Agriculture Secretary Sonny Purdue kicked off World Dairy Expo in Madison this week, telling dairy farmers they will have to adapt to survive. He said “It’s very difficult in the economy of scale, capital needs, all of the environmental regulations and everything else to survive milking 40, 50, 60 or even 100 cows.”

HighGround Dairy’s Lucas Fuess reported in the Oct. 7 Dairy Radio Now broadcast that it was difficult to hear that sentiment but it is reality and “a wakeup call to make sure farmers are doing everything they can to keep costs down and continue to be competitive.”

He said the sentiment was better at Expo this year, due to the rise in milk prices and says HighGround has a good outlook the next few months, which “hopefully will save some of the struggling dairies.” He said it was interesting to compare the Secretary’s comments to some of the programs contained in the Farm Bill as HighGround believes smaller dairies can benefit greatly from some of them such as the Dairy Revenue Protection and newly named Margin Insurance programs.

Fuess sees continued tariff challenges on the horizon such as the latest battle with the EU and with China, even as trade officials meet Oct. 10 in Washington. “Hopefully some tariff resolution will come soon,” he concluded, “And be able to increase U.S. dairy exports, push that milk price a little higher, and stop some of the struggles that these small dairy farms are seeing.”

Fuess’s EU reference regarded a ruling by the World Trade Organization which allows the U.S. to implement tariffs on $7.5 billion of imports from the EU in response to its subsidies of Airbus. The U.S. Trade Representative stated that a 10% tariff will be levied on European aircraft and 25% on agricultural goods including butter and cheese, as well as industrial products and other imports.

Meanwhile, the weighted average of products offered in Tuesday’s Global Dairy Trade auction inched 0.2% higher, following the 2.0% jump on Sept. 17. Sellers brought 85.4 million pounds of product to the market, up from 82.3 million in the last event.

Buttermilk powder led the charge, up 6.7%. It was not traded in the last event. Skim milk powder followed, up 2.7%, after a 3.4% gain last time. Lactose was up 1.8%, after jumping 5.6%, and rennet casein was up 0.7%, after slipping 0.1%.

Unfortunately, GDT Cheddar cheese led the losses, down 3.4%, following a 0.4% gain last time. Whole milk powder was off 0.2%, after gaining 1.9% last time. Butter was also down 0.2%, after a 2.7% gain, and anhydrous milkfat was unchanged after inching 0.6% higher last time.

Speaking of higher milk prices, the Agriculture Department announced the September Federal order Class III benchmark at $18.31 per hundredweight, up 71 cents from August, $2.22 above September 2018, and the highest it has been since November 2014. It compares to California’s September 2018 4b cheese milk price of $15.62 and equates to $1.51 per gallon, up from $1.38 a year ago.

The nine month Class III average stands at $16.11, up from $14.62 at this time a year ago and compares to $16.12 in 2017.

The September Class IV price is $16.35, down 39 cents from August and the lowest since May but is $1.54 above a year ago. Its 2019 average stands at $16.21, up from $13.95 a year ago and $15.51 in 2017.

Milk offers are few and far between in the Midwest, according to Dairy Market News, and spot milk prices ranged from Class to $1.50 over. Cheese demand reports were more positive and some expect demand to remain strong the rest of the year and into 2020. Cheese production is slower due to scanter milk supplies.

Western contacts report that current price trends are taking U.S cheese out of the loop when it comes to international sales.

Others suggest that export demand has improved. Block cheese inventories were reported as well-adjusted, whereas barrel cheese supplies are substantial.

Central butter manufacturing is steady, says DMN. Cream remains available and in a comfortable price range for butter plants. Inventories are reportedly in balance and will meet the increase in ordering expected near term but contacts do not expect cream to remain at current availability for long. Cream cheese production is expected to dip into the cream pool. Butter markets are steady, edging on bearish but some contacts foresee continued price drops. Recent storage and market reports did not dampen the market tone as much as some expected, according to DMN.

Western contacts suggest the butter market has a “downside feel.” “Even now, when market activity is usually at its annual peak, demand is less than hoped for,” says DMN. Buyers have filled some of their required purchases, according to contacts, but can wait for deals to finish off fourth quarter needs. Cream is readily available and butter inventories, while being drawn down seasonally, are larger than preferred.

FC Stone warned in its Oct. 1 Early Morning Update: “The likelihood of seeing sub-$2.00 butter prices by the end of fourth quarter is growing. The strong production, and strong imports, have resulted in larger than expected butter stocks that look like they are going to drag CME prices lower.”

Weaker butter prices are being offset by firming nonfat dry milk prices, according to FC Stone, which are leaving Class IV prices in a holding pattern for now. “U.S. powder continues to find underpinning support principally in the global demand that seems to be improving by the week lately.”

The USDA will do another round of “trade mitigation purchases” and have issued a timeline for continued purchases into 2020. Volumes are not listed, says FC Stone, but “They are talking about buying print butter, string cheese, 1- and 2-pound Cheddar chunks, instant nonfat dry milk and gallons and half-gallons of milk. Since it is all consumer type package sizes, we assume all of this would be going to food shelves and pantries.”

Finances on U.S. dairy farms continue to improve as a higher All Milk price and lower feed prices nudged the August milk feed price ratio higher for the second month in a row. The latest Ag Prices report put the ratio at 2.26, up from 2.16 in July and compares to 2.06 in August 2018.

The U.S. All-Milk price averaged $18.90 per hundredweight, up 20 cents from July and $2.80 above August 2018. California’s All Milk price was $18.70, up a dime from July and $2.85 above a year ago. Wisconsin’s, at $19.10, was up 30 cents from July and $2.80 above a year ago.

Looking at the cow side of the ledger, the August cull price for beef and dairy combined averaged $68.30 per hundredweight, up $1.30 from July, $5.30 above August 2018, but $3.30 below the 2011 base average of $71.60 per hundredweight.

Cooperatives Working Together members accepted seven offers of export assistance this week to help capture sales of 354,944 pounds Cheddar and Monterey Jack cheese, 149,914 pounds of cream cheese and 3.3 million pounds of whole milk powder. The product is going to customers in Asia and South America through January 2020.

These contracts bring the year-to-date totals to 42.6 million pounds of American-type and Swiss cheeses, 277,782 pounds of anhydrous milkfat, 4.5 million pounds of butter (82% milkfat), 5.0 million pounds of cream cheese and 42 million pounds of whole milk powder. They are going to 27 countries and are the equivalent of 848.2 million pounds of milk on a milkfat basis.