The Agriculture Department announced the July Federal order Class III benchmark milk price at $16.49 per hundredweight, down 72 cents from June and $8.05 below the inflated price a year ago when Uncle Sam’s Food Box program was buying lots of cheese. Last year’s July Class III price was the second highest ever, at $24.54, 6 cents shy of the record set in September 2014. The seven-month Class III average stands at $16.90, down from $17.30 currently a year ago and compares to $15.58 in 2019.

Late Friday morning Class III futures portended August at $16.02; September, $16.55; October, $17.05; November, $17.75; and December at $17.76.

The July Class IV price is $16.00 per cwt., down 35 cents from June but $2.24 above a year ago. Its seven-month average is at $15.01, up from $13.78 a year ago, and compares to $16.11 in 2019.

You’ll recall that USDA’s preliminary data pegged June milk production at 18.96 billion pounds, up 2.9% from June 2020. The latest Dairy Products report shows where that milk ended up, though StoneX Dairy reminds us that the year over year changes are mostly driven by the anomalies of last year’s COVID pandemic.

Starting with cheese; June output totaled 1.12 billion pounds, down 2.9% from May and just 0.2% above June 2020. Year to date (YTD) total cheese output hit 6.8 billion pounds, up 3.3% from the same period in 2020. 

Italian style cheese totaled 473.1 million pounds, down 1.7% from May and 2.6% below a year ago. YTD Italian was at 2.9 billion pounds, up 1.0%.

Speaking in the Aug. 9 Dairy Radio Now broadcast, StoneX broker Dave Kurzawski said Dairy Product reports don’t tend to move markets, though he admitted June cheese output was 12 million pounds less than they expected while nonfat dry milk stocks were 20 million pounds heavier than they forecast. 

He said the report was basically neutral for cheese and bearish on butter and powder but added; “As we walk into August, we’re getting into a different time of year demand wise. If you look at the GDT numbers, which have been weak for eight events in a row, if you look at the dollar value, $3,000 a metric ton is somewhat of a benchmark. If you’re below that, you’re in kind of a bear market,” he said, “and if you’re above that you’re in kind of a bull market,” adding that he views the summer as a “correction in prices both domestically and globally.”

He also said that USDA’s solicitations this week for fresh milk and string cheese for fourth quarter food assistance and school lunch programs exceeded his expectations and should provide some degree of support for the market.

The USDA will spend $20 million to purchase fluid milk and announced Thursday that it would buy another 3.6 million pounds of cheese through Section 32 in Cheddar chunks and shreds, plus Swiss blocks and slices. StoneX says “This is to say nothing of the potential 15 million pounds of cheese that could be purchased for fourth quarter through the Emergency Food Assistance Program.”

Meanwhile, June U.S. dairy exports remained strong. Nonfat dry milk was up 7.4% from June 2020, with most going to Mexico, according to HighGround Dairy, and to Indonesia. Shipments to China were the highest since August 2014.

HGD says the first half of 2021 translated into record exports to China, Egypt and South America, helping offset losses to Japan and Southeast Asia. China’s demand has been particularly strong for whey and other proteins and powders.

Cheese exports were down 12.9% but HGD says the losses are skewed by the pandemic-driven volumes observed last year. 

Midwest cheesemakers tell Dairy Market News week to week sales remain strong as product moves quickly into food service and grocery channels. Milk remains available at discounts but not as low as previous week. Bottling demand increases are chipping away at fluid supplies as schools ramp up. Cheese output remains busy and Midwest inventories are not overly concerning, says DMN.

A lower all milk price and higher corn price continued the slide in the U.S. milk feed ratio. The USDA’s latest Ag Prices report showed the June ratio at 1.60, down from 1.69 in May, and compares to 2.38 in June 2020.

The U.S. all milk price averaged $18.40 per cwt., down 80 cents from May but 20 cents above the June 2020 average. 

The Aug. 3 Daily Dairy Report points out that dairies are also dealing with rising transportation and labor costs. The DDR cited U.S. No. 2 retail diesel for the week of Aug 2 at $3.37 per gallon, 94 cents higher than a year ago.

The June margin under the Dairy Margin Coverage program dropped 65 cents from May to $6.24 per cwt, which will generate a June payment of $3.26 for $9.50 per cwt. coverage, according to National Milk. The feed cost calculation for June was lower by 16 cents per cwt. of milk from May, mostly on lower soybean meal prices, while the all-milk price took a larger than expected drop.

NMPF says the futures-based price outlook indicates that the DMC margin will not rise much above $7.00 per cwt. through the summer and remain below $9.50 through the end of 2021. USDA reported that estimated DMC payments for the 2021 program exceed $543 million as of July 26.

Checking Capitol Hill, dairy processors praised the approval of a funding bill passed this week by the U.S. Senate Committee on Appropriations. Michael Dykes, President and CEO of the International Dairy Foods Association (IDFA), called the bill “a win for the health and wellness of all Americans.”

IDFA says “The Committee voted to triple the amount of funding going to support the SNAP Healthy Fluid Milk Incentives Projects as part of the fiscal year 2022 appropriations bill for the USDA, FDA, and related agencies. This program incentivizes SNAP beneficiaries to purchase fluid milk, making it easier for families to get more of the nutrition benefits of milk like other programs that encourage purchase of fruits and vegetables. This show of support by the Senate and last week’s vote by the House demonstrates growing awareness in Congress about the important role dairy plays in family health and nutrition especially among our most economically and nutritionally vulnerable families.” It also preserves school’s ability to offer 1% flavored milk to students, says IDFA.