Cheddar equated to $2.1359, up 7.9 cents, and it compares to Friday’s CME block Cheddar at a cheap $1.69. GDT skim milk powder averaged $1.1885 per pound, down from $1.25. Whole milk powder averaged $1.7276 per pound, down from $1.8305. CME Grade A nonfat dry milk closed Friday at $1.22 per pound.

StoneX adds, “Regionally, North Asia (which includes China) purchases increased from both last event and last year’s levels. This led to a market share climbing over 50%. Southeast Asia purchases decreased from both last year and last event, leading to a market share falling back below North Asia’s levels. Whole milk powder purchases declined across all regions apart from North Asia and South/ Central America.”

“A weaker skim milk powder and whole milk powder in September is counter seasonal,” StoneX warns. “Powder prices over the last 15 years have typically been able to find support this month after a weaker July and August.” But, given strong milk production growth globally, especially with Europe recovering well, “It’s too much milk that demand has not been able to absorb and ultimately weighs on future sentiment.”

The relationship between dairy farmers and dairy processors has to be mutually advantageous as they need each other. With that in mind, Rabobank dairy analyst Lucas Fuess discussed a report he co-authored, entitled the Global Dairy Top 20. The report is issued annually, and No. 1 on the list was Lactalis, based in France, “and by a wide margin.” Fuess said Lactalis is expected to increase its lead by almost $10 billion per year, driven in part by its recent acquisition of General Mills’ U.S. yogurt business.

No. 2 on the list is Switzerland-based Nestle, and No. 3 on the list and No. 1 in the U.S. is Dairy Farmers of America. DFA is the largest dairy coop in the U.S., Fuess said, and has a wide processing footprint. Schreiber Foods is No. 2 in the U.S., according to Fuess, and is No. 12 in the top 20.

Fuess says they expect some significant changes in 2026 due to merger and acquisition activities, especially among European cooperatives. He cited the FrieslandCampina Milcobel merger as well as Denmark’s Arla Foods and Germany’s DMK merger and says he will watch Yoplait’s integration into Lactalis and Sodiaal, as well as the UK’s Unilever divestiture of its ice cream business.

Currency fluctuations and regional milk-price trends will also impact the rankings, says Rabobank. Eight companies have switched places in this year’s list, and about half are expected to maintain their positions in 2026.