By Lee Mielke

 The USDA announced the November Federal order Class III milk price at $18.03 per hundredweight, up 20 cents from October, $5.31 below November 2020, but the highest Class III price since May. The 11-month average stands at $16.96, down from $18.39 a year ago and compares to $16.74 in 2019.

Late Friday morning, Class III futures portended a December price at $18.43 which would result in a 2021 average of $17.09, down from $18.16 in 2020 and compares to $16.96 in 2019.

The Class IV price is $18.79, up $1.75 from October, $5.49 above a year ago, and the highest Class IV price since October 2014. Its 11-month average stands at $15.74, up from $13.50 a year ago and down from $16.26 in 2019.

Meanwhile, a sharply higher October All Milk Price and sharply lower corn and soybean prices propelled the October milk feed ratio higher for the second month in a row. The USDA’s latest Ag Prices report has the ratio at 1.87, up from 1.69 in September, but still down from last year’s 2.49.

The index is based on the current milk price in relationship to feed prices for a ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk would purchase 1.87 pounds of dairy feed of that blend.

The U.S. All Milk Price averaged $19.70 per cwt., up $1.30 from September but 30 cents below October 2020. The California price climbed to $19.90, up $1.10 from September and a dime above a year ago. Wisconsin’s, at $19.60, was up $1.30 from September but $2 below a year ago.

The national average corn price fell to $5.02 per bushel, down 45 cents per bushel from September, after dropping 87 cents from the August level, but is still $1.41 per bushel above October 2020.

Soybeans averaged $11.90 per bushel, down 30 cents from September, after dropping $1.50 from August, but is $2.27 per bushel above October 2020.

Alfalfa hay averaged $213 per ton, up $4 from September, after gaining $3 from August, and is a whopping $44 per ton above a year ago.

Looking at the cow side of the ledger; the October cull price for beef and dairy combined averaged $70.60 per cwt., down $2.30 from September, $10.60 above October 2020, but $1 below the 2011 base average of $71.60 per cwt.

Dairy Margin Coverage payments will be triggered for the 10th month in a row.

In the week ending Nov. 20, 59,200 dairy cows were sent to slaughter, up 900 from the previous week and 500 head or 0.9 percent above that week a year ago.

Omicron became the buzzword of “Black Friday” and ever since, as another chapter is written in the ongoing COVID saga. Growing concern unleashed widespread commodity market selling for those open on that Friday, with crude oil taking the brunt, according to StoneX Dairy Group, as countries scrambled to formulate and institute travel bans in an effort to contain Omicron.

While several reports downplayed the seriousness of the new variant, President Joe Biden tried to ease the fear, promising there would be no new lockdowns.

“It may be much ado about nothing,” said StoneX broker Dave Kurzawski in the Dec. 6 ‘Dairy Radio Now’ broadcast. “Dairy has taken the news in stride,” he said, but “One thing is for sure, Omicron doesn’t make more milk.”

That’s the issue we’re dealing with right now, he said, and follows anemic growth and even negative milk growth in October. Year-to-date U.S. milk output is up 1.6 percent while domestic dairy demand is up 2.4 percent. Throw in exports, he said, and demand is up over 4 percent.

“We don’t have as much milk,” he reasoned. “And the cost of producing milk has gone through the roof for a lot of producers, especially in the last few months, so $18 milk isn’t what it used to be.” That said, he quickly added: “The market doesn’t have to give you a profit. If demand slows down because of Omicron or some other variant or something else comes out of the woodwork, prices can sink back down.”

Kurzawski said he doesn’t see people eating any less because of Omicron so he still sees a stable and slightly bullish market as we head into the end of the year. When asked how high milk prices might go in 2022 he answered, “No one knows for sure but the reality is, I wouldn’t rule out $20.”

“We’re not out of the woods yet,” he said. “But I don’t think milk production is going to turn on a dime here. After talking with dairy producers all day long, every day, I don’t see the capital investment being put back into dairy farming today and I don’t see demand slowing down a tremendous amount.”

Cash dairy prices started December mixed. The Cheddar blocks held all week where they closed on Nov. 19, at $1.8575 per pound, up 21.50 cents from where they were on Nov. 3, and 27.25 cents above a year ago.

The barrels finished at $1.6025, up 7.75 cents on the week, 3.25 cents above the Nov. 3 perch, 20.25 cents above a year ago, but 25.50 cents below the blocks.

There were no sales of block on the week and 14 for the month of November, down from 22 in October. Barrel sales totaled 3 for the week and 98 for the month, up from 49 in October.

Interestingly, USDA’s recent solicitation for 13.5 million pounds of cheese went unfilled. StoneX said that means we are either light on production or on productive capacity and doesn’t read it as bullish or bearish because we just don’t know the reason.

Midwest cheesemakers were catching up following the Thanksgiving holiday week, according to Dairy Market News. Production schedules varied as some plants were closed for the holiday while others were down for multiple days. Milk availability had not shifted much at midweek but demand has, DMN said. Some contracts, for weeks ahead of the holiday, were mentioning slowdowns in orders, but some of those producers now say orders are rebounding. Cheese market tones are still uncertain, as the large block-to-barrel price gap remains. Cheese availability varies within the region, but mostly balanced, according to contacts.

Cheese demand in the west remains strong in retail and food service and international purchasers are looking for U.S. cheese, with notable purchases for export to Asian markets. Port congestion continues to cause delays which have increased in recent weeks. Spot cheese inventories are tight, DMN said, and stakeholders said this may persist as purchasers continue to buy for strong year-end holiday demand. Cheese producers are running busy schedules in the west as milk continues to be available.

Butter churning resumed as more cream became available Thanksgiving Week and this week, due to Class II and III producers taking days off. Plant managers were locating cream in the low 1.20s, regionally and from the West. Bulk butter remains tight and contacts question if cream availability will remain as it currently is for long. A major factor holding back output remains the lack of employees. There has been some improvement, DMN said, but the problem remains.