Government shutdown affects dairy industry

The “Mielke” Market Weekly

The U.S. Department of Agriculture announced the September Federal Order Class III milk price at $17.59 per hundredweight, up 35 cents from August but a whopping $5.75 below a year ago. The Class III average stands at $18.46, up from $18.37 at this time a year ago, and it compares to $17.13 in 2023. Late Friday morning Class III futures portend an October price of $17.19; November, $17.07; December, $17.15; January 2026, $17.01; and February at $16.98 per cwt.

The Class IV price is $16.17, down $2.33 from August, $6.12 below a year ago and the lowest Class IV price since August 2021, when it stood at $15.92. The 9-month average now stands at $18.53, down from $20.69 a year ago, and it compares to $18.65 in 2023.

Meanwhile, the government began a partial shutdown Wednesday as lawmakers kept failing to reach a budget agreement. Congress has not passed any of the 12 appropriations bills needed to fund the government.

Many USDA-generated reports that the dairy industry relies on will cease. The Oct. 1 Daily Dairy Report said, “The last and longest shutdown began in 2018 and ended in 2019 after 35 days. For dairy producers, the resulting information blackout and closure of USDA agencies will be more than an inconvenience.”

U.S. butter stocks in August were down from July and a year ago, while cheese was up slightly, according to the latest cold storage report. The August 31 butter stockpile fell to 305.9 million pounds, down 25.6 million pounds, or 7.7%, from July and down 18.5 million pounds, or 5.7%, from August 2024.

American-type cheese stocks grew to 818.2 million pounds, up 4.7 million pounds, or 0.6%, from the July level and up 24.6 million pounds, or 3.1%, from a year ago. The July total was revised up 5.2 million pounds.

The “other” cheese category inventory came in at 578.2 million pounds, down 14.8 million pounds, or 2.5%, from July, but it was up 649,000 pounds, or 0.1%, from a year ago. The July total was revised up 7.7 million pounds.

The total August cheese inventory slipped to 1.417 billion pounds, down 10.9 million pounds or 0.8% from July, but it was up 23.4 million pounds, or 1.7%, from a year ago. The July total was revised up 12.0 million pounds. Total stocks were above the prior year for the second time in 17 months.

Cheddar block closed Friday at $1.79 per pound, up 16.50 cents on the week, the highest since Aug. 26 but 15.75 cents below a year ago when both the block and barrel prices plunged 34.25 cents to $1.9475 and $1.9550, respectively.

The barrels finished Friday at $1.77, 14.75 cents higher on the week but 18.50 cents below a year ago. Thirty-two loads of block traded hands on the week and 111 for the month of September, up from 74 in August. Barrel sales totaled two for the week and eight for the month, down from 12 in August.

Cool fall temperatures are contributing to increasing milk output in the Central region, according to Dairy Market News. Some of the extra milk was going to Class I. Spot trades were light as cheesemakers have sufficient internal volumes. Mid-week Class III milk prices ranged $1-under to $1-over class. Cheese production is steady in the region. Domestic demand is steady from retail and food service. International interest is strong, and some contacts said demand was up slightly from previous weeks.

Milk production in the West is strengthening from summer dips. Cheese production is steady to stronger. Domestic demand is moderate to steady. Export demand remains more robust than domestic demand despite a competitive international market, according to DMN.

Chicago Mercantile Exchange butter climbed to $1.76 per pound Monday and dipped to $1.71 Tuesday, but it closed Friday at $1.75, up 3 cents on the week but 93.75 cents below a year ago. There were 58 loads that found new homes on the week and 185 for the month of September, up from 86 in August.

Central region milk production and components remain above a year ago, and cream is plentiful, with multiples as low as 0.85 this week. Demand for cream is steady to lighter, with some butter makers saying they are not in the market for more as they use internal volumes to keep churns active. Domestic butter demand is steady from week to week, but sales remain light. International demand for 82% butterfat butter is strong, and contacts said inventories are tight.

Cream is readily available in the West and more affordable this week, with below flat market multiples reported. Butter output was steady to strong with plenty of cream to churn. Retail sales are more robust than food service sales. Salted and unsalted inventories are meeting demand. Domestic demand is mixed and exports are strong, according to DMN.

In its Sept. 30 Early Morning Update, StoneX said, “The market is now on a path to converge the spot price and the nearby futures price. We expect that to be somewhere higher than where spot sits today ($1.76) and likely closer to $2.00, but it may take a few weeks to get there. A butter price bounce does not change the current dynamic of strong milk production and plenty of cream. Those dynamics are expected to persist well into the fourth quarter.”

Grade A nonfat dry milk closed at $1.16 per pound, a half-cent higher but 19.25 cents below a year ago. Sales totaled 27 loads this week and 117 for September, up from 89 in August, and it was the highest monthly total since October 2024.

Dry whey finished at 63 cents per pound, 1.75 cents lower but 2.50 cents above a year ago on one sale this week and 18 for September, down from 43 in August.

Strength is coming back into the markets as we start the new quarter and new month, said StoneX broker Dave Kurzawski in the Oct. 6 Dairy Radio Now broadcast. “People underestimate how powerful the fall season going into winter and the holidays is for dairy. We had some drastic down movements in prices, especially butter, but now we’ve adjusted the price and I think we’re attracting a more substantial bid,” he said. “Butter can be exported in a very significant way now that prices have adjusted, even though the world market has come down a little bit.”

That’s not the case on cheese, he said. However, domestic cheese demand may be better right now, and he believes we’re seeing a different tone now than the rather bearish or negative tone of September. “We have plenty of milk, we have plenty of cream, and yet prices are becoming a little more buoyant,” he said.

When asked if supply or demand was driving the market, Kurzawski said, “It toggles back and forth, or that’s what it feels like this year. If we focus on supply we tend to go down. Demand had cooled some and we lost some export sales on cheese.” However, demand is the ultimate finder of price as we go forward, he said. After having spent several weeks in the low $1.60s, we are back in the $1.70s. He expects demand over the next several weeks will carry the weight for the market as we gear up for the holidays, he said.

One of the dairy farm financial indicators looked a little brighter in August as feed prices slipped for the third month in a row, the all-milk price inched a little higher and beef prices continued to rise. The USDA’s latest ag prices report showed the August feed price ratio at 2.51, up from 2.36 in July but still below the 2.79 in August 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 2.51 pounds of dairy feed of that blend.

The all-milk price averaged $20.90 per cwt. with a 4.16% butterfat test, up 10 cents from July (first increase since May), which had a 4.13% test, and it compares to $23.60 in August 2024 with a 4.10% test.

The national corn price averaged $3.96 per bushel, down 33 cents from July, following an 18-cent drop the month before, but it is still 12 cents above a year ago. Soybeans averaged $10.00 per bushel, down 20 cents from July and 30 cents per bushel below a year ago. Alfalfa hay averaged $166 per ton, down $7 from June and $9 below a year ago.

Looking at the cow side of the ledger, the August average cull price for beef and dairy combined hit $162 per cwt., up $5 from July, after jumping $7 the previous month, $20 above August 2024 and $90.40 above the 2011 base average.

“Milk production margins increased for the second month in the past three and remained at historically high levels with a 57-cent per cwt. gain from July,” said dairy economist Bill Brooks of Stoneheart Consulting in Dearborn, Missouri. “Income over feed costs in August was above the $8 per cwt. level needed for steady to higher milk production for the 22nd month in a row.”

“Input prices were lower in August, with one of the three input commodities inside of the top 10 for August all-time,” Brooks said. “Feed costs were the 11th highest ever for the month of August and decreased 47 cents per cwt. from July, while reaching a level not seen since November 2020’s $8.19. The August all-milk price stayed in the top 10 for the month, at the sixth highest ever recorded for the month.” 

Milk income over feed costs for 2025 (using Sept. 30 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) is expected to be $12.58 per cwt., a loss of 29 cents per cwt. versus last month’s estimate. Income over feed would be above the level needed to maintain or grow milk production and down 81 cents per cwt. from 2024’s level, he said.

Milk income over feed costs for 2026 is expected to be $11.40 per cwt., according to Brooks, a loss of $1.18 per cwt. versus 2025. Income over feed costs would be above the level needed to maintain or grow milk production and down $1.37 per cwt. versus the previous month,” Brooks said.

The USDA’s latest crop progress report shows 71% of U.S. corn as mature as of the week ending Sept. 28, up from 56% the previous week, 2% behind a year ago and 3% behind the 5-year average. Eighteen percent was harvested, up from 11% the previous week, 2% behind a year ago and 1% behind the 5-year average. Sixty-six percent was rated good to excellent, down 1% from the previous week but 2% ahead of a year ago.

Seventy-nine percent of the soybeans were dropping leaves, up from 61% the previous week and even with a year ago. Nineteen percent were harvested, up from 9% the previous week, down 5% from a year ago, and 1% behind the average. Sixty-two percent were rated good to excellent, down 1% from the previous week, and 2% behind a year ago.

Last week, you will recall I reported that an outbreak of the livestock pest screwworm had been confirmed in Mexico less than 70 miles from the U.S. Mexico border. The threat is real to an already-depleted U.S. beef supply.

Reuters reported this week that veterinarians and farmers have been authorized to treat or prevent infestations with animal drugs that may be approved for other purposes or available in other countries. The situation is being closely watched.

The National Milk Producers Federation, U.S. Dairy Export Council and the Dairy Association of Taiwan signed a memorandum of understanding Monday.

“The MOU will strengthen the relationship between the U.S. and Taiwanese dairy sectors,” said NMPF, and it “Underscores the importance of facilitating trade, defending the image of dairy, supporting dairy farming, and deepening cooperation between the U.S. and Taiwan on dairy benefits and trade.”

Agriculture Secretary Brooke Rollins addressed the current state of the U.S. farm economy at this week’s Agriculture Forum in Kansas City. A USDA press release said, “U.S. farm production inputs are significantly more costly than four years ago, putting pressure on farmers’ bottom line. Between 2020 and now, seed expenses have increased 18%, fuel and oil expenses increased 32%, fertilizer expenses increased 37%, and interest expenses increased by a whopping 73%.”

“In order to understand why these critical inputs are persistently elevated, the USDA and the Department of Justice signed a memorandum of understanding that represents a joint commitment by both agencies to protect American farmers and ranchers from the burdens imposed by high and volatile input costs, such as feed, fertilizer, fuel, seed, equipment, and other essential goods, while ensuring competitive supply chains, lower consumer prices, and the resilience of U.S. agriculture and the food supply. The Antitrust Division of DOJ (Department of Justice) will work hand in hand with USDA, effective immediately, to take a hard look and scrutinize competitive conditions in the agricultural marketplace, including antitrust enforcement that promotes free market competition.”

Labor costs have increased 47% since 2020, said to the USDA; “Driven largely by the high cost of utilizing the H-2A program to secure seasonal labor, specifically the artificially inflated Adverse Effect Wage Rates set by the Department of Labor using USDA data. The USDA Farm Labor Survey was never designed to be used for setting government-mandated wage rates and is duplicative of other DOL (Department of Labor) data sources. USDA has discontinued this survey. USDA is working daily with the Department of Labor and Department of Homeland Security to build out regulatory changes that can make the H-2A program more affordable and more accessible for American agriculture.”

NMPF said, “No policy issue looms larger in agriculture than the acute, worsening shortage of workers on American farms. An independent analysis of labor department data suggests that the U.S. agricultural workforce decreased by 7% between March and July. Well-publicized stories of aggressive immigration enforcement, including on dairies, can’t help but raise concerns.”

On another note of farm support, word on the street this week is that Uncle Sam will help U.S. soybean farmers because of China’s withdrawal from the U.S. market. We’ll have more details next week.

Powder continued to weaken in the Global Dairy Trade’s 90th Pulse auction Tuesday, where 5.4 million pounds of product were sold, up from 5.1 million pounds the previous week. Prices on both were slightly lower.