The past month has not been kind to butter and cheese prices. Seasonally, prices would peak sometime in October as demand for the holiday season has been anticipated and prepared for. Yes, consumer demand increases in late October through December, but buyers prepare for the increase in demand a few months earlier. Contracts are made and buying is done for recutting and packaging for the holiday season. Orders continue to be placed for cheese through the end of the year with much of that demand already anticipated by buyers.
There had been earlier concerns that milk supply would tighten with supply limited to bottling and manufacturing. Lower cow numbers and the idea that the tight heifer supply would further reduce milk supply as expansions would be curtailed and cow numbers would decline further. However, cow numbers did not decrease as much as anticipated due to the lower culling rate. It was also expected that the cows that were not culling would reduce overall production per cow and thereby reduce milk supply. That did not happen as milk production per cow increased over a year ago.
The butter and cheese prices hit the proverbial wall and have not found a level of solid support. It was expected prices might have been overdone to the downside, but support has remained elusive. The butter price has fallen 57.50 cents from the high on August 27th and to the lowest level it has been since January 24th. This has been a large decline but not the largest on record. The price declined further in 2023 after it reached its peak. The block cheese price has fallen by 42.75 cents from the high reached on September 11th. The barrel cheese price has fallen 73.50 cents since the record high on September 18th.
So, what triggered price weakness at a time when prices should remain strong or increase? The simple answer is the buyers of butter and cheese became comfortable with supplies and saw no need to be concerned through the end of the year. Supplies needed to be purchased but were able to be purchased as prices weakened. This has been seen in the butter market. Ninety loads of butter were traded on the spot market last week and the price still decreased. Rather than the tightening of supply, churning has been active. Cream supplies are larger than usual for this time of year with butter plants running at capacity and turning away offers of cream due to the inability to utilize it. Cheese inventory is lower than a year ago, but sufficient for demand leaving buyers less aggressive. It does not appear this attitude may change during the rest of this year.
Along with implementing risk management for milk and feed prices, farms need to look at managing the risk for their cattle. Beef on dairy has been a popular way to improve the value of calves and to increase the income potential for the dairy operation. It has certainly helped during the period of low milk prices and continues to add value to the calves that are sold and increases the equity of the operation. The Livestock Risk Protection (LRP) insurance fits well to preserve the value of those beef on dairy calves and/or the value of the dairy calves that will be born. High prices will not remain that way forever and protecting what is expected to be born over a period is a way to manage that risk.
LRP offers various levels to choose from when calculating the calves that will be born nearly a year in advance. There are various levels to choose from. The categories are: steer weight from 100-599 pounds; heifer weight from 100-599 pounds; dairy weight from 100-599 pounds; and unborn steers and heifer from 100-599 pounds. This provides an array of choices to fit your operation. The number of calves that you might sell shortly after they are born can equal 100 pounds or higher as an average weight to receive full indemnity if there is one. Some might be heavier and some lighter. If the average weight is under the level, an adjustment of the indemnity would be made if there is one, but a payment would still be made.
I may write another more in-depth article about the importance of LRP for the dairy operation to protect the prices of your calves that will be born. If you would like more information sooner, please call me at 877-256-3253 or email me at rschmahl@agdairy.com.
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
