The dairy industry operates within a complex ecosystem influenced by various factors, including supply and demand dynamics, global economic conditions, and regulatory policies. In recent years, milk prices have experienced volatility, prompting stakeholders to closely monitor market signals for indications of potential rebounds. This article examines key factors that impact milk prices and identifies important market signals to watch for insights into future price trends.
Supply and Demand Dynamics: One of the primary drivers of milk prices is the balance between supply and demand. Oversupply can lead to downward pressure on prices, as producers compete to sell their products in a crowded market. Conversely, a shortage of milk can result in increased demand and higher prices. Monitoring production levels, inventory levels, and consumption trends provides valuable insights into the supply-demand balance.
Global Economic Conditions: The dairy industry is interconnected with the global economy, with factors such as exchange rates, trade policies, and economic growth impacting prices. Changes in currency values can affect the competitiveness of dairy exports, influencing market prices. Additionally, shifts in consumer purchasing power and demand from emerging markets can drive fluctuations in milk prices.
Government Policies and Regulations: Government policies and regulations also play a significant role in shaping milk prices. Subsidies, tariffs, and trade agreements can impact the competitiveness of domestic dairy producers relative to their international counterparts. Moreover, regulatory changes related to environmental standards, animal welfare, and food safety can affect production costs and supply chains, influencing price dynamics.
Market Signals to Watch:
Milk Production Trends: Monitoring production levels, particularly in major dairy-producing regions, provides insights into supply dynamics. Changes in production due to factors such as weather conditions, input costs, and technological advancements can influence market prices.
Consumer Demand: Tracking consumer preferences and consumption patterns helps gauge demand for dairy products. Shifts towards healthier, plant-based alternatives or changes in dietary trends can impact the demand for milk and dairy products, affecting prices.
Trade Policies and Tariffs: Changes in trade policies, including tariffs and trade agreements, can have significant implications for dairy exports and imports. Monitoring developments in international trade negotiations and market access agreements helps assess the competitiveness of domestic dairy producers.
Input Costs: Fluctuations in input costs, such as feed prices, labor costs, and energy expenses, affect production economics for dairy farmers. Rising input costs can squeeze profit margins, potentially leading to adjustments in supply levels and prices.
Weather Conditions: Weather-related events, such as droughts, floods, or extreme temperatures, can disrupt feed production and impact milk production levels. Monitoring weather forecasts and agricultural reports helps anticipate potential supply disruptions and price fluctuations.
In conclusion, milk prices are influenced by a myriad of factors, including supply and demand dynamics, global economic conditions, and government policies. By monitoring key market signals such as production trends, consumer demand, trade policies, input costs, and weather conditions, stakeholders can gain valuable insights into potential price rebounds and navigate the dynamic dairy market landscape effectively. Adaptability, informed decision-making, and strategic planning are essential for dairy producers, processors, and industry stakeholders to thrive in an environment characterized by uncertainty and volatility.
The Global Dairy Index lost 2.3% during Tuesday’s trading session. Prices for Cheddar cheese, buttermilk powder, lactose, and anhydrous milk fat increased, but costs for skim and whole milk powder, butter, and mozzarella cheese decreased. Lactose prices increased 4.8% to $818 per metric ton, or $0.37 per pound. Cheddar cheese rose 4% to $4,277 per metric ton, or $1.94 per pound. Buttermilk powder increased 3.7% to $2,504 per metric ton, or $1.13 per pound. Anhydrous milk fat rose 1.4% to $6,637 per metric ton, or $3.01 per pound. Mozzarella cheese prices dropped four-tenths of a percent to $3,945 per metric ton, or $1.78 per pound. Butter dropped 1% to $6,461 per metric ton, or $2.93 per pound. Whole milk powder prices fell 2.8%, to $3,286 per metric ton, or $1.49 per pound. Skim milk powder prices fell 5.2%, to $2,640 per metric ton, or $1.19 per pound. Tuesday’s trade event sold 21,235 metric tons of dairy goods in fourteen bidding rounds, with 125 successful bidders.
Texas dairy producers are optimistic about 2024 due to recent rains and the passage of the Whole Milk for Healthy Kids Act.
The state is now the third highest milk-producing state in the nation, with milk production per cow rising slightly.
The largest hit for dairy producers in 2023 was falling milk prices, with the uniform milk price falling from $23.68 per hundredweight in 2022 to $18.98 per hundredweight in 2023.
The state is expected to see a further decrease in dairy numbers but an overall increase in Texas dairy herd size.
The majority of Texas dairy cows are in the Panhandle, accounting for more than 75% of the state’s milk production.
The dairy industry is optimistic about the future of feed production and market demand in 2024.
Four different processing facilities are opening or under construction in the state, which could increase demand for Texas milk.
The Whole Milk for Healthy Kids bill, passed in the U.S. House of Representatives with bipartisan support in December, could return the use of whole milk in schools and greatly increase demand.
Dairies across Texas are increasingly using technology to help mitigate market prices and higher costs.
Dairies are also considering more beef-on-dairy breeding to help their bottom line.
District Farm Conditions and Farming Activities
Rolling Plains:
The district’s soil moisture profiles improved due to previous week’s rain, snow, and wintery mix.
Both mature cattle and yearling calves on wheat pasture were in good condition.
Some producers reduced supplemental feeding to help stretch thin hay supplies.
Coastal Bend:
The weather has been warmer and drier, allowing cropland to dry out.
Fall fieldwork resumed on lighter, sandy soils, while clay soils were still saturated after recent rainfall.
Corn planting was underway in areas where conditions dictated, and it was nearing completion in Nueces County.
EAST:
Winter pasture growth improved with recent moisture and warmer temperatures.
Anderson County reported pastures were too wet to work for the most part.
Pasture and rangeland conditions were fair to poor.
Subsoil and topsoil conditions were adequate.
Hay supplies remained tight.
Livestock were in fair to good condition, with supplementation taking place.
South Plains:
The district received 2-10 inches of snow earlier in the week.
Winter wheat that emerged was in good condition.
Cattle were in good condition as producers continued supplemental feeding.
Panahandle:
As much as 4 inches of wet snow swept across different areas of the district.
Additional moisture was needed to replenish the upper soil moisture profile.
Soil conditions were reported from adequate to short.
Pasture and rangelands were reported to be fair to very poor.
North:
Topsoil and subsoil were reported as adequate to surplus for most counties across the district.
Winter wheat and other cool-season crops were in very good condition.
Livestock were looking for green forage instead of holding close to hay.
FAR WEST:
Cool, cloudy conditions were prevalent across the region.
Daytime highs were reported in the mid-70s, and nighttime lows in the mid-20s.
Cotton and milo production was expected to be lower than average.
Livestock and beef cattle producers continued supplemental feeding regimens as rangeland conditions continued to deteriorate due to lack of moisture.
WEST CENTRAL:
Rain was scattered across the district, with some areas receiving over 2 inches.
Small grains were growing slowly.
Field preparation for spring crops began.
Southeast:
Rain fell across multiple counties in the district.
Warmer temperatures spurred ryegrass and clover growth.
Livestock appeared in good body condition, and markets remained strong.
South West:
Dry weather continued with no significant rainfall expected and near-normal temperatures anticipated in the upcoming week.
Conditions were expected to remain ideal for early spring planting for the rest of February.
Dairy farmers in Texas are bullish about 2024, as recent rains promise better feed and pasture production after back-to-back droughts. The drought has reduced the number of cows and dairies in the state, with the average herd size dropping from 653,000 in 2022 to 635,000 in 2023. However, Texas milk output increased in 2023, making it the third greatest milk-producing state in the US.
The biggest damage dairy farmers experienced in 2023 was dropping milk prices, which dropped from $23.68 per hundredweight in 2022 to $18.98 per hundredweight in 2023. The average price of cheese per hundredweight was around $2 less than both of these values. This has made it difficult for dairy farmers to reach breakeven.
In 2024, there may be a transition year, with more decreases in dairy numbers but overall increases in Texas dairy herd size. The Panhandle is home to the majority of Texas dairy cows, which account for more than 75% of total milk output. Hartley is the top producing county in Texas, accounting for over 19% of total milk output.
Despite the obstacles, many producers are hopeful about 2024’s feed output and market demand. They are expecting for a better crop year, and with the recent rains, they do not anticipate growers to struggle as much as they have in previous years.
Aside from improving farming conditions in the coming spring, demand for Texas milk may be increasing. Four distinct processing facilities are opening or under development in the state, potentially increasing demand for Texas milk. Cacique Foods, a cheese facility, debuted in Amarillo in May, while the Great Lakes Cheese facility in Abilene is expected to be finished by late 2024. A milk processing factory in San Antonio is being built to supply H-E-B and is expected to be finished by the summer of 2025. The first phase of a Leprino Foods cheese production in Lubbock will be finished in early 2026.
The Whole Milk for Healthy Kids bill, which passed the United States House of Representatives with overwhelming bipartisan support in December, has the potential to restore the usage of whole milk in schools and significantly raise demand. Overall, the dairy business has witnessed good growth countrywide, with dairy product consumption increasing from 538 pounds to 655 pounds between 2022 and 2023.
Weather conditions have been good across the area, with rain, snow, and a wintery mix helping to enhance soil moisture profiles in pastures and wheat fields. Some regions were very wet, hampering agricultural production. Both older cattle and yearling calves on wheat pasture were in excellent health, and some farmers were able to minimize supplementary feeding to their cattle, which will help stretch tight hay supplies heading into spring.
The weather has been warmer and drier across the area, enabling crops to dry up somewhat. Some reporting locations received 0.5 to 1.5 inches of rain, which continued to improve soil moisture levels. Fall fieldwork continued on lighter, sandy soils, but clay soils remained moist from previous rains. Corn planting was beginning in regions where circumstances required, and it was almost finished in Nueces County. Sorghum planting began with plenty of soil moisture available. Pasture conditions improved on a regular basis, with enough rainfall and rising temperatures, albeit there was still a lot of soggy land in the region. Producers continued to supplement feed their herds, maintaining the cattle in fair to excellent condition. Market prices were high, and inventories were low.
EAST: Recent precipitation and higher temperatures have boosted winter pasture growth. Heavy rains persisted in several locations, and Anderson County reported that pastures were generally too wet to work. Pasture and rangeland conditions ranged from acceptable to bad. The subsoil and topsoil conditions were satisfactory. Ponds and streams were full, with some flowing over the spillway. Cattle prices were high, while some places had low numbers owing to rain. Hay supplies were scarce. Livestock were in fair to excellent condition, with supplements in place. Wild pig activities continues to rise.
SOUTH PLAINS: Earlier this week, the district got 2-10 inches of snow, with higher precipitation in the northern part. The winter wheat that emerged was in excellent shape, as were the cattle, as farmers continued to supplement feed.
PANHANDLE: As much as 4 inches of wet snow stormed throughout the region, wheat growth responded quickly as soil temperatures rose. Producers began pre-plant tillage for summer crops. Daytime temperatures rose steadily, but more precipitation was required to fill the top soil moisture profile, particularly in areas planted with small grains, cover crops, or improved and natural grass pastures. Cattle on the range continued to get supplemental feed.
NORTH: Topsoil and subsoil levels were recorded as sufficient to excess in most counties throughout the area. Most counties in the district classified pasture and rangeland conditions as fair to excellent. Warmer temperatures encouraged pastures to green up, while several regions had scattered rain throughout the last week. Ryegrass should begin to grow in the coming weeks, although higher temperatures have resulted in some volunteer ryegrass growth in some regions. Instead of staying near to hay, livestock sought green fodder.
WEST: Dry weather continues, with no major rainfall forecast and near-normal temperatures predicted for the following week. Most pastures were still in winter hibernation, although cool-season grasses and forbs were flourishing. Conditions were forecast to be favorable for early spring planting over the remainder of February. Corn planting was scheduled to begin shortly, and growers continued to supplement feed their animals and wildlife. Beef cattle prices were solid and stable across all classes.
The U.S. dairy sector is in decline, with the USDA lowering its forecasts for 2023 milk output and milk cow herd for every month last year. In 2023, the milk-cow herd dropped by about 50,000 head, with a further 23,000 head lost between December and January. This fall correlates with a sharp drop in dairy cow slaughter, with some dairy farmers driven out of business owing to low Class III pricing and substantial discounts on milk earnings.
In January, milk production was 19.1 billion pounds, a 1.1% decrease from the previous year and the largest year-over-year shortfall in two years. In 18 of the 24 major dairy states, production did not reach previous year’s amounts. Milk production in Europe and the United Kingdom declined 0.7% year on year in December, with Poland being the only country among the bloc’s seven main dairy countries to produce more milk in December 2023 than in December 2022. Tractors have stopped traffic in towns throughout Europe as farmers protest the Green Deal’s red tape. Farmers are particularly upset about increasing gasoline prices and competition from imports that are not subject to as stringent rules.
The EU Commission simplified or lowered some of the criteria under the bloc’s Common Agricultural Policy, allowing farmers some leeway from government demands to fallow lands and abandoning a commitment to halve pesticide usage by 2030. European dairy farmers are feeling harassed, as they confront greater expenses and a more stringent regulatory environment than their counterparts across the Atlantic. Growth may continue in locations like Poland, but Europe’s dairy sector is unlikely to attract significant new investment.
Producers in New Zealand are more confident, as expected pay prices rise with the global milk powder price. Kiwi milk output dipped 1.2% below year-ago levels in January, however for the season as a whole, milk output is down 0.6% on a fluid basis, while milk solids production is up 0.8% due to stronger components.
Slower milk supply has helped boost dairy product prices, but further gains would need stronger demand. This week’s Global Dairy Trade auction had mixed results, with anhydrous milkfat performing well, butter prices surging, skim milk powder (SMP) rising, and whole milk powder (WMP) falling 1.8%.
USDEC looks at the principal market factors influencing dairy import demand and trade in the year ahead.
With full year 2023 data finally released, we can turn our attention entirely to 2024 and what lies ahead. As is tradition, the U.S. Dairy Export Council has summarized the key “signposts” that our analysts will be watching in the year ahead that will determine the direction of U.S. dairy exports and global markets, particularly in this uncertain environment.
China
It should come as no surprise that China remains the first major variable likely to influence the direction of U.S. dairy exports and global markets. Despite contraction in 2022 and stagnation in 2023, China remains the largest dairy importer in the world – a position it is likely to retain for the foreseeable future. However, China’s future growth trajectory remains murky.
On the economic front, the outlook for China is pessimistic. Both consumer confidence within China and investor confidence regarding China are at their lowest levels in years; a deflationary housing market has eroded household wealth; and the International Monetary Fund (IMF), World Bank and other macroeconomic forecasters are all expecting a marked slowdown in the country’s GDP in 2024.
Weaker economic performance is likely to weigh on China’s dairy consumption growth again next year, particularly at foodservice. Pizza sales have performed relatively well, but that success has been in part due to Pizza Hut China pitching low-cost options. Whether sales volumes can keep growing remains to be seen, especially in other segments like bakery, where dairy ingredients are prevalent. Additionally, the slower economic growth (combined with a stagnant population) has damaged pork consumption within the country and thereby hindered whey-for-feed demand.
Ultimately, with demand growth questionable, the abundance or scarcity of local milk supplies will play a major role in determining dairy import needs. As we’ve seen the past several years, the Chinese industry has made significant investments in boosting their local milk production. The expansion is primarily due to vertical integration of the major processing companies, with most local milk production going toward fresh milk, which has reduced the need for imported fluid milk or whole milk powder. With lackluster consumer demand, low milk prices and high input costs, this would theoretically hamper milk production. But with the industry’s vertical integration and the Chinese government’s self-sufficiency goals, it is unclear to what extent normal economic fundamentals apply to China. In which case, further expansion and commercialization may still be on the way, further depressing imports until dairy consumption in the country rebounds.
Because of the uncertainty in both consumer demand and local milk supply, the range of outcomes for China’s 2024 dairy imports is wide. However, even with the uncertainty, we believe it’s likely that China is headed for another largely flat year of imports, at least in the first half of the year, with fluid milk and WMP, in particular, remaining weak. Ultimately, China’s import mix is evolving away from fresh milk and WMP toward cheese, dairy fats and specialty ingredients – products that aren’t made locally. This evolution may open up more opportunities for U.S. dairy in the long run, but for now, China could have a bumpy road ahead in 2024.
Mexico
Gratefully, not all markets have been as bleak as China. 2023 was an exceptional year for U.S. dairy exports to Mexico. U.S. suppliers shipped a record high 631,511 metric tons (MT) in milk solids equivalents (MSE) to our neighbor to the south, up an astonishing 13.5% compared to the same period in 2022. These strong volumes were critical in compensating for slower exports to other major demand destinations.
Several factors drove the surge in volumes. While economic growth in much of the world sputtered, the Mexican economy outperformed expectations as GDP rose by an estimated 3.2%, according to the IMF. Falling unemployment, a resurgence of tourism, and a wave of foreign investment boosted the desire for consumer products, including dairy. As demand soared, strong economic results drove the Mexican peso to an eight-year high, increasing the purchasing power of Mexican buyers and further bolstering consumer confidence. At the same time, dairy products in the U.S. were moderately priced, creating an ideal buying opportunity. Mexican importers capitalized on these conditions, importing 16% more nonfat dry milk/skim milk powder (NFDM/SMP) and 20% more cheese than in 2022, the previous record year.
While Mexico will almost certainly continue to be the top destination for U.S. exports in 2024, it may be difficult to keep up the breakneck pace seen last year. Indeed, recent performance of NFDM/SMP exports to Mexico suggest a slowdown may already be underway.
The IMF is predicting that GDP growth will slow materially this year as high interest rates persist and public investment slows. Its current forecast suggests an increase of 2.7% compared to 3.4% in 2023. However, the agency, as well as many other banks and rating institutions have recently increased expectations in light of last year’s stellar performance and stronger growth in key trading partner economies like the U.S. In addition, presidential elections are scheduled for June of this year and guarantee a change in leadership as incumbent Andres Manuel Lopez Obrador cannot run due to term limits. Last-minute initiatives in the lead-up to the election could stimulate consumer activity and dairy demand. But even so, a cloud of uncertainty hangs over the second half of the year.
Mexican consumers and importers proved their love of dairy in 2023, buoyed by strong economic performance. Though many are keen to see the party stretch into 2024, time will tell if impending challenges slow the pace of U.S. dairy shipments south of the border. For now, we anticipate import growth rates to moderate, particularly for NFDM/SMP, but the outlook for Mexico still looks relatively bright in a world of uncertainty.
The global economy
Beyond just China and Mexico, the global economy is going to need to pick up if U.S. dairy exports are going to rebound in 2024. As we’ve seen this past year, there is a clear connection between economic wellbeing and dairy consumption. With so many markets battling inflation and reduced purchasing power this past year, global dairy demand suffered. Conversely, those markets that had strong economies and currencies, like Mexico, dramatically overperformed expectations.
The good news is that brighter days ahead are expected for the global economy, even though obstacles remain. For instance, the IMF is forecasting global GDP to grow by 3.1%, which is below average (3.8% on average between 2000-2019), but still up from earlier forecasts. The upward revision reflects growing, albeit tentative and moderated, optimism.
One of the leading factors supporting modest optimism is easing inflation, which in many cases has cooled faster than anticipated. One of the major concerns with high inflation levels is entering a wage-price spiral (a vicious cycle of competing wage and price escalations often resulting in higher inflation) – which, positively, we seem to have avoided in most major economies. Inflation peaked globally in 2022 at roughly 8.7%, eased to 6.8% in 2023 and is expected to fall to 5.8% in 2024. That continued easing alleviates economic pressure and supports increased consumer demand.
With inflation retreating, many banks have hinted at easing restrictive monetary policies this year which should support economic growth. But lowering interest rates too quickly risks a resurgence in inflation, meaning that central banks will likely take a conservative approach in lowering rates in the near-term, thus limiting some of the economic upside in 2024. Overall, achieving a “soft landing” appears within reach for many major economies, but how countries handle their monetary policies in the coming year will determine their success.
Unfortunately, cooling inflation does not mean the global economy is without risk. The war in Ukraine, the war in Gaza and conflicts in the Red Sea threaten both the supply of commodities, energy availability and the reliability of the global supply chain. At the same time, China’s economic instability poses spillover risks to other economies in Asia. On top of that, the prevalence and number of trade restrictions increased over the last two years. Countries imposed roughly 3,200 new restrictions on trade in 2022 and around 3,000 in 2023 – up from roughly 1,100 imposed in 2019 according to the IMF.
Still, despite the obstacles, the global economy as we move into 2024 is not looking quite as bad as we thought. While the obstacles to growth are real, the global economy is weathering inflation better than anticipated, and inflation is expected to continue easing with nearly 80% of global economies anticipating lower inflation this year. Global dairy trade is unlikely to rebound to its pre-inflation level overnight, but growing incomes are a prerequisite to demand getting back on track.
Milk production in Europe and New Zealand
Even if Chinese demand improves, Mexico’s appetite remains strong, and the global economy picks up, the U.S. will still have to compete with well-established competitors – as we did in 2023. Adjusted for components, EU27+UK milk production grew by 1.2% and New Zealand expanded by 2% through November 2023. That rise in milk production combined with weakness in China increased competition with U.S. exporters in many key markets and products. As such, milk production in both Europe and New Zealand will be a critical variable to U.S. export performance next year.
Looking first at Europe, the bloc’s rapid milk production expansion and more recent contraction is primarily caused by volatility in farmer margins. European farmers benefited from sky-high milk prices in late 2022 and early 2023, with the average EU milk price reaching nearly 60 € cents per liter in December 2022 (just below $28/cwt). The rapid rise in prices created the incentive to increase production, especially through better feed quality, which dramatically boosted components. When milk prices returned to a more normal level in the middle part of the year, European milk production growth quickly slowed, most noticeably in Germany, the Netherlands and Ireland.
New Zealand output, on the other hand, remains primarily driven by weather. Given that the dairy herd in New Zealand has been on the decline since 2015, milk production relies on improved genetics and good weather to grow. With exceptionally supportive weather to finish the previous season and relatively minor effects from El Niño in the current season, milk production in the country was robust in 2023.
Looking to 2024, the growth outlook is relatively modest. EU milk prices are in a more balanced position, but with the late-year weakness in milk production, payouts have started to rise again, suggesting the cycle could begin again if demand doesn’t materialize to support a price enhancement. However, with the dramatic rise last year in component tests, it remains unclear if such gains can be repeated as European milkfat and protein levels do not grow nearly as consistently as in the U.S. By contrast, in New Zealand, forecast farmgate payouts are the lowest in four years, with concerns over drought as New Zealand moves into autumn, which could potentially be an even bigger obstacle than reduced margins.
On top of the near-term challenges, policy uncertainty is likely to hamper significant growth potential for both the European Union and New Zealand by tempering on-farm investment and moderating output in 2024 and beyond. All told, we expect slight gains for EU27+UK milk deliveries in 2024 (around +0.5%) and New Zealand holding steady with weather as the ever-present variable. For the U.S., this modest growth from the EU and New Zealand is likely to mean continued competition with the two largest dairy exporters in key markets around the world, but the two are unlikely to be as aggressive on price as they were in 2023 to clear excess milk. That could potentially open the door to U.S. export growth, provided that global demand and U.S. milk supply are conducive to expansion.
U.S. dairy’s expansion appetite
Regardless of the external factors, the financial well-being of the U.S. dairy farmer will be critical to U.S. export success in 2024. For the past several years, farmers’ margins have tightened as input costs have remained elevated, limiting milk production expansion in 2022 and 2023. Higher feed, energy and labor costs led many farmers to make tough management decisions, one of which was culling herds as record-high beef prices competed with depressed milk prices. Though feed prices have recently started easing and cull numbers are tapering off, costs are likely to remain high and may limit farm expansion.
On the feed side, USDA is projecting global coarse grains production, which includes feedstuffs like corn and sorghum, to increase to over 1.5 billion MT, up 4% from the previous season. Similarly, global oilseed production is also projected to increase by 3.5% in the coming season. These higher projections have resulted in a recent price drop in corn and soybeans. Though input costs are still elevated compared to pre-2021 levels, margins are not expected to be as tight in 2024 as they were in 2023, which is good news for U.S. dairy farmers and would normally suggest expansion may be on the way.
However, while costs are expected to stabilize, building a new farm or expanding an existing facility is likely to be a challenge. For one, replacement heifers are hard to find. Feeder cattle prices reached record highs in 2023 and breeding beef on dairy crosses was an attractive management decision for many farmers facing tight margins. Additionally, high interest rates and an uncertain market environment have cooled some of the appetite for expansion in the U.S.
With on-farm costs staying elevated, a smaller replacement heifer herd and a volatile investment landscape, 2024 is not expected to see significant milk production expansion until perhaps later in the year as several new processing facilities across the country come online. The level of milk production in the U.S. will have significant impact on U.S. export performance in 2024 as another tight year on the farm will likely limit exportable supplies – even as the United States’ long-term trajectory remains clear.
Milk prices and the Dairy Margin Coverage Program margin both ended four-month streaks of improvement in December, with DMC finishing the year with its lowest calendar-year margin since the present dairy safety net system was established over a decade ago. Meanwhile, U.S. dairy exports in 2023 saw the third-highest proportion of U.S. milk solids output shipped ever for the whole year – a notable achievement, but at a slower pace than its record-breaking first quarter export percentage. Stocks of most key dairy products fell in December, as milk and milk solids production growth remained lower than demand increase.
The USDA Milk Production Report shows a significant decline in US milk production for the seventh consecutive month, with January’s production of 19.1 billion lbs., a 1.1% decrease from last year. This decline is due to a sharp drop in milk production in New Mexico, Texas, Idaho, and South Dakota. New Mexico saw the steepest decline, with 97 million fewer pounds and 42,000 fewer cows. Texas also lost 56 million pounds of milk and 15,000 cows, owing in part to a large barn fire at South Fork Dairy Farm in Dimmit. Idaho also saw a decrease of 29 million pounds and 1,000 fewer heads. South Dakota saw a positive performance, increasing 39 million pounds with 21,000 more cows, adding nearly $4 billion to the state’s annual revenue. Wisconsin gained 25 million pounds with unchanged cow numbers, while Florida gained 10 million pounds with 6,000 more cows. Phil Plourd, president of Ever.Ag Insights, believes the report represents mediocre performance at best, as on-farm financial performance continues to weigh on overall output.
Milk futures on the Chicago Mercantile Exchange were up Thursday, boosted by a positive milk output report and a weaker currency.
February Class III milks a cent at $16.19. March ended 15 cents higher at $17.13. April closed 46 cents higher at $17.66. May rose 41 cents to $17.95. June through August futures are 16 to 31 cents higher.
Dry whey is up $0.0050 to $0.5150.
Blocks down $0.0150 to $1.50. Two deals were executed at that price.
Barrels rose $0.0025 to $1.61. There was just one transaction at that price.
Butter up $0.0375 for $2.8125. Six deals were executed at that price.
Nonfat dried milk is up $0.0025 to $1.1975. Nine transactions were made between $1.1950 and $1.1975.
U.S. milk production fell slightly in January. According to the USDA, production in the top 24 states was 18.3 billion pounds, down nine tenths of a percent from the previous year, due to fewer cows (8.873 million head) and lower average production (2,062 pounds per cow).
California ranked first in production and number of cows, followed by Wisconsin and Idaho, while Michigan led the way in average production.
According to the USDA, milk production in 2023 totaled 226.364 billion pounds, slightly less than in 2022, with a decrease in dairy cows canceling out an increase in the average.
The USDA’s next annual milk production projection is due March 8th.
The cheese market appeared to be turning a corner, but Class III futures’ weakness indicates otherwise. Class IV futures have performed better as butter prices remain supportive. The USDA’s annual Agricultural Outlook Forum, held on February 15th and 16th, provided an outlook for the US dairy industry, indicating that Class IV prices will remain significantly higher than Class III prices. The average Class IV price this year is expected to be $20.20, up $1.08 per cwt from 2023, while the Class III price is expected to be $17.10 this year, up $0.08 per cwt from 2023.
The butter price is expected to remain strong and trend higher, with recent increases in international butter prices improving the potential for US butter to become more competitive on the international market and increasing demand. Butter exports for 2023 were significantly lower than the previous year, and if export demand improves significantly, butter prices will rise above current levels, potentially returning to 2023 highs or higher.
Traders anticipate higher prices as more premium is added to butter futures contracts through the end of the year. The October butter futures contract anticipates an average price of $2.92 per pound. However, the USDA was less optimistic about cheese prices, forecasting an average price of $1.69, or nearly $0.07 per pound less than in 2023. Whey demand has increased, both globally and domestically, providing some support to the Class III milk price.
The USDA also released grain production and price forecasts for the 2024/25 crop year, indicating lower grain prices and higher ending stocks. Corn planted acres are expected to be 91.0 million, with a yield of 181.0 bushels per acre, and ending stocks are estimated to be 2.532 billion bushels, with an average price of $4.40 per bushel, $0.40 per bushel less than last year. Soybean planted acres are expected to reach 87.5 million, with a yield of 52.0 bushels per acre, up from 83.6 million this year and 50.6 bushels per acre.
On Thursday, the Chicago Mercantile Exchange saw mixed milk futures and cash dairy markets.
February Class III milk went up $0.02 to $16.18. March was down $0.22 to $16.80. April was down $0.17 to $17.13. May was down $0.16 to $17.50.
Contracts from June to December varied from seven cents lower in June to thirteen cents higher in October, with prices increasing each month following June. Thursday’s Class III transaction volume was little over 2300 contracts.
Dry whey went up $0.01, to $0.53. There were no sales registered.
40-pound cheese blocks were down $0.0225 to $1.4925. Three transactions were reported, with prices ranging from $1.4925 to $1.50.
Cheese barrels were down $0.02 at $1.5550. There was one sale at that price. Thursday was the third consecutive trading day in which barrels were valued higher than blocks.
Butter was up $0.01, at $2.7275. Fifteen transactions were registered, with prices ranging from $2.7125 to $2.7325.
Nonfat dried milk was down $0.0050, to $1.1750. There was one sale at that price.
Milk supply is scarce and demand for spot milk is steady, leading to weak demand.
US exporters delivered 5.806 billion pounds of dairy goods in 2023, totaling less than $8 billion.
Cheese exports grew 0.6% to 80.5 million pounds in December, the largest number ever observed.
Nonfat dry milk (NDM) exports increased by 0.9% compared to December 2022.
US whey product exports fell 14.9% year on year, while butter exports dropped 42%.
The GDT Price Index increased by 4.2% at the Global Dairy Trade (GDT) auction, reaching levels not seen since late 2022.
The CME butter market fell from its highs in January.
The spot dry whey market increased by 1.25¢ this week, closing the week at 52¢ per pound, the most since mid-2022.
Milk powder output fell 15.9% year on year to 194.8 million pounds, including NDM and skim milk powder.
Manufacturer stockpiles on NDM were 203.3 million pounds, a 20.5% decrease from the previous year and the lowest stock level since 2015.
The dairy markets have encountered resistance this week, with milk supply being scarce and demand for spot milk steady. This has resulted in a weak demand picture, with little motivation to drive the markets higher. According to December export figures, US exporters delivered 5.806 billion pounds of dairy goods in 2023, totaling little more than $8 billion. However, shipments to China and Canada dropped compared to the previous year, while exports to Mexico, the United States’ biggest trading partner, increased 12.8% to a new all-time high of 1.589 billion pounds.
Despite sluggish worldwide demand and competition from alternative providers, certain items saw moderate year-over-year growth in December. Cheese exports grew 0.6% to 80.5 million pounds in December, the biggest number ever observed, thanks to a particularly robust hunger among Mexican purchasers. Nonfat dry milk (NDM) exports increased by 0.9% compared to December 2022, as shipments to certain Asian destinations improved. Other product exports were under pressure due to negative international dynamics. In December, US whey product exports fell 14.9% year on year, while butter exports dropped 42%.
At this week’s Global Dairy Trade (GDT) auction, the GDT Price Index increased by 4.2%, with price increases noted in almost every commodity. This is the sixth straight auction in which the index has climbed, reaching levels not seen since late 2022. Butter, whole milk powder, and anhydrous milkfat prices increased by 10.3%, 3.4%, and 3.3%, respectively, as compared to the previous event.
Back home, the fat markets fell, and the CME butter market continued to fall from its highs reached in the closing weeks of January. According to the USDA’s Dairy Products report, butter output increased 4.4% year on year in December to 196.3 million pounds, a remarkable outcome considering the 0.3% decrease in milk production during the month and the significant draw from other manufacturers. Lower cheddar output may have boosted spot markets, which rebounded from late-December lows to surge steadily through the first few days of February.
The spot dry whey market increased by 1.25¢ this week, maintaining its upward trend. Prices closed the week at 52¢ per pound, the most since mid-2022. Participants report that the market for dry whey has tightened significantly, owing to increased domestic demand but also decreased output. December dry whey output declined 9.2% year on year to 66.062 million pounds.
In December, milk powder output fell 15.9% year on year to 194.8 million pounds, including NDM and skim milk powder. NDM prices have remained firmly entrenched in a small range, with no evidence that the market is eager to go beyond these limitations. At the end of December, manufacturer stockpiles on NDM were 203.3 million pounds, a 20.5% decrease from the previous year and the lowest stock level since 2015.
Weak demand and increased competition limit U.S. dairy export growth in 2023 to high-protein whey and lactose.
Subdued demand, coupled with increased competition from the EU and New Zealand, translated into a U.S. dairy export decline of 7% in milk solids equivalent terms (MSE) in 2023. The factors complicating U.S. dairy export growth have been consistent most of the year: elevated inflation, disappointing economic growth in key export markets (particularly China), reduced demand for feed whey from China’s struggling pig sector, increased milk output from the EU and New Zealand, and reduced whole milk powder (WMP) purchasing from China causing New Zealand to shift its product mix and redirect exports to key U.S. markets.
U.S. export value finished the year at $8.11 billion. That is the second largest value of all time but down 16% from the record year of 2022 as both volume and prices eased.
U.S. suppliers posted volume gains in only two major product categories in 2023: high-protein whey (WPC80+) and lactose. Full-year U.S. WPC80+ export volume jumped 18% (+11,619 MT) compared to 2022, rising to a record 75,848 MT. Fueled by strong gains in the first quarter, lactose shipments rose 5% (+20,890 MT) to a record 471,918 MT.
But beyond WPC80+ and lactose, positive year-end numbers were nowhere to be seen. Nonfat dry milk/skim milk powder (NFDM/SMP) fell 3% (-24,570 MT); cheese dipped 4% (- 15,313 MT); low-protein whey dropped 20% (-125,165 MT); butterfat slid 44% (-44,795 MT). Milk protein concentrate, fluid milk and cream and whole milk powder fell 10%, 7% and 33%, respectively, for the year.
That said, we started to see some positive signal to close out the year. U.S. cheese exports recorded gains in November (+4%) and December (+1%), with solid volume increases to Mexico, China, Central America and the Caribbean.
U.S. NFDM/SMP shipments rose 1% in December, its first YOY increase since August 2023. December shipments to Southeast Asia jumped 23% (+3,634 MT) and volume to the Middle East/North Africa more than tripled (+1,868 MT). For Southeast Asia, it was the second straight monthly increase and an optimistic sign that demand in the No. 2 U.S. market is on the road to recovery.
Fluid milk and cream finished the year with four straight months of YOY gains. Volume rose 15% (+6 million liters) from September to December compared to the same period the previous year.
For a product-by-product breakdown of 2023 U.S. export performance, see below.
NFDM/SMP
U.S. NFDM/SMP exports saw slight growth (+1%, 582 MT) in December—the first monthly increase since August. Overall NFDM/SMP exports for the year have been lackluster, with 2023 exports down 3% (-24,570 MT), but the decline only tells a portion of the story. U.S. NFDM exports to Mexico this year have boomed (+16%, 57,040 MT) although largely frontloaded in the year. NFDM exports to Mexico in H1 were up 39% (+62,842 MT). They eased in the back half of the year (-3%, -5,801 MT), but volumes were still large and up against strong exports in H2 of 2022. The Mexican economy has been very strong at a time when economies around the world mostly struggled. In addition to the strong economy, the peso has consistently strengthened against the dollar since Covid, making U.S. imports more attractive.
At the same time, exports to Southeast Asia suffered (-20%, -60,637 MT). 2023 for Southeast Asia was marked by high inflation and challenging domestic economics. Even with lower prices this past year, demand has been weaker. December did build on the slight growth seen in November with NFDM/SMP exports to the region up 23% (+3,634 MT) in the final month of the year.
Looking to 2024, we expect export volumes to Mexico to remain robust, but may not match the record volumes we saw in early 2023. In Southeast Asia, with easing inflation, lower NFDM/SMP prices and after a prolonged period of low import volumes, we expect demand to rebound in 2024. Overall U.S. NFDM/SMP exports should see some growth in the year ahead as the global economy continues to recover.
Cheese
While YOY U.S. cheese exports fell in 2023, it was (at 435,569 MT) the second highest volume we ever shipped in a single year. Volume was driven primarily by a 41% jump (+39,959 MT) in shredded cheese sales to meet foodservice demand, mostly to our top market, Mexico, but also to China. U.S. exports of shredded cheese to Mexico soared 162% (+39,131 MT) last year, while shipments of shredded cheese to China increased more than eight-fold (+5,612 MT).
However, those impressive gains were still insufficient to offset a decline in overall U.S. volume. Inflation-related consumption headwinds in Korea and Japan combined with heightened competition from the EU and New Zealand in South Korea to undercut U.S. cheese sales to both East Asian countries. U.S. cheese exports to Japan fell 15% (-7,155 MT) in 2023 and shipments to South Korea plunged 40% (-30,175 MT). Looking forward, more competitive pricing, European milk production struggling and expectations that Japanese and Korean demand for U.S. cheese may be poised to turn a corner paint a more hopeful picture for the coming year.
WPC80+
High-value U.S. WPC80+ exports crushed the previous volume record by more than 10,000 MT in 2023. Ongoing demand growth for high-protein foods in key markets coupled with lower WPC80+ prices in 2023 created a banner year for U.S. suppliers.
Gains were geographically broad-based. U.S. WPC80+ sales to Japan have risen now for nine consecutive years (+11%, +1,513 MT in 2023). The country took over as the top U.S. WPC80+ market from China in 2022, and despite erosion in YOY monthly growth at the end of 2023, Japan remains our No. 1 buyer. U.S. shipments to China rebounded last year (+47%, +4,520 MT) after higher prices weakened 2022 demand. And, driven by one of the biggest sports nutrition markets in the world, Brazil staked a claim as the fastest growing U.S. WPC80+ buyer in 2023. U.S. shipments of WPC80+ to Brazil are up now for four straight years and more than doubled to 8,462 MT last year. An even more encouraging sign is the ample room for growth. Demand for U.S. WPC80+rose in several developed and emerging markets last year, including Canada (+28%), Mexico (+35%) and India (+36%),while markets like South Korea and Southeast Asia are primed for demand rebounds.
Lower-protein whey (0404.10)
As we have noted in this column throughout the year, the U.S. low-protein whey export shortfall in 2023 is mostly about China. U.S. shipments of 0404.10 whey to China plunged 27% (-79,357 MT) as ongoing troubles in the nation’s pork industry severely curtailed demand. But China can’t be completely to blame for the decline. YOY U.S. export volume fell by a total of 125,165 MT in 2023, so the U.S. declined by more than 45,000 MT to other destinations.
Low-protein whey demand eroded across several geographies last year. In fact, U.S. shipments fell to eight of our top 10 markets in 2023. And exports declined for other suppliers as well. EU27+UK whey exports, for example, were down 10% (-62,429 MT) through November.
The challenges within China appear likely to persist, but our analysts are optimistic that demand in Southeast Asia, where a large portion of the dry whey is used for food applications, will rebound with an improved economic outlook. Given low-protein whey accounted for over 70% of the U.S. dairy’s export decline in 2023, any improvement in demand would put exports on better footing for 2024.
Lactose
YOY U.S. lactose exports fell 3% (-960 MT) in December, but overall lactose exports for the year were up 5% (+20,890 MT)—largely driven by gains to China. U.S. lactose exports to China in 2023 grew 23% (+26,813 MT). Likely supporting the increased exports were lower prices last year and increased usage for standardization within China—as detailed in our October write-up. U.S. lactose prices over the summer reached the lowest levels in nearly a decade. Prices have firmed since then, up 48% since July, which may impact export volumes moving into 2024, but prices are still roughly 30% below the average price since 2020.
Overall, U.S. lactose exports over the last few months have somewhat plateaued after robust growth in 2022 and much of 2023. Looking to 2024, it’s hard to get overly excited about strong growth as demand remains uninspiring.
Class III average milk price is predicted to be $17.30, similar to 2023.
Class IV milk price could be closer to $21, over $2 more than 2023.
On-farm feed prices are predicted to fall by 15% by 2024, potentially boosting Class II and Class I profits.
Heifers and cheese are the most optimistic aspects of the forecast.
Milk output in the second half of 2023 is expected to decrease by 0.6% from last year.
Heifers are in short supply, with a projected 1.1% decrease in calving in 2024.
New cheese production capacity is expected to increase cheese output by 5.5% between Q4 and mid-2025.
Dry whey, whey protein concentrate, and whey protein isolate are expected to see considerable demand and prices rise.
Butter is the most optimistic segment of the market, with domestic disappearance expected to rise by 8.8% in 2023 and production increased by 2.2%.
The Class III average milk price in 2024 is predicted to be approximately $17.30, comparable to 2023, which is bad news for producers. However, the Class IV milk price might be closer to $21, which is over $2 more than 2023. On-farm feed prices are predicted to fall by roughly 15% by 2024, which might boost Class II and Class I profits.
Heifers and cheese are the most optimistic aspects of the forecast, with milk output in the second half of 2023 down 0.6% from last year and a milking herd down 0.4%, or 39,000 head, from the previous year. Heifers are in short supply, with the USDA forecasting that the number of heifers projected to calve in 2024 would be 1.1% lower than in 2023. However, dairy cow slaughter is down more than 20% from last year, so producers are hanging onto cows for another lactation. Despite the scarcity of heifers, the herd may increase somewhat in 2024.
The bearish issue is increased demand and new cheese production capacity coming online. Domestic cheese disappearance is anticipated to increase by just 0.8%, while fluid milk is down 1.4% and nonfat dry milk (NFDM) is down 9.7%. Between the fourth quarter of 2024 and the middle of 2025, at least five new cheese factories or plant expansions are expected to come online, possibly generating an extra 800 million pounds of cheese, representing a 5.5% increase in cheese output.
Dry whey, whey protein concentrate (WPC), and whey protein isolate (WPI) have all seen considerable demand, and their prices have risen over the last six months. While there may be downward pressure on the whey complex once these new cheese facilities open, stocks are projected to remain light until then, and a relatively low dry whey price will support the Class III pricing somewhat.
Butter is the most optimistic segment of the market, with domestic disappearance expected to rise by 8.8% in 2023, while production increased by just 2.2%. With milk supply poor and new cheese facilities absorbing more milk, butter output in 2024 is likely to remain low, making it difficult to replenish supplies and keeping the market tight.
Fonterra has increased its farmgate milk price projection for the 2023/24 season to NZ$7.30-NZ$8.30, while profits remain steady at 50-65 cents per share. The firm has seen an increase in demand for its reference commodity items, especially from the Middle East and South East Asia, as indicated in GDT pricing. Overall, GDT costs have risen 10% since the previous Farmgate Milk Price Report in December, while whole milk powder prices have risen 11.5%. The potential effect of geopolitical instability and supply chain disruption on demand in major importing areas is unknown. Fonterra’s market size and variety give flexibility, and its cooperation with Kotahi guarantees that its goods are delivered to clients on a continuous basis. The business has also upped its farmgate milk price prediction for the third time in five months, by 50 cents, citing improving supply and demand dynamics.
According to the most recent analysis from Zisk, a free software that includes data from producers on their milk contracts, feed prices, and predictors of dairy firm profitability, milk farmers in the United States anticipate a lucrative year in 2024. The study, which has been downloaded by nearly 4,000 farm owners, covers 4.2 million cows, or 45% of the US herd. An overall trend analysis based on data gathered from all farms provides insights into herd size, average basis, and milk output.
The 2024 estimates also suggest that farm size matters; bigger farms will produce more money per cow, but smaller farms, particularly those with less than 250 cows, would be unprofitable. The paper demonstrates how many dairies, particularly major ones, have secured profits by locking in their pricing.
Herd sizes in the United States continue to grow, and according to the Zisk research, farms with more than 5,000 cows will be the most profitable. Even farms with over 1,000 cows are much more lucrative than those with less. In contrast to Zisk’s prior yearly reports, this year’s statistics suggest that larger farms have lower expenses, better pricing, and economies of scale, and they anticipate to earn more per cow.
The Southeast is forecast to be the most prosperous area in the United States by 2024, with an average estimated profit of $857 per cow. Smaller farms (those with less than 250 cows) plan to continue to lose money, although the total profit per cow for the area is expected to remain comparable to last year.
The Midwest will be the second most lucrative overall, with a projected $701 per cow, although smaller herds will earn far less. Wisconsin herds (average size 833 cows) anticipate $1,000 per cow earnings, whereas South Dakota, with almost double the average herd size, predicts $672 per cow.
The Northeast is the least lucrative area for milk production in 2024, although Rhode Island is projected to have the greatest profit per cow in the US despite an average herd size of 35. Massachusetts, New Hampshire, New Jersey, and Kentucky are forecasting among of the lowest average earnings in the United States in 2024.
The Global Dairy Trade index is up for the seventh consecutive trading day. The index gained 4.2% to an average price of $3,571 per metric ton on Tuesday morning. The butter market rose 10.3% to $6,516 per metric ton, or $2.95 per pound. Cheddar cheese prices climbed 6.3% to $4,469 per metric ton, or $2.02 per pound. Skim milk powder rose 4.6% to $2,758 per metric ton, or $1.25 per pound. Whole milk powder was also up 3.4% at $3,463 per metric ton, or $1.57 per pound. Anhydrous milk fat prices increased 3.3% to $6,033 per metric ton, or $2.73 per pound. Lactose prices rose 2.6% to $785 per metric ton, or $0.35 per pound. Buttermilk powder rose 1.2% to $2,412 per metric ton, or $1.09 per pound. The only commodity to lose value during Tuesday’s trading session was mozzarella cheese, which slid 1.8% to $3,760 per metric ton, or $1.70 per pound. Tuesday’s 21 bidding rounds yielded 104 victorious bidders, who sold 24,836 metric tons of dairy goods.
Milk futures have recently increased, prompting dealers to become more open to the market. However, worries about future milk supply may grow as farms depart the dairy industry and the availability of dairy replacement heifers tightens dramatically. Cow slaughter has not risen as expected owing to low milk prices, but a tighter heifer supply will keep cows in demand.
The Bi-Annual Cattle Inventory data stated that the number of milk cows on January 1st was 9.358 million, down 41,000 from the previous year. The heifer-to-milk cow ratio is likely to tighten further in the coming years. Buyers of dairy products may have considered this and purchased supply earlier at cheaper costs, resulting in the subsequent price hike.
The strength of dry whey has given substantial support for the Class III market, with butter and cheese receiving the majority of attention in the cash market. Dry whey has gradually climbed, adding around 62 cents to the Class III pricing in the last three weeks. Butter is predicted to stay stronger than cheese, resulting in Class IV milk prices being much higher than Class III pricing.
Robin Schmahl, a commodities trader with AgDairy, the dairy business of John Stewart & Associates Inc. (JSA), feels that the ideas presented and the underlying facts from which they are derived are regarded to be credible but cannot be guaranteed. Any views presented herein are subject to change without notice, and the simulated performance outcomes have inherent limitations. Trading commodities futures and options on futures has a risk of loss and is not for everyone. Accepting this message means you realize and agree that you will not depend primarily on it to make trading choices.
The all-milk price in the United States is predicted to reach $20.60 per cwt in 2023, the fourth time in the last 20 years. However, the inflation-adjusted milk price has resulted in historically low milk-to-feed margins and significant dairy margin coverage (DMC) payments. The cull cow market has been a bright light in 2023, with prices exceeding $100 per cwt. Dairy farmers will make a profit per cow on average in 2023.
Dairy producers are predicted to have 9.35 million head in 2024, a tiny decrease from 2023 but around 300 pounds more milk per cow. According to the USDA’s January dairy projection, the all-milk price average for the year will be $20 per cwt, somewhat lower than in 2023. The cull cow and bull calf markets should remain robust, with average fed cattle market values expected to be 2% higher in 2024 than in 2023. Feed prices are also expected to be reduced in 2024, resulting in smaller DMC payments. The milk-to-feed margin in 2024 is expected to be $10.70 per cwt, at least two months lower than the $9.50 margin.
Despite the unpredictable nature of the milk and feed markets, some farmers may find 2024 to be a low-margin year. Domestic dairy consumption, especially butter consumption, is likely to rise, with the forecast Class IV milk price exceeding Class III. The all-milk price is determined by the produced commodities of Class III and Class IV milk, with Class IV milk accounting for roughly 23% of the total milk price.
The export market is predicted to expand in 2024, with increased production of cheese, butterfat products, and whey products. Total exports are forecast to increase by 0.7% over 2023, with only the United States and Australia likely to witness rise in exports. Argentina, New Zealand, and the European Union’s total milk output are all predicted to fall.
Even with somewhat reduced milk prices in 2024, there are still chances for dairy farm profitability. Using marketing methods to ensure reduced feed costs for bought feeds, as well as lucrative Class III or Class IV milk futures, will help safeguard milk checks. Class IV milk futures are expected to climb by more than $3 per cwt by the fourth quarter of 2024.
Both USDA farmer pricing indexes fell in December. The USDA reported a 0.4% drop in prices due to losses in cattle, pigs, milk, and turkeys offsetting increases in maize, broilers, eggs, and onions. According to the USDA’s December 2023 dairy index, all milk prices were $20.60 per hundredweight, down 5.1% from November and 16% from December 2022. The index of prices paid fell 0.5% as feeder cattle, complete feeds, diesel, and gasoline fell while feeder pigs, potash & phosphate, nitrogen, and LP gas rose. Prices received fell 18% and prices paid fell 0.6% in 2023, representing farmers’ and ranchers’ losses.
Milk production growth in the U.S. sputtered at the end of 2023, leaving the full year result nearly unchanged from the previous year. After expanding during the first half of the year, volumes contracted between July and December as milk prices remained under pressure. December milk production totaled 18.843 billion pounds, a decrease of 0.3% compared to the same month last year, with notable declines seen in the western states. A shrinking national dairy herd has driven the production drop, as December’s herd size rang in at 9.357 million cows, 39,000 head less than at the same time last year and representing the smallest herd size since June 2020.
European production has been trending downward, with volumes in the European Union and United Kingdom falling by an estimated 2.5% year over year in November. Many of the bloc’s largest milk producers, including Germany, France, and the Netherlands, saw pronounced declines in November output. Strict environmental regulations in many European countries are likely to interfere with milk production recovery and have sparked high profile protests in the region. In South America, volumes in Argentina recoiled by 7.7% in December as producers confront deep economic and political uncertainty. Oceania, however, is expanding with Australia and New Zealand both posting gains in the most recent month for which data is available.
International demand is also limping along, with China’s December import statistics finalizing a disappointing year for the world’s largest dairy importer. Whole milk powder, China’s most important import in volume terms, had an incredibly weak year with cumulative shipments for 2023 down 38.4% to the lowest volume since 2016. UHT milk, butter, and whey imports were also down on an annual basis while skim milk powder eked out an annual gain despite falling 36.9% year over year in December. Cheese had a standout year as a record 392.8 million pounds were imported, 22.5% more than in 2022.
The CME spot market boasted a week of gains, but prices for most dairy commodities remain weak. Lower prices in the U.S. should help to encourage additional export sales that will help to clear domestic volumes, though his dynamic has been slow to materialize.
The USDA reports that winter weather has had an influence on several dairy markets during the last week.
According to the Agricultural Marketing Service’s most recent report, winter weather impacted dairy operations in eastern states, and some milk destined for Class III cheese manufacturing was shifted into bottling for grocery stores. According to the USDA, the weather also had an impact in the central area, where milk was plentiful, but some cheesemakers had to change their production schedules.
The USDA reports that milk output is constant in the east, robust in the northeast, and somewhat lower in the Midwest, where winter storms have passed. The Western area has consistently boosted milk output.
Butter demand is consistent throughout the nation, and some factories have increased output, while others have decreased due to weather or scheduled maintenance.
U.S. milk production fell slightly in December 2023. The USDA reported that the 24 main milk-producing states produced 18.1 billion pounds of milk, a one-tenth of a percent decrease from the previous year.
The USDA also reduced November output down by six-tenths of a percent from early estimates to 17.3 billion pounds, 14 million pounds less than the previous year.
There are 8.9 million dairy cows in the 24 main dairy states, and 9.36 million throughout the country.
Production per cow increased in the first half of 2023 but decreased in the final half of the year. Last year, January had the highest milk output and per-cow production rate.
California is the leading total milk producer, producing 3.44 billion pounds, followed by Wisconsin, which produces 2.67 billion pounds. Michigan continues to top the country in milk-per-cow output, with 2,210 pounds per cow.
The Global Dairy Trading Index rose 2.3% in Tuesday’s trading session.
Butter was the biggest gainer, up 5.8% to $5,906 per metric ton ($2.67 per pound).
Anhydrous milk fat rose 4.3% to $5,842 per metric ton, or $2.64 per pound.
Whole milk powder prices increased 1.7% to $3,353 per metric ton, or $1.52 per pound.
Lactose rose 1.3% to $760 per metric ton, or $0.34 per pound.
Skim milk powder prices increased 1.2% to $2,638 per metric ton, or $1.19 per pound.
Cheddar cheese prices were up 1% to $4,217 per metric ton, or $1.91 per pound.
The only product to lose value during Tuesday’s trading session was mozzarella cheese, which fell 3.3% to $3,830 per metric ton, or $1.73 per pound.
During Tuesday’s trading event, 100 buyers out of 167 bidders participated in 15 rounds of bidding. Overall, 24,909 metric tons of dairy products were purchased on Tuesday.
The T.C. Jacoby Weekly Market Report Week Ending January 12, 2024
Cheese Market Outlook
U.S. cheese exports reached the highest volume for the month in November, up 3% from the previous month.
Record-setting shipments to Mexico offset softer demand from Japan and South Korea.
The trade is hopeful that the trend will continue.
Processors from Waupun to Warsaw to Waikato are boosting cheese output.
New Zealand cheese output surged 7% in 2023 and is likely to hold steady in 2024.
Processors are expected to funnel a larger share of the milk pool toward cheese production, prioritizing it over other dairy products.
Whey Market Outlook
Whey exports fell 13.4% short of year-ago volumes in November.
Slower shipments to China accounted for 97% of the decline.
CME spot whey powder rallied 1.75ȼ this week to a nine-week high at 43ʼ.
Class III futures jumped 37ȼ and March Class III rallied 17ȼ this week.
CME spot nonfat dry (NDM) milk gained a little ground this week and closed at $1.185, up 1.25ȼ.
U.S. NDM exports to all foreign markets were 2.7% lower than the 2022 pace, but year-to-date exports to Mexico were 18.1% greater than January through November 2022.
Butter Market
Spot butter settled at $2.5675, down 0.75ȼ since last Friday.
Class IV futures fell back, but are more than adequate to provide profits for those dairy producers who benefit from Class IV income.
USDA’s Corn and Soybean Forecasts
USDA raised its estimate of the 2023 corn yield to a new record at 177.3 bushels per acre.
The 2023 corn crop is officially the largest ever at 15.23 billion bushels.
USDA also raised its assessment of U.S. soybean yields, which pressured soybean prices.
The dairy trade is experiencing a downturn in the cheese market, with U.S. cheese exports reaching their highest volume in November, up 3% from the previous month’s high. However, domestic cheese demand remains weak, but exports are starting to pick up. This has led to a rebound in Chicago, with CME spot Cheddar blocks and barrels rising 12.75 and 3.5 percent respectively.
The ceiling for cheese exports is likely far lower than dairy producers would like, as processors from various countries are boosting cheese output. New Zealand cheese output surged 7% in 2023 and is likely to hold steady in 2024, even as milk output retreats. In Europe, milk output is also expected to wane this year, but processors are expected to funnel a larger share of the milk pool toward cheese production, prioritizing it over other dairy products.
Whey exports disappointed in November, falling 13.4% short of year-ago volumes. Slower shipments to China accounted for 97% of the decline. Domestic demand looks much better, with American consumers being hungry for high-protein whey products. CME spot whey powder rallied 1.75 to a nine-week high at 43 degrees Celsius.
Class III futures have seen some strength in the spot markets, with February contract jumping 37 degrees and March Class III rallying 17 degrees, respectively. However, February Class III futures remain depressed, and futures forecast that Class III prices won’t be high enough to pay the bills until later this spring.
CME spot nonfat dry (NDM) milk gained some ground this week, closing at $1.185, up 1.25 degrees. NDM exports fell 4.1% short of year-ago volumes in November, the third straight month of year-over-year declines. Shipments to Mexico were respectable, but fell 5.4% below last year’s record-high volumes. There’s likely room for even stronger U.S. milk powder exports in 2024, as Europe and Oceania are likely to rein in output.
The butter market took a small step back this week, with spot butter settled at $2.5675, down 0.75 degrees since last Friday. The butter market is suffering from the typical post-holiday hangover, with many bracing for powerful winter storms that will temporarily disrupt foodservice demand. Class IV futures fell back, but they are more than adequate to provide profits for dairy producers who benefit from Class IV income.
USDA raised its estimate of the 2023 corn yield to a new record at 177.3 bushels per acre, up 2.4 bushels from December’s estimate. The 2023 corn crop is officially the largest ever at 15.23 billion bushels, thanks to crop genetics and modern farming advancements.
The Ukrainian Union of Dairy Enterprises reported a 36% increase in raw milk prices in the second half of 2023, exceeding the level of some European countries. In July 2023, the average farmgate price of raw milk in Ukraine was €33 per 100 kg, but it has now risen to €42 per 100 kg. Farmgate raw milk prices in Ukraine have reached parity with those in other European countries, with milk costing 3.77% more than in Sweden, 3.38% more in Slovakia, and 10.77% more in Latvia. Ukrainian dairy products are no longer appealing to European consumers at their current prices.
A raw milk shortage persists in Ukraine, with prices reaching €50 per 100 kg in recent weeks. This reduces processors’ profitability to zero, making the dairy industry the worst of all agricultural sectors. Authorities could encourage milk farmers to increase production and supply in order to halt the mad rush among processors to fill their capacities. Subsidies for capital costs for new farms could turn the tide in the dairy industry. Meanwhile, milk farm profitability in Ukraine has reached a new high of 30-60%, according to Vadim Chagarovsky, head of the Union of Dairy Enterprises of Ukraine.
Provided monthly payments to farmers at a chosen price level.
No extension to 2024, no signup period.
Significant price difference between cheese and butter.
Domestic demand for butter absorbs international market decrease.
Butter exports down 47.7% from 2022, but new record reached in October.
Milk supply is unaffected by mild weather and good feed quality.
Hopes for short-lived depressed milk prices, but potential for prolonged low prices without significant demand increase or tighter supply.
The Dairy Margin Protection (DMC) program has been a significant assistance for many farmers in 2023, providing payments for each month if the price level was chosen at $9.50. However, the program has not been extended to 2024, and there is no signup period. The price difference between cheese and butter remains substantial, with Class IV futures having a premium of more than $1.00 throughout the year. Domestic demand for butter remains strong, absorbing much of the decrease in the international market. Butter exports were down 47.7% from 2022, but the price reached a new record in October. Milk supply is not a concern, and mild weather and good feed quality have led to sufficient butter supply. The hope is that depressed milk prices will be short-lived, but without a significant increase in demand or tighter milk supply, low prices may persist for a longer duration.
In the Parlor to Plate podcast, Ever.Ag experts discussed concerns for dairy producers heading into 2024. They noted that while markets have been quiet, there are still dangers and concerns, particularly regarding milk prices. Analyst Colin Kadis noted that 2022 was one of the greatest years for dairy producers, despite higher costs. He also predicted that 2023 would be difficult, especially for Class III producers. While lower dairy prices are welcomed, global and domestic demand for some dairy product categories is lower. Brian Fletcher, a risk management expert, noted that if a demand resurgence occurs, it could lead to elevated prices. He suggested that if demand remains mediocre, more supply erosion is needed to stabilize prices. Kadis concluded that dairy farmers may not be excited to sign up for this, as they believed they had liquidated enough six months ago.
According to the United States Dairy Export Council, a record month of cheese exports did not overcome decreases in virtually all other dairy categories in November.
Total values fell 21% from 2022 to more than $630 million, while volumes fell more than 8%.
Cheese exports increased by 4%, with shipments to Mexico jumping by 42% for the month, owing mostly to increased demand for shredded cheese in food service. Exports of high-protein whey surged by 37% this month due to rising worldwide demand.
Nonfat dry milk/skim milk powder (-5%), low protein whey (-14%), and lactose (-7%) were all lower this month.
Mild winter conditions across most of the country have supported milk production though margins remain thin, especially for producers in the western U.S. Milk remains readily available for manufacturers.
The new year has officially begun. But as Auld Lang Syne faded into the background, the dairy markets were unsettled in the first holiday-shortened trading week of 2024. Most products saw prices oscillate without much conviction as buyers and sellers jockeyed to set the tone early in the new year.
Mild winter conditions across most of the country have supported milk production though margins remain thin, especially for producers in the western U.S. Bottling demand has picked up as schools go back into session following the winter break. But despite this pull, milk remains readily available for manufacturers. Spot loads of milk can reportedly be picked up for discounts as deep as $8 under Class III prices. While that feels like a big discount, it is less than the $10 discounts available last year at this time and which stretched through the first half of the year. Dairy Market News reports that, “most [contacts] expect milk prices to move nearer to Class III as the holidays grow more distant in the rearview mirror.”
All in all, milk remains available to cheese processors should they choose to accept it. However, tepid demand is dampening their enthusiasm for moving additional milk volumes through their vats. Market participants indicate that cheese inventories are plentiful, and that retail demand is stable to weak. Some are optimistic that football season will encourage additional cheese usage through both foodservice and retail channels.
Cheese production was robust in November, rising 0.7% year over year to 1.163 billion pounds. The increase was particularly notable given the 0.6% decline of milk production during the month. Manufacturers increased production of American varieties at the expense of Italian types, however Cheddar production failed to impress, falling 0.4% year over year to 322.57 million pounds. Robust production of cream cheese, up 5.7% to 91.737 million pounds, helped to boost the overall cheese figure.
The CME spot Cheddar block market reflected the uncertainty of supply and demand, gaining a penny on the first trading day of the new year before giving up ground on Wednesday and Friday to end the week at $1.435/lb., down 3.5¢ from last week. Barrels followed a similar path but a 4¢ gain on Tuesday netted out to a 1¢ gain for the week as Friday’s session finished at $1.41/lb. It was an active week for barrels as 26 load changed hands.
On the other side of the Class III complex, spot dry whey markets showed much more decisiveness, moving steadily upward over the course of the week. Friday’s session ended at 41.25¢ per pound, an increase of 2.75¢ compared to last week. Domestic demand is steady and export demand appears to be improving, especially from Mexican buyers. Whey manufacturers continue to route the whey stream toward the production of high protein products, which is likely helping to put some support under dry whey prices. In November, output of whey protein isolates and whey protein concentrates (WPC) with more than 50% protein rose by 16.4% and 7.5%, while production of dry whey and lower protein WPCs fell by 10.9% and 16.8%, respectively.
Strong cheese production pulled milk away from the manufacture of Class IV products late last year. Butter production declined during November as production fell 3.7% to 165.183 million pounds. Cream supplies are relatively plentiful as component values remain robust. Churns in many parts of the country are capitalizing on available supplies as operating schedules range from steady to active. Following the holidays, most butter market participants note that demand is understated. These dynamics were reflected at the CME as the spot butter market felt the biggest loss to start the year across all the commodities. A 2¢ increase on Tuesday was again wiped out by larger losses on Thursday and Friday. Butter prices fell to $2.575/lb. by the end of the week, a decline of 9¢ versus last week as 11 loads traded hands. Despite the decrease, butter prices remain almost 20¢ higher than a year ago.
Meanwhile the nonfat dry milk (NDM) market continues to move sideways. Modest gains early in the week were mostly eliminated by a decline on Friday that left the price at $1.1725/lb. up just a quarter cent compared to last week with 19 loads moving. The NDM market spent 2023 in a remarkably narrow range, trading between $1.0575/lb. and $1.3225/lb. the entire year. 2024 appears to have begun on the same note as the market looks for direction. Production remains weak as combined output of NDM and skim milk powder (SMP) totaled just 173.552 million pounds in November, a year over year decline of 17.3%. However, while NDM production tumbled by 28%, SMP production rose 17.8%, perhaps indicating that demand is perking up from export markets. On the demand side, domestic buyers are buying steadily. Participants are optimistic that the new year will bring additional interest from international buyers.
The grain markets saw some modest losses over the course of the week as slower export activity and improving South American weather pushed markets down. MAR23 corn contracts settled on Friday at $4.6075/bu. while MAR23 soybean meal settled at $369.4/ton. Lower feed prices will be welcome news to producers, but margins remain tight at the hand of stubbornly low milk prices, particularly for those with high Class III exposure.
With revised holiday sale dates, the dairy replacement heifer trade was modest countrywide through December. Between year-end 2022 and 2023, the average Holstein heifer springer price for the four reported markets was almost comparable, at about $1,700 per head. Global dairy demand is also in the “steady-but-uninspired” category for the end of 2023. Phil Plourd, President of Ever.Ag Insights, detected poor comments on dairy demand globally on Ever.Ag’s monthly Forecast Update Live webcast. “Until we see some traction in global demand, it’s difficult to believe that these markets can go much higher,” Plourd mentioned this. Meanwhile, beef-cross calves continue to be the year’s biggest dairy market story. In the last month, Holstein heifer calves in Pennsylvania averaged $50-90/head. Their beef-cross heifer equivalents were 7 to more than 10 times more expensive, ranging from $460-685/head.
The T.C. Jacoby Weekly Market Report Week Ending December 8, 2023
Cheese vats remain full, despite lower milk output. U.S. cheese production reached 1.19 billion pounds in October, up 0.8% from the year before. Given the continued investment in U.S. cheese production capacity, cheese output is likely to grow for the foreseeable future, to the detriment of U.S. cheese and Class III prices. But the details of U.S. cheese production offered some fodder for the bulls. In October, cheesemakers shifted milk into fresh cheeses like cream cheese and Neufchatel (+6.8% year-over-year), cottage cheese (+13%), Hispanic cheeses (+5.7%), ricotta (+12.2%) and Mozzarella (+2.3%).
Cheese vats remain full, despite lower milk output. U.S. cheese production reached 1.19 billion pounds in October, up 0.8% from the year before. Given the continued investment in U.S. cheese production capacity, cheese output is likely to grow for the foreseeable future, to the detriment of U.S. cheese and Class III prices. But the details of U.S. cheese production offered some fodder for the bulls. In October, cheesemakers shifted milk into fresh cheeses like cream cheese and Neufchatel (+6.8% year-over-year), cottage cheese (+13%), Hispanic cheeses (+5.7%), ricotta (+12.2%) and Mozzarella (+2.3%). Unlike Cheddar, fresh cheeses are made to be consumed immediately. They won’t show up on a Cold Storage report or at the CME spot market in Chicago. Stronger output of these cheeses hints at better domestic demand and greater export prospects for Mozzarella after a cruel summer of slower orders. The focus on these cheese varieties allowed U.S. cheesemakers to turn out 2.5% less Cheddar in October than they did the year before.
While the latest production data and reports of lower milk and cheese output in Europe fueled hopes for a rebound in U.S. cheese exports, shipments in October remained soft. The U.S. sent just 76 million pounds of cheese abroad in October, 3.4% less than the year before. Shipments to Mexico set a new high for the month, but sales to key buyers in Asia faltered, as cheaper European product dominated those markets. Despite the disappointing export data, U.S. cheese prices climbed this week, boosted by continued strength in European pricing and an impressive jump at Tuesday’s Global Dairy Trade (GDT) auction. CME spot Cheddar blocks rallied 6ȼ this week to $1.58 per pound. Barrels advanced 3ȼ to $1.55.
The Dairy Products report confirmed that whey processors have finally shifted more of the whey stream to whey protein concentrates and isolates, leaving less for the drier. Dry whey output slumped 1.2% below year-ago volumes in September and October output was down 2.6% year over year. Whey stocks waned, but they remain above year-ago levels for now, and exports are soft. Dry whey exports fell to 30.8 million pounds in October, down 37.6% from a year ago. U.S. whey exports are likely to struggle until Chinese hog producers are back in the black, and that may not happen until the Chinese economy finds its footing. Whey prices are holding above the summer lows, but they’re not climbing. This week CME spot whey slipped to 39.5ȼ, down a half-cent from last Friday.
Milk powder prices also retreated, despite convincing rebounds in both skim milk powder (SMP) and whole milk powder (WMP) values at the GDT auction. CME spot nonfat dry milk (NDM) lost 1.5ȼ this week and dropped to $1.165, the lowest price since September. U.S. milk powder output remains in the doldrums, as cheesemakers continue to pull milk and cream away from the dryer and the butter churn. Combined production of NDM and SMP totaled 169.1 million pounds, down 12.9% from October 2022. Manufacturers’ stocks of NDM dropped to 223.6 million pounds, down 10.8% year over year to the lowest stockpile since November 2019. But whittling down inventories through industry attrition is not enough to lift prices any further. We’ll need better global demand for milk powder or even steeper declines in milk powder output from Europe before prices can climb. For now, U.S. exports are too slow to provide much support. U.S. milk powder exports lagged last year’s volumes by 11.8% in October.
Butter production totaled 160.6 million pounds in October, down 0.9% from a year ago. Exports are abysmal, but it doesn’t matter. The U.S. has a butterfat deficit, and butter prices remain well supported. CME spot butter rallied 1.5ȼ this week to $2.67. That’s down significantly from the pre-holiday peak, but it’s still a pretty hefty price.
The setback in the milk powder market weighed on nearby Class IV futures. The December contract slipped 4ȼ to $19.20 per cwt., and January Class IV futures tumbled 28ȼ to $18.94. But deferred Class IV contracts gained a little ground this week and so did most Class III futures. However, Class III prices remain dishearteningly low. December Class III settled at $16.20 and January finished at $16.34. Further down the board, prices look more promising, but there will be plenty of red ink between here and there.
The corn market held in a relatively tight range. March corn futures settled today at $4.855 per bushel, up a fraction of a cent from last Friday. The soy complex continued to retreat. January beans closed at $13.04, down 41.5ȼ for the week. January soybean meal finished at $404.70 per ton, down another $8. There were no surprises in USDA’s monthly update to crop balance sheets. The agency confirmed that U.S. and global corn supplies are plentiful, while soybean and soybean meal stocks are tighter. The United States is going to crush a record volume of soybeans into oil and meal in the 2023-24 crop year. But soybean meal exports will also set a new all-time high, so U.S. dairy producers and livestock growers will have to pay up to keep their share of U.S. soybean meal at home.
Milk output was somewhat higher than in September, but slightly lower than in October of previous year. According to the USDA’s National Agricultural Statistics Service, milk output in the 24 main producing states was 17.9 billion pounds, up one-tenth of a percent from the previous month but down four-tenths of a percent from the previous year.
In October, production per cow averaged 2,013 pounds, three pounds less than the previous month. The number of milk cows on farms was 8.91 million, down 5,000 from the previous month and 19,000 from the previous year.
With 9.37 million cows, total production in all states was 18.7 billion pounds of milk.
California produces the most milk in the United States, with 3.31 billion pounds, followed by Wisconsin (2.69 billion pounds) and Texas (1.4 billion pounds). Michigan still has the greatest average yield per cow, at 2,240 pounds.
The T.C. Jacoby Weekly Market Report Week Ending November 17, 2023
The holiday season is upon us, but the dairy markets haven’t been feeling particularly festive. Nearly all products lost value over the course of the week as plentiful supply and understated demand collided to pull prices downward.
The holiday season is upon us, but the dairy markets haven’t been feeling particularly festive. Nearly all products lost value over the course of the week as plentiful supply and understated demand collided to pull prices downward. Lower spot prices have put some pressure on milk futures with both Class III and Class IV moving modestly lower through the week. DEC23 Class III futures settled at $16.64/cwt. on Friday while the DEC23 Class IV contract fell to $19.16/cwt.
Across most of the country milk volumes and component levels are rising as autumn sets in and temperatures cool. The largest exception is in parts of the Southwest where the mercury has remained persistently high and as a result, milk production has not expanded materially. Bottling demand has begun to slow as institutions prepare for the Thanksgiving holiday and stakeholders are anticipating a further increase in spot load availability next week as some manufacturing plants take downtime.
The CME spot butter market continued to put on a show this week. Gains of 4.5¢ on both Monday and Tuesday took the price up to $2.69/lb. The market took a breather on Wednesday before losing 9.25¢ on Thursday and another 10.75¢ on Friday. When the dust settled, the butter market closed this week at $2.49/lb., a loss of 11¢ compared to last week and the lowest price seen since July.
Ample cream supplies are weighing on the butter price. Multiples have fallen for several weeks in a row and while churns are not enthusiastic about building inventories, many are willing to convert affordable cream into butter that will be frozen for future needs. With holiday purchasing largely in the rearview mirror, butter demand has softened somewhat compared to recent weeks. Nevertheless, demand remains seasonally respectable and market stakeholders suspect that lower butter prices will be sufficient to generate additional interest.
In sharp contrast to butter’s volatility, the nonfat dry milk (NDM) market has been remarkably stable. The CME spot NDM price lost just .75¢ over the week, wrapping up Friday’s session at $1.1925/lb. Condensed skim supplies are plentiful and growing, but dryers have maintained active schedules and demand has been sufficient to keep the market in check. Firming signals from the international arena have also likely helped to prevent NDM prices from falling more dramatically. At this week’s Global Dairy Trade Pulse auction, skim milk powder prices moved upward, extrapolating the increase seen at last week’s full auction. Dairy Market News reports that Mexican interest is mixed but suggests that the pace of buying may slow as the holidays approach.
Growing supplies have also increased the amount of milk available to cheese vats, though spot milk prices remain resilient. Current spot supplies are running at a premium of between 25¢ and $1 over Class III prices, driving many cheesemakers to fortify with milk powder. Cheese demand is mixed. The foodservice channel continues to suffer as high menu prices are spooking customers. On the other hand, retail demand has remained robust and is expected to remain so through the coming weeks. Data collected by Dairy Market News indicates the number of cheese advertisements recorded last week increased by 60% compared to the prior period. Traders and key players suggest that U.S. cheese continues to be price uncompetitive with international alternatives, which is expected to stifle export sales.
At the CME, spot Cheddar prices started off strong but deteriorated in the second half of the week. Blocks gained 4.25¢ and .5¢ on Monday and Tuesday but would see these gains wiped out, ultimately closing the week at $1.60/lb., unchanged from last Friday. Barrels gained a more modest 3¢ early in the week before losing a penny on Thursday and 11¢ on Friday, pulling the price down to $1.56/lb., 9¢ less than last Friday’s close. After holding a premium to blocks for six sessions, Friday’s loss pulled barrels back below blocks with a 4¢ spread.
While other markets slumped, dry whey defied the trend and managed to eke out some gains at the spot market this week. Increases on Monday and Tuesday were partially offset by losses on Wednesday and Thursday. Even so, the spot price ended the week at 41¢ per pound, up 1.25¢ from last Friday as 10 loads moved. Raw whey supplies are available but not excessive as cheesemakers still face a premium for spot milk. Market participants indicate that they are in the midst of negotiations for early next year and are finding resistance at the 40¢ price level.
A mixture of weather news out of South America has caused fluctuations in the grain markets this week as alternating swaths of excessive heat and torrential rains have moved across the region in recent days. Recent precipitation should have helped to get Argentina planting back on track while Brazil continues to face significant challenges. Despite headwinds, MAR24 corn futures settled on Friday at $4.8525/bu., down a few cents from Monday’s settlement. Meanwhile JAN24 soybean meal capped the week at $436.50/ton, down about $17 from Monday.
Butter price movement has been spectacular over the last two and a half months. The butter price was $2.62 on August 30th and increased by 88 1/2 cents, hitting a record high of $3.50 1/4 on October 6th. The price then dropped 90 1/4 cents to $2.60 on November 10th. We believed the end of 2021 and most of 2022 would be a crazy ride for butter, but this year has surpassed that time. Even though prices gained $1.24 1/2 from late 2021 to early 2022, the market then chopped about for a while before continuing its uptrend, finally hitting a peak on October 6, 2022, before falling again.
Nothing like the current price movement has occurred in history. The last time prices decreased this quickly was in late 2014, when the price plummeted $1.29 from September 25th to October 28th. But we’ve never seen it fluctuate so rapidly in such a short period of time.
The insane component of the butter movement was not a fear of a butter scarcity this year, as it was in 2022. Exports fell more in contrast to 2021 and early 2022. Butter exports reached 2,294 metric tons in September, a 46.4% decrease from September 2022. To make things worse, exports in September 2022 were 35.5% lower than in September 2021.
September exports were the lowest since 2020, while the monthly amount of butter exports was the lowest since November 2020.
Domestic butter demand surged as the second half of this year progressed, increasing purchasers’ willingness to acquire stock ahead of time. Butter output has also slowed, while cream supplies have tightened and churning has been decreased. As bidders got more aggressive, the expectation of increased prices became a self-fulfilling prophesy. Once the purchasing frenzy was over, sellers were more aggressive in order to shift high-priced supplies as fast as possible, resulting in a downward leap-frog effect. It is unclear how far prices will fall, but it is yet another typical example of a market that always falls faster than it rises.
Not only are we dealing with decreased milk costs and decreasing demand for fluid milk consumption, but schools are also facing a milk carton scarcity that might last many weeks or months. According to Pactiv Evergreen, the main maker of milk cartons in North America, demand for half-pint milk cartons is much more than predicted. The immediate consequences will be felt in New York, Pennsylvania, California, and Washington. School authorities are trying to find alternatives to cartons or restricting milk options. Not only are schools at risk, but so are hospitals, nursing homes, and jails. I’m not sure how demand for half-pint milk cartons can be much greater than predicted. According to fluid milk sales figures, there hasn’t been an increase in demand from schools or other organizations. It seems that this primary corporation was unable to provide its consumers, forcing them to turn to other companies for supplies or alternatives. It is undeniably an intriguing market.
In September, the USDA reported a broadly mixed month for US dairy product output.
The overall cheese volume of 1.15 billion pounds was up 0.1% month on month but down 0.3% year on year, with advances in American and Hispanic cheeses wiping out losses in Italian cheeses.
In preparation for the holidays, butter output reached 145 million pounds, a 3% rise over the previous month and last year.
Dry milk product output was considerably lower, while whey product production was firm to higher, and frozen product production was lower than a year before.
The USDA will release its next set of dairy supply and demand estimates on November 9th.
On the Chicago Mercantile Exchange, milk futures and cash dairy markets were down on Tuesday.
November Class III milk went down $0.11 to $17.06 a gallon. December’s price went down $0.24 to $16.87. January saw a $0.16 decrease to $17.04. In February, the price went down $0.15 to $17.56. Contracts for March through September varied from unchanged in May and June to fifteen cents lower in April.
The price of dry whey remained steady at $0.3850. One transaction was reported at $0.3825.
At $1.6975, forty-pound cheese bricks were down $0.0025. There were no sales registered.
Cheese barrels fell $0.0350 to $1.5450. Seven transactions were registered, with prices ranging from $1.5450 to $1.5725.
At $2.8975, butter was down $0.1125. Twelve transactions were registered, with prices ranging from $2.89 to $2.93.
Nonfat dried milk fell $0.0050 to $1.17. At that price, one sale was recorded.
Reduced production and strong domestic consumption are showing up in dairy product production and inventory levels, offsetting weaker exports and setting the stage for the milk price rebound long foreseen in dairy futures markets and beginning to show up in dairy statistics. U.S. consumers continued their strong uptake of dairy during the summer.
The T.C. Jacoby Weekly Market Report Week Ending October 27, 2023
SMP fell hard at the GDT Pulse event on Tuesday. It’s too soon to know whether the Pulse auction represents a good indication of global SMP values or if it can be dismissed due to limited participation in such a nascent event. But it certainly sparked fears about the health of global demand for milk powder.
A poor showing at the Global Dairy Trade (GDT) Pulse auction spooked the milk powder markets this week and another month of disappointing trade data from China added further fright. The GDT debuted its Pulse auction in August, offering an indication of trends in whole milk powder (WMP) prices in the weeks between the full bimonthly events. This month, GDT added skim milk powder (SMP) to the Pulse docket. SMP values stabilized at the GDT in September and staged a convincing recovery in the first half of October. But SMP fell hard at the GDT Pulse event on Tuesday, retreating 4.7% from the comparable contract at last week’s full auction. WMP prices also took a step back, slipping 1.1% from last week’s mark. It’s too soon to know whether the Pulse auction represents a good indication of global SMP values or if it can be dismissed due to limited participation in such a nascent event. But it certainly sparked fears about the health of global demand for milk powder. CME spot nonfat dry milk slipped 3.5ȼ this week to $1.1975 per pound.
Chinese dairy import data was similarly unsettling. China brought in less than 42 million pounds of WMP in September, the lowest volume in five years. Chinese SMP imports also notched five-year lows at 43 million pounds. All told, Chinese milk powder imports fell 29.5% from year-ago volumes. These numbers are disheartening but not surprising. The product that arrived on China’s shores in September was purchased months before, at a time when China was notably absent from the global marketplace. But Chinese milk production has fallen below year-ago volumes for several months now, and Chinese buyers have been a little more active at the GDT and elsewhere. China still has large milk powder stocks, but it’s possible that China’s appetite for foreign product will improve going forward.
China’s imports of other dairy products were more reassuring. Butter and cheese imports both topped year-ago volumes once again. Chinese whey imports fell 11.6% short of the September 2022 tally, but Chinese imports of U.S. whey jumped from the very low volumes seen in February through August.
Closer to home, indications of demand were similarly mixed. USDA’s Cold Storage report showed that cheese stocks declined 23 million pounds from August to September. There were 1.47 billion pounds of cheese in refrigerated warehouses at the end of last month, up just 0.2% from September 2022. The month-to-month decline was stronger than usual, which might hint that cheese demand was better than previously thought. But it’s more likely that buyers had some catching up to do after very slow sales in August. Inventories of American-style cheeses, including the Cheddar that determines CME spot market values, hardly budged, slipping just 2 million pounds for the month. American-style cheese stocks were up 0.9% from a year ago. There simply wasn’t enough good news in the Cold Storage report to prop up prices in Chicago. CME spot Cheddar blocks fell 5.75ȼ to $1.73. Barrels slipped 2.75ȼ to $1.6825.
Butter stocks dropped 16.3 million pounds from August to September, clocking in at 275.4 million pounds. Butter stocks declined at a rapid clip in June through August, but the drawdown last some momentum in September as soaring prices det would-be buyers. September 30 stocks were much lower than those seen in 2019 through 2021, which explains why prices climbed this fall. But inventories were 3% greater than in September 2022, undermining the argument that prices should top year-ago levels. CME spot butter prices dropped hard this week, plummeting 16.75ȼ to $3.1925 per pound. As grocers and buyers finish stocking up for the holiday baking season, prices are likely to fall further, echoing last year’s sudden selloff.
As it often does, the whey market bucked the trend. CME spot whey powder climbed a half-cent this week to 40ȼ, hitting that mark for the first time since April. Dairy producers can expect 60ȼ per cwt. more from their Class III checks with whey at 40ȼ per pound than they could when it was languishing at 30ȼ. Stronger Chinese imports of U.S. whey likely helped at the margins, but the real reason for the whey rally is a dramatic increase in domestic demand for high-protein whey concentrates.
With most dairy products in the red, both Class III and Class IV futures took a sizeable step back this week. November and December Class III futures lost 72ȼ and 80ȼ, respectively. The futures forecast milk in the mid-$17s into early next year. Class IV contracts lost nearly as much ground, but prices are much, much higher. The October contract settled at $21.60, with November a dollar lower than that and December at $19.49.
Combines are rolling and grain prices are falling. December corn settled today at $4.8075 per bushel,
down more than 15ȼ for the week. There is plenty of corn on the U.S. balance sheet to satisfy domestic demand and keep prices relatively low. Grain values will spike if the trade becomes worried about a steep decline in South American crop prospects, which would quickly boost U.S. corn and soybean exports. But the forecast calls for showers in the driest parts of northern Brazil and Argentina, so those fears are taking a backseat for now. Indeed, U.S. corn and soy export prospects have diminished in the past few weeks as the dollar strengthened and U.S. export logistics faced additional complications. Low water levels on the Mississippi River have reduced barge traffic, and – just as grain started to flow in the northern United States and southern Canada – a labor strike has shut down all shipping on the St. Lawrence Seaway, a vital artery connecting the Atlantic Ocean to ports on the Great Lakes.
Nonetheless, USDA reported a spate of new corn and soybean export sales this week, and soybean meal is leaving our shores at a record-setting pace. Argentina is the world’s largest soybean meal supplier, and the U.S. is filling in the vacuum left by last year’s very small Argentine soy crop. December soybean meal jumped to $442.40 per ton today, up $18.50 from last Friday.
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.