Discover how June FMMO milk prices surged to new highs. What factors drove Class II, III, and IV prices up? Stay informed on dairy market trends and future outlook.
Dairy producers can look forward to healthier June milk checks, driven by the latest Federal Milk Marketing Order (FMMO) milk class prices. As announced on July 3, FMMO Class II, III, and IV prices increased from the previous month, buoyed by higher butterfat and protein values. Notably, the Class III-IV price gap continues to narrow.
Upcoming June 2024 FMMO pooling estimates, uniform prices, and producer price differentials (PPDs) will be announced from July 11 to 14 and summarized on July 15. Stay tuned to Progressive Dairy’s website for the latest updates.
June class prices
Here’s a snapshot of the class prices announced on July 3:
At $21.60 per hundredweight (cwt), the June Class II milk price is up 10 cents from May and $2.77 higher than June 2023. This is the highest it has been since October 2023.
The Class III milk price, at $19.87 per cwt, surged another $1.32 from May, reaching an 18-month high and standing $4.96 higher than June 2023.
At $21.08 per cwt, the June 2024 Class IV milk price increased 58 cents from May and $2.82 more than June 2023. This is also the highest price since October 2023.
Considering potential FMMO pooling impacts, the June 2024 Class IV milk price is $1.21 more than the Class III milk price for the month, down from $1.95 in May. This marks the narrowest spread since September 2023.
Further strengthening prices, the advanced Class I base price was announced at $20.08 per cwt, an increase of $1.62 from May 2024 and $2.07 higher year-over-year. This is the highest Class I base price since February 2023.
Butterfat protein values move higher.
Elevated butterfat and protein values have significantly influenced June’s milk class price calculations. The value of butterfat climbed about 8 cents from May, reaching around $3.54 per pound. Milk protein saw an even more notable increase, rising nearly 32 cents to $2.05 per pound, the highest value since September 2023.
The value of nonfat solids increased by approximately 3.5 cents to 99.9 cents per pound, while the value of other solids increased by about 1.5 cents to 23.3 cents per pound.
Looking ahead
Given FMMO advanced prices and current futures prices, the outlook for July milk prices is mixed but generally looking stronger.
The July 2024 advanced Class I base price has already been announced at $21.11 per cwt, a $1.03 increase from June 2024 and $3.79 higher than a year ago. This makes it the highest since January 2023.
July Class II, III, and IV milk prices will be released on July 31. According to trading on July 2, the Chicago Mercantile Exchange (CME) Class III milk futures price closed at $19.42 per cwt for July, showing a 45-cent drop from the June price. Meanwhile, the Class IV milk futures price closed at $21.41 per cwt for July, reflecting a 33-cent rise from June. Should these futures prices persist, the July Class III-IV milk price gap will widen to $1.99 per cwt, incentivizing some Class IV deploying.
U.S. dairy farm profits have soared to their highest in 18 months, but there are still challenges. What is driving this growth and what obstacles do producers face?
The U.S. dairy sector is poised for expansion, with producer margins at their most significant level in eighteen months. The Dairy Margin Coverage (DMC) program, which measures the ‘Milk Margin Above Feed Costs,’ shows a favorable trend. The most significant margin since November 2022, the Milk Margin Above Feed Costs, shot to $10.52 per hundredweight (cwt), a 92-cent rise from April. This influences dairy producers’ production choices and indicates improved circumstances, paving the way for potential expansion.
While growing margins are welcome news for dairy farmers, it’s crucial to recognize the significant obstacles. These include persistent animal health problems, high funding expenses, and the absence of replacement animals. However, it’s important to note that the more long-standing margins remain at current levels, the more likely resourceful producers will be able to overcome these obstacles and boost output. This presents both possibilities and challenges for the dairy sector, underscoring the crucial role of innovation in overcoming barriers and driving growth.
Despite obstacles like animal health concerns, expensive finance, and the absence of replacement animals, the dairy sector is poised for growth. The consistently high profits imply creative producers might discover ways to increase production. This growth potential should encourage stakeholders and inspire them to explore new opportunities in the dairy industry.
May’s Leap in Milk Margins Signals Robust Fortunes for Dairy Producers
Rising to $10.52/cwt, May’s Milk Margin Above Feed Costs jumped 92 cents from April and had the most significant margin since November 2022. This increase points to a favorable trend for dairy farmers, providing a counter against market instability. The Dairy Margin Coverage (DMC) scheme pays farmers when margins fall short of $9.50/cwt. May was notably the third month without prompted payments, demonstrating the industry’s improved profitability.
A Closer Look at May’s Favorable Milk Pricing and Moderating Feed Costs
Lower feed costs and better milk prices are mainly responsible for rising dairy producer margins. Rising $1.50 from April, the highest since January 2023, the All-Milk price in May hit $22/cWT. The Class III price was significant, which rose by more than $3/cwt. Together with increases in the Class IV price, this rise in Class III pricing significantly raised general milk costs.
From April to $11.48/cwt in May, feed expenses rose marginally, climbing 58 cents. Still, they come out at almost $3/cwt, less than the previous year. These savings are remarkable due to growing maize, soybean meal, and premium alfalfa costs. Notwithstanding these increases, the general trend indicates a notable drop in feed prices from past years, relieving dairy farmers of financial burden.
Although growing dairy margins provide hope, significant challenges limit growth. Still a major problem, animal health affects milk output and results in substantial veterinary expenses.
High interest rates—often around five percent—make borrowing costly, hampering development strategies. Declining basic salaries and the expense of following strict water and environmental rules aggravate financial hardship.
The lack of quality replacement animals further hinders growth initiatives. Restricted availability increases acquisition expenses, making it challenging even with larger margins. Navigating these challenges calls for creative and strategic solutions for American dairy companies to profit appropriately from present economic times.
Projecting the Future: Market Dynamics and Anticipated Shifts in Class III Milk Prices
Future markets provide a critical window into the anticipated pricing course for Class III milk specifically. Future contract data point to likely declining prices. Although dairy product spot prices are still high, futures markets project reduced values. This is especially pertinent for Class III pricing as, after recent increases, it might soon be under downward pressure.
Factors like rising supply, changing world demand, and economic variables, including feed costs and export tendencies, might cause the anticipated decline in Class III pricing. Although manufacturers have benefited from more margins lately, should these predictions come true, they might have to be ready for less earnings. But how much the effect of reduced pricing is felt will depend on your capacity to adjust with sensible cost control and planned market activities.
USDA’s Foreign Agricultural Service reported that U.S. dairy exports showed a different picture in May, falling 1.7% below previous-year levels within domestic solid margins. Reflecting slow worldwide demand, total exports came to 504.8 million pounds.
With nearly 40 million pounds sent to Mexico, cheese exports rose by 46.6% despite this drop, reaching a new high for May at 504.8 million pounds. Whey exports also rose by 15.2% in response to growing demand from China.
On the negative side, butter exports dropped 19.4% under high prices, and nonfat dry milk exports fell 24.2%. These conflicting findings highlight the brutal global scene U.S. dairy farmers have to negotiate.
The Bottom Line
The U.S. dairy sector is experiencing a significant upturn, with the highest margins in 18 months and controlled feed prices. These recent margin improvements provide financial respite and instill a sense of optimism. However, it’s essential to acknowledge the ongoing obstacles—such as animal health issues, expensive finance, and a shortage of replacement animals—limiting farmers’ potential gains. This mixed view, with local solid success but diminishing foreign exports, underscores the industry’s complex future. Creative and resourceful producers are best positioned to leverage these profitable margins for expansion. The ability to address these issues and explore new approaches for growth and resilience will ultimately determine the fate of U.S. dairy operations. Now is the time for producers to be innovative and ensure their businesses remain profitable and future-ready.
Key Takeaways:
Dairy producer margins have climbed to their highest level in a year and a half, with May’s Milk Margin Above Feed Costs reaching $10.52/cwt.
Stronger milk prices, particularly increases in Class IV and Class III prices, played a significant role in enhancing producer margins.
Feed costs, although rising slightly in May, remain considerably lower than the elevated levels seen in previous years.
Barriers such as animal health issues, expensive financing, and a lack of replacement animals hinder dairy producers’ ability to scale up production despite higher margins.
U.S. dairy exports saw a decline in May, primarily due to weak demand from Asia, even as exports to Mexico surged.
Cheese exports reached a record high for May, while other dairy categories like nonfat dry milk and butter experienced declines.
Summary:
The U.S. dairy sector is experiencing significant growth, with producer margins at their highest level in 18 months. The Milk Margin Above Feed Costs program shows a favorable trend, with the Milk Margin Above Feed Costs rising to $10.52 per hundredweight (cwt), a 92-cent rise from April. This indicates improved circumstances and potential expansion for dairy producers. However, significant obstacles such as persistent animal health problems, high funding expenses, and the absence of replacement animals remain. Despite these challenges, the dairy sector is poised for growth, with consistently high profits suggesting creative producers might discover ways to increase production. Lower feed costs and better milk prices are mainly responsible for rising dairy producer margins. However, significant challenges cloud dairy expansion, including animal health, high interest rates, declining basic salaries, and the lack of quality replacement animals.
Find out why Dutch milk supply is dropping while EU production is growing. What does this mean for European milk prices? Check out the latest trends and market changes.
As the Dutch dairy industry struggles with falling milk production, Europe faces a curious paradox: a ‘milk lake.’ This situation, where there is an excess milk supply, highlights the complex dynamics within the European dairy market and broader agricultural trends reshaping the industry. This article examines the contrasting developments in Dutch milk supply and rising milk production across the EU, as well as the ‘milk lake’ implications on market stability and pricing mechanisms.
While the Netherlands has seen a continuous decline in milk output due to factors like the bluetongue virus and regulatory changes, countries like Poland and Germany are witnessing growth. According to ZuivelNL, the EU milk supply has grown by 1.1 percent in the first four months of this year, whereas the Netherlands’ supply has dropped by 1.3 percent. These opposing trends raise questions about supply management, market stability, and pricing mechanisms within Europe’s dairy industry.
Unraveling the Drop: Biological Strains and Regulatory Chains Impact Dutch Milk Supply
Month
Milk Supply (million kg)
Change from Previous Year (%)
January 2024
1,100
-1.2%
February 2024
1,050
-1.0%
March 2024
1,200
-0.9%
April 2024
1,180
-1.5%
May 2024
1,150
-1.6%
The decline in the supply of Dutch milk stems from biological challenges and regulatory constraints. Last year, the bluetongue virus outbreak in autumn significantly impacted livestock health, reducing milk yield. This effect is evident in the 1.6% drop in May 2023 and a 1.3% average decrease over the first five months of 2024.
Compounding these biological issues are regulatory changes, specifically the phase-out of derogation, which historically allowed farmers to use higher manure levels to boost production. With stricter nitrogen emission and manure management rules now in place, the number of dairy cows per farm is capped, further limiting milk output.
In summary, combining the bluetongue virus and regulatory shifts, such as the end of derogation, has led to a notable reduction in Dutch milk production.
Diverse Trends in EU Milk Supply: Poland’s Surge Amid Ireland’s Struggles
Country
Milk Supply Change (April 2024)
Poland
+5%
Germany
+0.6%
France
0%
Ireland
-8%
The European Union’s milk supply has seen a notable rise, with a 0.6% increase in April and a 1.1% growth over the year’s first four months. Poland’s impressive 5% increase and Germany’s slight uptick have significantly boosted the EU’s overall supply. However, Ireland struggles with an 8% decline, and France’s growth has stagnated. These contrasts highlight the complexities within the European dairy market.
Stability Amid Complexity: European Milk Prices Buoyed by Sustainability Initiatives and Bonuses
Company
Price in May (€ per 100 kg)
Change (€ per 100 kg)
Sustainability Premium (€ per 100 kg)
Milcobel
44.10
0.00
0.78
Laiterie des Ardennes (LDA)
44.10
+0.50
0.49
DMK Deutsches Milchkontor eG
44.10
+0.51
0.50
Hochwald eG
44.10
0.00
0.80
Arla
44.10
+0.45
2.44
Capsa Food
44.10
+0.06
—
Valio
44.10
0.00
—
Savencia
44.10
-0.09
—
Danone
44.10
-0.03
—
Lactalis
44.10
-0.18
—
Sodiaal
44.10
0.00
0.29
Saputo Dairy UK
44.10
+0.05
—
Dairygold
44.10
+1.08
—
Tirlan
44.10
+0.15
0.50
Kerry Agribusiness
44.10
-0.19
0.10
FrieslandCampina
44.10
+0.47
1.21
Emmi
44.10
-0.62
—
Fonterra
44.10
+0.32
—
United States class III
44.10
-0.29
—
Since January, European milk prices have remained stable, around 44 euros per 100 kg. In May, the average was 44.10 euros per 100 kg, a slight increase of 0.07 euros from April. This steadiness is due to sustainability premiums and bonuses, including rewards for participating in sustainability programs, GMO-free milk, and other environmentally friendly practices. Such incentives buffer producers from market fluctuations and contribute to the stability of milk prices.
Global Dairy Dynamics: Diverging Trends Highlight the EU’s Stable Milk Supply Amid Global Volatility
Country
April 2024 Milk Supply Change (%)
January-April 2024 Milk Supply Change (%)
Poland
+5.0
+3.8
Germany
+0.8
+1.1
France
0.0
+0.5
Ireland
-8.0
-6.5
Netherlands
-1.6
-1.3
In the global dairy market, trends vary widely among significant exporters. Australia has recently shown resilience with a 3% growth. Conversely, the United States and New Zealand faced declines, with the US seeing a slight decrease and New Zealand a more significant 4% drop.
The situation is more severe in South America. Argentina’s milk production shrank by 16%, and Uruguay’s fell by 7% in April, highlighting regional challenges. In contrast, the combined volume of significant dairy exporters, including the EU, saw a modest 0.3% increase (0.35 billion kg) up to April 2024. These trends illustrate the diverse fortunes and impacts in the global dairy market.
The European dairy market paints a nuanced picture of butter and skimmed milk powder prices. Butter prices saw significant volatility in early 2024, rising sharply from mid-May to early June before stabilizing due to unexpectedly cool summer temperatures reducing cream demand. This stabilization has introduced uncertainty into the butter market.
Conversely, skimmed milk powder prices have been relatively stable but face competitive pressures from cheaper US and Oceania imports. Demand unpredictability, especially in Asian markets, has also contributed to minor price decreases through June, highlighting ongoing challenges in the market.
The Bottom Line
The European market presents a mix of trends as the Dutch milk supply declines due to biological and regulatory challenges. However, the EU sees growth, driven by Poland, while Ireland faces declines. European milk prices, buoyed by sustainability premiums and bonuses, remain stable amid global volatility. Globally, the EU’s stability contrasts with declines in New Zealand and Argentina. These contrasting trends underscore the potential for growth and the need for innovation and collaboration within the global dairy sector.
The dairy sector is currently grappling with biological strains, regulatory burdens, and economic challenges, all impacting profitability and market consolidation. Smaller farms are particularly at risk. In this context, strategic adaptive measures and support systems are crucial. It’s a call to action for policymakers, stakeholders, and farmers to unite, using sustainability initiatives to counter economic strains and ensure food security. The industry’s resilience is evident, but proactive regulation, sustainability, and financial support are essential. A combined effort is needed to enhance dairy farming. This analysis underscores the need for innovation and collaboration within the global dairy sector.
Key Takeaways:
The Dutch milk supply has continued its downward trend, recording a 1.6 percent decrease in May 2024 as compared to May 2023, attributed to the bluetongue virus and changes in derogation policies.
Despite the Dutch decline, the overall milk supply in the European Union increased by 1.1 percent over the first four months of 2024, driven by significant growth in Poland and slight increases in Germany, while Ireland’s output fell sharply.
European milk prices have shown remarkable stability, averaging around 44 euros per 100 kg since January 2024, buoyed by various sustainability surcharges and bonuses across different countries and companies.
Globally, major dairy exporters illustrated mixed trends, with Australia’s supply growing, while Argentina and New Zealand experienced substantial declines.
The Dutch dairy product market exhibited volatility, notably in butter prices, while skimmed milk powder prices faced competitive pressures from cheaper US and Oceania products, leading to slight decreases in June.
Summary:
The Dutch dairy industry is experiencing a’milk lake’ due to a decline in production due to the bluetongue virus outbreak and regulatory changes. The EU’s milk supply has increased, with Poland and Germany contributing to the overall supply. Ireland and France are struggling with declines. Sustainability premiums and bonuses contribute to market stability and milk prices. Global dairy market trends vary among exporters, with Australia showing resilience with a 3% growth, while the US and New Zealand face declines. South America’s situation is more severe, with Argentina’s milk production shrinking by 16% and Uruguay’s falling by 7%. Policymakers, stakeholders, and farmers must unite to counter economic strains and enhance dairy farming.
Explore the potential for growth in U.S. dairy farms as profit margins rise. Will producers navigate the hurdles to take advantage of higher margins and boost output?
The U.S. dairy farming landscape is experiencing a promising revival. Producer margins have reached their highest in 18 months, as reported by the Dairy Margin Coverage (DMC) program. Despite ongoing hurdles like animal health issues and financial constraints, this surge offers a potential boost to dairy farms.
More substantial milk prices and lower feed costs have significantly improved margins. However, challenges remain, especially with tepid international demand. Addressing these concerns is essential for the future growth of the U.S. dairy industry. The insights provided here can inform strategic decisions and policies to foster resilience and profitability in this vital sector.
Surging Milk Margins and Prices Signal Positive Trends Amidst Ongoing Industry Challenges
In May, the U.S. dairy industry witnessed a positive trend, with dairy producer margins climbing to $10.52/cwt., up 92 cents from April, the highest since late 2022. The All-Milk price also rose significantly to $22/cwt., marking a $1.50 increase and the highest since January 2023. Amidst ongoing industry challenges, these gains signal a promising future for the U.S. dairy industry.
Monica Ganely Identifies the Current Rise in Margins as a Crucial Opportunity for Dairy Producers
Monica Ganely views the rise in margins as a pivotal opportunity for dairy producers. Increased margins typically encourage scaling up production to leverage higher profitability. However, Ganely points out persistent barriers like animal health issues, expensive financing, and limited replacement animals that may slow this expansion.
Despite the challenges, the dairy farming community remains resilient. Monica Ganely, for instance, is cautiously optimistic. She believes that the longer margins stay at current levels, the more likely resourceful producers will find ways to mitigate these challenges and increase production. This resilience underscores the strength of the dairy farming community and the potential for a prosperous future.
Despite rising margins, U.S. dairy producers face significant barriers that limit their ability to expand and benefit from improved profitability. Animal health issues like mastitis and bovine respiratory diseases threaten herd productivity and increase veterinary costs.
Economic challenges and costly financing further strain producers. High operational costs and thin profit margins necessitate substantial capital investments. However, securing affordable loans is difficult due to current financial conditions and interest rates, compounded by fluctuating market conditions and high feed costs.
A shortage of replacement animals also hinders expansion. This scarcity results from past low profitability, which discouraged herd renewal investments, and recent culling practices for immediate financial relief. Producers now need more young, productive animals to grow their herds.
Higher margins offer temporary opportunities, but long-term strategies and systemic support are essential for overcoming these entrenched barriers. The resilience and adaptability of U.S. dairy farmers will be crucial to navigating these challenges and capitalizing on favorable market conditions.
Analyzing the Current State of Feed Costs Reveals a Subtle Yet Noteworthy Uptick
Feed costs increased slightly in May, rising to $11.48 per hundredweight (cwt), 58 cents higher than in April. The uptick affected all key feed components: corn, soybean meal, and premium alfalfa. Even with this rise, May’s feed costs were about $3/cwt, lower than the same time last year and reaching their lowest since 2021. This indicates a trend of easing feed expenses following the high prices of previous years.
The Dairy Margin Coverage Program: A Crucial Financial Safety Net for U.S. Dairy Producers
The Dairy Margin Coverage (DMC) program stabilizes dairy producers’ incomes during market fluctuations. This federal program calculates the difference between the All-Milk price and the average feed cost, known as the Milk Margin Above Feed Costs. If the margin falls below a selected threshold, it triggers payments to offset the shortfall and stabilize incomes, providing a vital financial safety net for U.S. dairy producers.
Producers can enroll in the DMC program to choose coverage levels that match their financial risk tolerance. The most common threshold is $9.50 per hundredweight (cwt.). When margins drop below this level, payments help cover operating costs, ensuring farm viability during financial stress.
In essence, the DMC program offers a buffer against market volatility. With unpredictable feed costs and milk prices, the program provides financial predictability. This stability enables producers to plan and invest with confidence, enhancing the resilience and sustainability of the U.S. dairy industry.
Complex Market Dynamics and Strategic Planning: Analyzing Factors Behind the Surge in Milk Prices
The surge in milk prices stems from several key factors within the dairy industry. The significant rise in Class III and IV milk prices significantly influences. Class III milk, crucial for cheese production, increased due to strong domestic and international demand and steady spot dairy product prices. The Class III price surged over $3/cwt. Since April, they have significantly impacted the overall milk pricing structure.
Class IV milk, related to butter and nonfat dry milk, has also increased prices. This rise is due to steady butter demand and tight nonfat dry milk supplies, pushing the All-Milk price to its highest since January 2023.
However, future market trends indicate possible price declines. Futures markets predict that spot dairy product prices may not stay elevated. A drop in Class III prices is expected, which could slow recent milk revenue gains influenced by changing demand and economic conditions.
While current margins provide relief, strategic planning, and risk management are crucial for the dairy industry’s long-term success. Ganley emphasizes the need for proactive measures, such as the use of tools like the Dairy Margin Coverage program, to offer essential financial protection against unpredictable market shifts.
Lackluster U.S. Dairy Exports Weigh on Milk Prices Amid Strong Domestic Performance
One bearish factor for milk prices is lackluster U.S. dairy exports. In May, total U.S. exports fell below prior-year levels after growing in April, according to USDA’s Foreign Agricultural Service. U.S. exporters sent 504.8 million pounds of dairy products offshore, 1.7% less than in May 2023. “Weak demand from Asia weighed on total exports, even as exports to Mexico continued to soar,” Ganley said.
Cheese exports climbed 46.6% in May to 504.8 million pounds, the most recorded month, with over 40 million pounds sent to Mexico. Whey exports rose 15.2% as China’s demand for permeate and dry whey picked up, but other categories fared less. Nonfat dry milk exports slipped 24.2%, and butter exports fell 19.4% due to high prices.
The Bottom Line
As U.S. dairy producers see rising profitability with expanding margins and climbing milk prices, the industry contends with significant structural and market challenges. May’s Milk Margin Above Feed Costs reached $10.52/cwt., offering hope for dairy farmers. However, it’s essential to acknowledge that animal health issues, expensive financing, and limited access to replacement animals hinder producers from fully leveraging these improved margins. While higher milk prices drive these margins, reduced feed costs provide financial relief.
The Dairy Margin Coverage (DMC) program remains a crucial safety net, protecting farmers when margins fall below set thresholds. Nonetheless, gains in domestic profitability are countered by weak exports, mainly due to low demand from Asia, highlighting the complex dynamics in the global dairy market. This shows that even with better domestic margins, international market conditions pose a risk to sustained growth.
The industry’s future hinges on navigating these challenges. As margins stay favorable, producers must strategize to overcome barriers and increase output. While economic conditions offer a unique opportunity, strategic planning and tools like the DMC program are essential for sustained progress. The dairy sector is pivotal; addressing systemic issues and embracing innovation can lead to a more resilient and prosperous future. Producers and stakeholders must act now to secure the stability and growth of U.S. dairy farming.
Key Takeaways:
Dairy producer margins have reached a year and a half high, signaling potential for increased output.
Main contributors to this rise include stronger milk prices and slightly decreased feed costs compared to the previous year.
The Dairy Margin Coverage (DMC) program provides financial safety net payments when margins fall below $9.50/cwt.
Despite higher margins, challenges such as animal health issues, costly financing, and a shortage of replacement animals are hindering expansion.
U.S. dairy exports showed a decline in May, influenced by weak demand from Asia, but cheese and whey exports saw significant increases.
Summary:
The U.S. dairy farming industry is experiencing a revival, with producer margins reaching their highest in 18 months, according to the Dairy Margin Coverage program. This surge offers benefits for dairy farms, such as higher milk prices and lower feed costs. However, challenges remain, particularly with tepid international demand. Addressing these concerns is crucial for the future growth of the industry. In May, dairy producer margins reached $10.52/cwt., the highest since late 2022, and the All-Milk price rose to $22/cwt., the highest since January 2023. Long-term strategies and systemic support are needed to overcome these barriers. The resilience and adaptability of U.S. dairy farmers are crucial for navigating these challenges and capitalizing on favorable market conditions.
Check out May’s dairy trends: more cheese and ice cream, less whey. Curious about how this affects your favorite dairy products? Read the latest USDA report now.
Imagine seeing minor pricing adjustments in your preferred cheese as you enter your grocery shop. Ever wondered why? Knowing dairy production helps one to understand these changes. The USDA’s most recent milk output statistics for May are broken down in this post. We’ll look at declining whey products, a fall in butter, and rises in cheese and ice cream output. We’ll also discover which states excel in certain dairy areas. Increasing 2.1% from April and 0.7% year over year, the cheese production topped 1.21 billion pounds. Knowing trends in dairy production enables you to choose everyday goods with knowledge. Join us as we delve into the figures and trends influencing your dairy shelves.
Cheese Production Trends: Italian Varieties on the Rise
Cheese output in May was 1.21 billion pounds, up 2.1% from April and 0.7% from the previous year. This boom mainly results from a 4.4% rise in Italian cheeses, which weighed 505 million pounds.
Italian cheeses are often sought after because of their taste and adaptability. Mozzarella is particularly well-known and heavily involved in this rise; California is a leading producer.
Conversely, American-type cheese saw a slight comeback from April. Still, it fell short by 5.7% compared to the previous year, generating 449 million pounds. Changing consumer choices and dietary patterns could help explain this decline.
The increase in Italian cheese production and the decline in American cheese underscores the shifting market dynamics. This trend points to changing customer tastes and a rising demand for diverse cheese variants. It gives manufacturers valuable insights on where to concentrate their efforts to meet market demand.
Butter Production: A Tale of Resilience and Growth
Although there was a slight drop in May’s butter output from April, the industry showed resilience, with a 4% increase from a year earlier, reaching 204 million—consistent growth amidst monthly fluctuations, which is a testament to the stability of the dairy industry.
Whey Products: Navigating the Decline in Production
Production of whey products has dropped throughout the last year. Reduced by 6.3% to 76.6 million pounds, dry whey output might affect its availability in food and animal feed.
Lactose production dropped 2.7% in newborn formulations and medications. Likewise, crucial in sports nutrition, wheyear’sein concentrate fell 3.2% from last year’s levels.
The decline in whey products could be attributed to various factors, including producers focusing on more lucrative dairy products, shifting customer tastes, or altering global demand. Understanding these factors is crucial for predicting market pricing and supply.
Ice Cream Sector: A Sweet Surge in Production
The output of ice cream increased, especially in hard ice cream. It topped 65.97 million gallons in May, a modest but significant increase from April and up 2.3% from the previous year. This indicates a consistent demand, perhaps motivated by a change toward decadent foods during summer and warmer temperatures.
From April, low-fat ice cream also slightly increased; however, it dropped 6.1% from last year, equating to 40.2 million gallons. This might point to shifting market trends or a departure from diet-oriented choices.
May saw higher manufacturing of frozen and yogurt varieties. This promotes the rising trend of health-conscious decisions as these items are usually seen as better substitutes.
Regional Cheese Production Powerhouses: Wisconsin, California, and Idaho
Wisconsin, California, and Idaho are the top cheese producers. With 294.8 million pounds in April, Wisconsin—known for its cheddar and Mozzarella—led the way.
California comes in second with 206.5 million pounds, surpassing Italian-style cheeses like Mozzarella, which weighed 129 million pounds. Beyond cheese, California al-Idaho’s in butter and ice cream making.
Idaho’s 89.3 million pounds highlight its increasing dairy impact. These states increase the national cheese supply and California’s quality and efficiency criteria.
California’s Dairy Dominance: California and Ice Cream Production
California’s dairy business stands out because it produces butter and ice cream. Leading the country, the state showed its robust dairy infrastructure by generating 63.2 million pounds of butter in April.
With nearly 8.5 million gallons generated in April, California is the ice cream capital of the country. Whether you like frozen yogurt or creamy scoops, the state guarantees consistent availability to meet your needs.
This success results from a suitable temperature, modern conveniences, and a quality-oriented attitude. These elements, taken together, help California satisfy national cCalifornia’ss.
Remember the commitment of California’s dairy farmers, who deliver these pleasures to your table the next time you enjoy ice cream or butter.
The Bottom Line
The most recent USDA estimates indicate significant changes in dairy output, with cheese and ice cream on the rise and whey products declining. This underscores the importance of consumer knowledge in understanding the ever-shifting landscape of the dairy business. The significant surge in Italian cheese production and the resilience of the butter industry are key trends to be aware of, while the decline in whey products reflects changing market preferences. However, the surge in ice cream production highlights its enduring appeal.
States with high cheese output include Wisconsin, California, and Idaho; California also leads in butter and ice cream. These patterns direct next-sector investments and reveal customer preferences. Producers can develop and grow cheese and ice cream products. The dairy sector is still vibrant and robust, so knowledge is vital. Whether you are a consumer following trends or a manufacturer looking at fresh market prospects, these changes are essential for knowing the direction the sector will take.
Key Takeaways:
Total cheese output increased by 2.1% over April, reaching 1.21 billion pounds.
Italian type cheese production rose 4.4% year-over-year to 505 million pounds.
American type cheese production saw a minor increase from April but was 5.7% below last year’s levels at 488 million pounds.
Butter production was down 1.6% from April but up 4% from last year, totaling 204 million pounds.
Whey product production declined from year-ago levels, with dry whey down 6.3%, lactose down 2.7%, and whey protein concentrate down 3.2%.
Hard ice cream production rose to 65.97 million gallons, a slight increase from April and 2.3% higher than last year.
Lowfat ice cream production increased from April but was down 6.1% year-over-year at 40.2 million gallons.
Yogurt and frozen yogurt production saw an uptick in May.
Wisconsin led cheese production in April with 294.8 million pounds, followed by California and Idaho.
California led butter production with 63.2 million pounds in April and topped the nation in ice cream production with over 8.5 million gallons.
Summary:
The USDA’s May milk output statistics reveal significant changes in dairy production, with cheese and ice cream on the rise and whey products declining. Key trends include the surge in Italian cheese production and the resilience of the butter industry, while the decline in whey products reflects changing market preferences. However, the surge in ice cream production highlights its enduring appeal. Key states with high cheese output include Wisconsin, California, and Idaho, while California leads in butter and ice cream. These patterns direct next-sector investments and reveal customer preferences. Wisconsin leads the way with 294.8 million pounds in April, while California comes in second with 206.5 million pounds, surpassing Italian-style cheeses like Mozzarella. California’s dairy business stands out, leading the country with 63.2 million pounds of butter in April and nearly 8.5 million gallons generated, making it the ice cream capital of the country. Understanding these trends is crucial for consumers and manufacturers in the dairy sector.
Find out why milk prices are staying the same as cheese prices go up and butter prices go down. How will these changes affect the dairy market? Get the latest updates now.
On the eve of July 4th, spot cheese prices made a modest recovery, reaching $1.90 and positioning the barrel marginally higher than the block by a quarter of a cent. While futures showed a hint of optimism, they largely remained static as we approach Q4. Butter, meanwhile, lost some momentum in the spot market, witnessing a minor dip, and its futures presented a mixed picture amidst low trading volumes. We must look to Friday’s trading session for more precise directional signals.
May proved to be another robust month for U.S. cheese exports, which surged to 106 million pounds—a 4% increase from April and a stunning 47% rise from last year. A remarkable highlight was the record-breaking cheese export to Mexico, with our southern neighbors purchasing an unprecedented 40 million pounds, marking a 62% year-over-year increase. On the import side, the U.S. hit a record by bringing in 13 million pounds of butter in May, reflecting a monthly increase of 13% and a 24% rise for the year.
Blocks held steady at $1.9000 per pound, with three lots traded. Conversely, Barrels experienced a notable increase to $1.9025 per pound, up by $0.0225, with two loads sold. Concurrently, butter prices dipped slightly to $3.1350 per pound, down by $0.0025, with three lots exchanged.
Learn the main differences between cheese and butter pricing, production, and market dynamics. See how these factors affect Class III milk prices.
Ever wonder why your food bill swings? Knowing the variations between cheese and butter and how they affect Class III milk pricing—can provide insightful analysis. This essay seeks to analyze cheese and butter price patterns so that you can better understand dairy economics.
The fundamental variation in price patterns between butter and cheese is pronounced. Cheese costs have remained constant over the last five years while butter prices have skyrocketed. These developments are vital for customers and everyone working in the dairy sector.
Let us explore the figures’ background and their implications for you.
Cheddar Cheese Pricing: A Beacon of Stability Amid Inflation
Year
Retail Price ($/lb)
Wholesale Price ($/lb)
2019
$5.50
$1.85
2020
$5.55
$1.80
2021
$5.60
$1.82
2022
$5.54
$1.84
2023
$5.56
$1.83
2024
$5.37
$1.87
Over the last five years, cheddar cheese prices have been remarkably stable. Retail prices averaged $5.57 per pound; in May 2024, specifically, they were $5.37 per pound. Wholesale prices in May 2024 were $1.87 per pound, averaging $1.83 per pound in 2019. This stability, even in the face of inflation, is a testament to the well-managed Class III milk and cheese manufacture.
The Stability Powerhouse: Understanding the Dynamics of Wholesale Cheese Inventories
Year
Inventory (Million Pounds)
2020
55
2021
57
2022
56
2023
56
2024
56
The predictability of wholesale inventory levels, especially for cheddar, is a cornerstone in determining the price of American cheese. Stable inventory levels provide a predictable supply environment that results in consistent pricing. The above table demonstrates, discounting the COVID era, that the constancy in days’ supply of American cheese over the previous five-plus years has been around 56 million pounds.
Because manufacturers and stores can depend on a constant inventory level, this consistency helps reduce price fluctuation. Well-matched supply to demand helps avoid abrupt price swings. Maintaining the stability of Cheddar cheese pricing depends mostly on tightly controlled inventory levels.
Knowing this impact enables one to understand why outside inflation does not change Cheddar cheese prices. Reasonable inventory control guarantees a balanced market, acting as a buffer against unanticipated changes in demand and supply.
Thanks to well-controlled variables, cheese prices stay constant. Consistent Class III milk output guarantees a consistent raw material supply, avoiding unneeded price swings.
In cheese manufacture, advanced processing methods and inventory control prevent overproduction and shortages, preserving steady wholesale and retail prices.
Understanding customer demand is crucial for manufacturers to match their production plans, particularly during high-spending seasons like holidays. This customer-centric approach is a key factor in maintaining the stability of Cheddar cheese pricing.
Even with outside economic forces like inflation, coordinated efforts from first Class III milk production to final retail sales help maintain cheese price stability.
Unpacking the Divergence: Butter’s Rise Amid Cheese’s Calm
Year
Retail Price per Pound
Wholesale Price per Pound
2020
$4.50
$2.00
2021
$4.70
$2.10
2022
$5.10
$2.30
2023
$5.40
$2.60
2024
$5.60
$2.72
Trends in butter price provide a different picture from cheese pricing stability. Butter prices have risen dramatically starting in 2022. Retail costs have increased 13%, but wholesale prices have jumped 36%. This volatility emphasizes the significance of knowing what is causing these fluctuations in the butter market compared with the consistent tendencies of cheese.
Inventory Consistency vs. Pricing Volatility: Unraveling the Butter Conundrum
Year
Inventory (Million Pounds)
2019
62
2020
70
2021
65
2022
68
2023
71
Examining the wholesale butter supply levels reveals an exciting narrative. This table shows a constant trend in the days’ butter supply from 2019 forward. People starting to eat at home caused a notable rise in supply during the COVID-19 era.
Post-pandemic inventory levels steadied even with this increase. Chart IV’s start and finish show constant days’ supply when compared. A consistent supply may indicate consistent pricing. Chart III, however, demonstrates that, despite continuous inventory levels, retail and wholesale prices of butter have fluctuated significantly.
Unlike the steadiness in the cheese market, this mismatch implies that other factors are pushing butter prices upward. Awareness of these elements helps one appreciate the general patterns in dairy prices.
Decoding the Butter Price Surge: An Intricate Web of Influencing Factors
Knowing why butter and butterfat prices have skyrocketed requires looking at numerous elements. USDA butter prices are complicated and dependent on many factors, making navigation difficult.
Butter prices have gradually climbed over the last 25 years, clearly displaying a consistent trend of ongoing increases.
Minimal Global Impact: The Predominance of Domestic Dynamics in Butter Pricing
Exports or imports do not influence butter prices much. While imports are higher and result in net imports exceeding net exports, butter exports account for about 4% to 5% of total output. This demonstrates how mostly domestic factors affect butter prices.
Complicating matters include consumption trends and packaging. The change from dining out to home cooking during COVID raised demand for residential butter packaging. This shift upset supply systems, driving retail and wholesale prices and emphasizing how much consumer behavior influences the butter market.
The Bottom Line
The price dynamics of cheese and butter are essentially different but equally crucial for Class III milk pricing. Well-managed inventory levels and consistent customer demand have helped cheddar cheese prices stay constant, therefore shielding them from inflation. On the other hand, butter has demonstrated notable price fluctuation, driven by variations in packaging, COVID-related demand changes, and butter manufacturing complexity. Even with constant supply levels, deeper market factors have increased butter prices.
These observations show that while more general factors, cheese benefits from organized manufacturing and inventory policies influence butter’s price. Stakeholders all over the dairy supply chain depend on an awareness of these distinctions. Whether your role is customer, distributor, or manufacturer, understanding the elements behind these patterns can help you to negotiate the market. Keep educated and proactive in changing the dairy scene. Strategic choices. Keep updated.
Key Takeaways:
Cheddar cheese prices have showcased remarkable stability both at retail and wholesale levels despite inflationary pressures.
Wholesale cheese inventory levels, particularly for American cheese, have been consistent, ensuring stable supply and pricing.
Advanced management practices in Class III milk production and inventory control have contributed to this pricing steadiness for cheese.
In contrast, butter prices have experienced significant increases, particularly since 2022, driven by complex market factors.
Butter inventory levels have also been stable, but unlike cheese, butter prices have increased markedly over the years.
Factors influencing butter pricing include long-term trends, minimal impact from global trade, and fluctuating demand between home and restaurant consumption.
Summary:
This essay explores the price patterns of cheese and butter, focusing on the impact of inflation on dairy economics. Cheese prices have remained stable over the last five years, with retail prices averaging $5.57 per pound and wholesale prices at $1.87 per pound in May 2024. Stable inventory levels, particularly for cheddar, are crucial for determining American cheese prices. Strategic factors behind cheese pricing stability include well-controlled variables, consistent Class III milk output, advanced processing methods, inventory control, and understanding customer demand. However, butter prices have risen dramatically since 2022, with retail costs increasing 13% and wholesale prices jumping 36%. Understanding the butter price surge requires examining various elements, including USDA butter prices, which are complex and dependent on various factors. Understanding these price dynamics is crucial for stakeholders in the dairy supply chain to negotiate the market and make strategic choices.
Learn how USDA’s plan to bring back the ‘higher-of’ method for milk pricing might affect farmers. Will this change help dairy producers? Find out more.
The USDA plans to bring back the ‘higher-of’ pricing method for fluid milk, a move intended to modernize federal dairy policy based on a comprehensive 49-day hearing that evaluated numerous industry proposals. This method picks the higher price between Class III (cheese) and Class IV (butter and powder) milk, which could signify a notable shift for the dairy industry. Previously, the 2018 Farm Bill had replaced the ‘higher-of’ system with an ‘average-of’ pricing formula, averaging Class III and IV prices with an additional 74 cents. While switching back might benefit farmers, it also introduces risks like negative producer price differentials in 2020 and 2021. The USDA’s proposal seeks to mitigate these challenges and provide farmers financial gains amidst modern dairy economics’ complexities.
Understanding the Federal Milk Marketing Order (FMMO) System
The Federal Milk Marketing Order (FMMO) system, established in 1937, plays a crucial role in ensuring fair and competitive dairy pricing. It mandates minimum milk prices based on end use, providing price stability for dairy farmers and processors across the U.S. Each FMMO represents a distinct marketing area, coordinating pricing and sales practices.
The ‘higher-of’ pricing method for Class I (fluid) milk has long been integral to this system. It sets the Class I price using the higher Class III (cheese) or Class IV (butter and powder) price, offering a financial safeguard against market volatility. This method ensures dairy producers receive a fair price despite market fluctuations.
However, the 2018 Farm Bill introduced an ‘average-of’ formula, using the average of Class III and IV prices plus 74 cents. While aimed at modernizing milk pricing, this change exposed farmers to greater risk and reduced earnings in volatile periods like 2020 and 2021.
A Marathon Analysis: Unraveling Modern Dairy Policy over 49 Days in Indiana
The marathon hearing in Indiana highlighted the complexities of modern dairy policy. Spanning 49 days, from Aug. 23, 2023, to Jan. 30, it reviewed nearly two dozen industry proposals. This intensive process reflected the sophisticated and multifaceted Federal Milk Marketing Order system as stakeholders debated diverse views and intricate data to influence future milk pricing.
Decoding Dairy Dilemmas: The “Higher-Of” vs. “Average-Of” Pricing Methods
The “higher-of” and “average-of” pricing methods are central to understanding their impact on farmers’ incomes. The “higher-of” process, which uses the greater of the Class III (cheese) price or Class IV (butter and powder) price, has historically provided a safety net against dairy market fluctuations. This method ensured farmers got a better price, potentially safeguarding their income during volatile times. Yet, it increased the risk of negative producer price differentials, which reduced earnings in 2020 and 2021.
On the other hand, the “average-of” method, introduced by the 2018 Farm Bill, calculates the price as the average of Class III and IV prices plus 74 cents. While this seems balanced and predictable, it often fails to deliver the highest financial return when either Class III or IV prices exceed expectations. Farmers have noted that this method might not reflect their costs and economic challenges in volatile markets.
The “higher-of” method often offers better financial outcomes during favorable market conditions but brings increased uncertainty during unstable periods. Conversely, the “average-of” method offers stability but may miss optimal pricing opportunities. This debate within the dairy industry over the best formula to support farmers’ livelihoods continues. Thus, the USDA’s proposal to revert to the “higher-of” method invites mixed feelings among farmers, whose earnings and economic stability are closely tied to these pricing mechanisms.
Examining the Potential Implications of the USDA’s Return to the ‘Higher-Of’ Pricing Method
The USDA’s return to the ‘higher-of’ pricing method, while potentially beneficial, also presents some challenges that the industry needs to be aware of. This approach, favoring the higher Class III (cheese) or Class IV (butter and powder) prices, seems more beneficial than the ‘average-of’ formula. However, deeper insights indicate potential challenges that need to be carefully considered.
The ‘higher-of’ method usually leads to higher fluid milk prices but poses the risk of negative producer price differentials (PPDs). When the Class I price far exceeds the average of the underlying class prices, PPDs can become negative, as seen during the harsh economic times of 2020 and 2021, exacerbated by the COVID-19 pandemic.
Negative PPDs can hit farmers’ financial stability, making it harder to predict income and manage cash flows. This reflects the delicate balance between gaining higher milk prices now and ensuring long-term financial reliability.
The 24-month rolling adjuster for extended-shelf-life milk introduces further uncertainty. Its effect on milk pricing needs to be clarified, potentially causing fluctuating incomes for farmers in this segment.
In conclusion, while the ‘higher-of’ pricing method may offer immediate benefits, risks like negative PPDs and uncertain impacts on extended-shelf-life milk pricing demand careful consideration. Farmers must balance these factors with their financial strategies and long-term sustainability plans.
New Horizons for ESL Milk: Navigating the 24-Month Rolling Adjuster Amidst Market Uncertainties
Under the USDA’s new proposal, regular fluid milk will revert to the ‘higher-of’ pricing. In contrast, extended-shelf-life (ESL) milk will follow a different path. The plan introduces a 24-month rolling adjuster for ESL milk to stabilize prices for these longer-lasting products.
Yet, this change brings uncertainties. Laurie Fischer, CEO of the American Dairy Coalition, questions the impact on farmers. The 24-month adjuster is untested, making it difficult to foresee its effects amid fluctuating market conditions. ESL milk’s unique production and logistics further complicate predictions.
Critics warn that the lack of historical data makes it hard to judge whether this method will help or hurt farmers. There’s concern that it could create more price disparity between regular and ESL milk, potentially straining producers reliant on ESL products. While USDA aims to tailor pricing better, its success will hinge on adapting to real-world market dynamics.
Make Allowance Controversy: Balancing Processor Profitability and Farmer Finances
The USDA also plans to increase the make allowance, a credit to dairy processors to cover rising manufacturing costs. This adjustment aims to ensure processors are adequately compensated to sustain profitability and operational efficiency, which is expected to benefit the entire dairy supply chain.
However, this proposal has drawn substantial criticism. Laurie Fischer, CEO of the American Dairy Coalition, argues that the increased make allowance effectively reduces farmers’ milk checks, disadvantaging them financially.
Pivotal Adjustments and Economic Realignment in Dairy Pricing Formulas
The USDA’s proposal adjusts pricing formulas to match advancements in milk component production since 2000. This update ensures that farmers receive fair compensation for their contributions.
The proposal also revises Class I differential values for all counties to reflect current economic realities. This is essential for maintaining fair compensation for the higher costs of serving the fluid milk market. By reevaluating these differentials, the USDA aims to align the Federal Milk Marketing Order system with today’s economic landscape.
Recalibrating Cheese Pricing: Transition to 40-pound Cheddar Blocks Only
Another critical change in USDA’s proposal is the shift in the cheese pricing system. Monthly average cheese prices will now be based solely on 40-pound cheddar blocks instead of including 500-pound cheddar barrels. This aims to streamline the process and more accurately reflect market values, impacting various stakeholders in the dairy industry.
Initial Reactions from Industry Leaders: Balancing Optimism with Key Concerns
Initial reactions from crucial industry organizations reveal a mix of cautious optimism and significant concerns. The National Milk Producers Federation (NMPF) showed preliminary approval, noting that USDA’s proposal incorporates many of their requested changes. On the other hand, Laurie Fischer, CEO of the American Dairy Coalition, raised concerns about the make allowance updates and the impact of extended-shelf-life milk pricing, fearing it might hurt farmers’ earnings.
Structured Engagement: Navigating the 60-Day Comment Period and Ensuing Voting Procedure
To advance its proposal, USDA will open a 60-day public comment period, allowing stakeholders and the public to share insights, concerns, and support. This process ensures that diverse voices within the dairy industry are heard and considered. Once the comment period ends, USDA will review the feedback to gain a comprehensive understanding of industry perspectives, informing the finalization of the proposal.
Afterward, the USDA will decide based on the collected data and input. However, the process continues with a voting procedure where farmers pooled under each Federal Milk Marketing Order (FMMO) cast votes to approve or reject the proposed amendments. Each Federal Order, representing different regions, will vote individually.
This voting process is crucial, as it directly determines the outcome of the proposed changes. For adoption, a two-thirds majority approval within each Federal Order is required. Suppose a Federal Order fails to meet this threshold. In that case, USDA may terminate the order, leading to significant changes in how milk pricing is managed in that region. This democratic approach ensures that the final policies reflect majority support within the dairy farming community, aiming for fair and sustainable outcomes.
Regional Impacts: Navigating the Complex Landscape of FMMO System Changes
The proposed changes to the Federal Milk Marketing Order (FMMO) system are bound to impact various regions differently, given each Federal Order’s unique economic landscape. Federal Order 1, covering most New England, eastern New York, New Jersey, Delaware, southeastern Pennsylvania, and most of Maryland, may benefit from more favorable fluid milk pricing due to the higher-of method. With significant urban markets, this region could see advantages from updated Class I differential values addressing the increased costs of serving these areas.
On the other hand, Federal Order 33—encompassing western Pennsylvania, Ohio, Michigan, and Indiana—might witness mixed outcomes. This area has substantial dairy manufacturing, especially in cheese and butter production, which could gain from the new cheese pricing method focusing on 40-pound cheddar blocks. However, the higher make allowance might stir controversy, potentially cutting farmers’ earnings despite adjustments for rising manufacturing costs.
The future remains uncertain for western New York and most of Pennsylvania’s mountain counties, which any Federal Order does not cover. These areas could feel indirect effects from the new proposals, particularly the revised pricing formulas and allowances, which could impact local milk processing and producer price differentials.
While the higher-of-pricing method may benefit farmers by securing better fluid milk prices, the regional impacts will hinge on each Federal Order’s specific economic activities and market structures. Stakeholders must examine the proposed changes closely to gauge their potential benefits and drawbacks.
The Bottom Line
The USDA’s push to reinstate the ‘higher-of’ pricing method for fluid milk marks a decisive moment for the dairy industry. The 49-day hearing in Indiana underscored the complexity of the Federal Milk Marketing Order (FMMO) System. Key aspects include reverting to the ‘higher-of’ pricing from the 2018 ‘average-of’ formula, new pricing for extended-shelf-life milk, and the debate over increased make allowances. Significant updates to pricing formulas and cheese pricing methodologies were also discussed.
The forthcoming vote on these changes is critical. With the power to reshape financial outcomes for dairy farmers and processors, each Federal Order needs two-thirds approval to implement these changes. Balancing modern dairy policy advancements with fair profits for all stakeholders is at the heart of this discourse.
Ultimately, these decisions will affect dairy practices’ economic landscape and sustainability nationwide. This vote is a pivotal moment in the evolution of the American dairy industry, demanding informed participation from all involved.
Key Takeaways:
The USDA plans to reinstate the “higher-of” method for pricing Class I (fluid) milk, reversing the “average-of” formula introduced in the 2018 Farm Bill.
A 332-page recommendation outlines the USDA’s proposed changes, following a comprehensive 49-day hearing in Indiana.
The reinstatement is anticipated to benefit farmers most of the time, though it may introduce risks like negative producer price differentials.
New pricing structures will affect regular fluid milk and introduce a 24-month rolling adjuster for extended-shelf-life (ESL) milk.
The USDA will update pricing formulas to reflect increased milk component production and adjust Class I differential values to better capture the costs of serving the fluid market.
There will be changes in cheese pricing, with average monthly prices based solely on 40-pound cheddar blocks.
The proposal also includes an increase in the make allowance for processors, a point of contention among industry stakeholders.
The USDA will open a 60-day public comment period before making a final decision, with each Federal Milk Marketing Order region voting individually on the proposed changes.
Summary:
The USDA plans to reintroduce the ‘higher-of’ pricing method for fluid milk, a move aimed at modernizing federal dairy policy. This method, which selects the higher price between Class III and Class IV milk, could be a significant shift for the dairy industry. The 2018 Farm Bill replaced the ‘higher-of’ system with an ‘average-of’ formula, averaging Class III and IV prices plus an additional 74 cents. This change could benefit farmers but also introduce risks like negative producer price differentials (PPDs). The Federal Milk Marketing Order (FMMO) system ensures fair and competitive dairy pricing, and the ‘higher-of’ method usually leads to higher fluid milk prices but also poses the risk of negative producer price differentials (PPDs). Negative PPDs can impact farmers’ financial stability, making it harder to predict income and manage cash flows. The 24-month rolling adjuster for extended-shelf-life milk introduces further uncertainty, potentially causing fluctuating incomes for farmers. The USDA’s proposal to increase the make allowance, a credit to dairy processors, has been met with criticism from industry leaders. The USDA will open a 60-day public comment period to advance its proposal. The proposed changes to the FMMO system will impact various regions differently due to each Federal Order’s unique economic landscape.
Discover the latest on CME cash dairy prices: Cheese barrels see a slight rise, while other products hold steady. Curious about the market trends? Read more now.
Cash dairy prices were mostly steady Tuesday on the Chicago Mercantile Exchange.
Here’s a quick summary of the latest prices:
Dry Whey: Remained unchanged at $0.49. One sale was recorded at that price.
Forty-pound Cheese Blocks: Held steady at $1.90. One sale was recorded at $1.9025.
Cheese Barrels: Increased by $0.0275 to $1.88. Ten sales were logged, all at that price.
Butter: Unchanged at $3.1375. No sales were recorded.
Nonfat Dry Milk: Declined by $0.01 to $1.17. Three sales were recorded, ranging from $1.17 to $1.1725.
Learn why the Global Dairy Trade Index dropped 6.9%. What led to the steep falls in milk fat, butter, and cheese prices? Get the details and understand what this means.
The Global Dairy Trade index saw a notable decline of 6.9% during Tuesday’s trading session. In contrast, only lactose managed a slight price increase, while all other dairy products experienced a decrease in value. In total, 113 winning bidders acquired 24,138 metric tons of dairy products over 16 rounds of bidding. Notably, anhydrous milk fat prices dropped 10.7% to $6,517 per metric ton, equivalent to $2.95 per pound.
Butter: fell 10.2% to $6,546 per metric ton or $2.96 per pound.
Cheddar Cheese: decreased 6.9% to $3,980 per metric ton or $1.80 per pound.
Butter Milk Powder: dipped 5.1% to $2,672 per metric ton or $1.23 per pound.
Skim Milk Powder: fell 6.1% to $2,586 per metric ton or $1.17 per pound.
Whole Milk Powder: declined 4.3% to $3,218 per metric ton or $1.45 per pound.
Lactose: prices edged up six-tenths of a percent to $804 per metric ton or $0.36 per pound.
Is the global dairy market set for a comeback? Discover how rising prices and shifting supply dynamics could impact the industry through 2024.
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, September 7, 2018. Photographer: Michael Nagle/Bloomberg
The global dairy market is at a pivotal point, transitioning towards higher prices in 2024. Rabobank’s latest report indicates that dairy commodity prices have bottomed out and are set to rise. By the end of 2023, the market faced limited new milk supply and sluggish demand, resulting in soft commodity pricing due to weak fundamentals.
“2023 was marked by soft dairy commodity pricing from weaker fundamentals,” says Michael Harvey, senior dairy analyst at Rabobank. Despite a brief resurgence, global supply growth faltered due to lower milk prices, high costs, and weather disruptions. The global market anticipated a Chinese rebalancing, only to see significant import shortfalls for the second year.
“There is growing evidence that the bottom in the dairy commodity markets has passed, and prices are likely to climb through 2024,” Rabobank’s report notes, offering a cautiously optimistic outlook.
“There is growing evidence that the bottom in the dairy commodity markets has passed, and prices are likely to climb through 2024,” Rabobank’s report notes, offering a cautiously optimistic outlook.
A Year of Turbulence: Factors Contributing to the 2023 Global Dairy Market Slump
2023 witnessed a convergence of challenges that softened global dairy commodity prices. Firstly, limited milk supply growth defined the year, as brief surges were hindered by falling milk prices and rising operational costs. Additionally, severe weather disruptions worsened supply chain inefficiencies, affecting production in crucial dairy regions.
Higher input costs, from feed to energy, strained dairy farms worldwide, making it difficult to stay profitable. Unpredictable environmental conditions further challenged the agricultural sector‘s resilience.
The market also felt the impact of China’s reduced dairy imports. As the largest dairy importer, China’s decreased demand created significant ripples. The nation’s internal oversupply and economic slowdown led to a substantial drop in dairy imports for the second consecutive year.
These elements not only drove down dairy commodity prices but also brought increased uncertainty and volatility, setting a cautious yet hopeful tone for 2024.
Navigating Uncertainty: Rabobank’s Analysis Signals Renewed Optimism for the Dairy Market’s Resurgence
Rabobank’s latest analysis offers a hopeful outlook for the global dairy market, indicating that the worst is over for dairy commodity prices. The report predicts a gradual price rise through 2024, promising stability and growth for an industry struck by recent challenges. Farmers and producers, who have faced fluctuating prices and high costs, can now anticipate a more favorable economic environment. Thus, the story of the global dairy market is evolving from turmoil to resurgence, paving the way for potential growth and new opportunities.
China’s Stabilizing Influence: Opportunities for Global Dairy Importers Amid Steady Demand
China has long been a critical player in the global dairy market, significantly influencing commodity prices with its import patterns. In 2024, China’s import volume is expected to stabilize, a contrast to the substantial shortfalls of the past two years. This steady demand could reduce some of the erratic fluctuations in global markets.
This stabilization provides other importers with a chance to build their stocks. With China’s steady demand, nations might acquire dairy commodities at competitive prices, strengthening their reserves without the pressure of Chinese-driven demand surges. As the market transitions, global importers must keenly observe these signals to manage stock levels strategically, potentially easing the volatility experienced in recent years.
Price Volatility: A Multidimensional Challenge for 2024
Price volatility will be a significant challenge in 2024, influenced by various factors. Geopolitical instability, with regional conflicts and trade disputes, can disrupt supply chains and affect dairy markets through tariffs and export bans.
Energy market fluctuations, driven by changing oil prices and the shift to renewable sources, directly impact dairy production and distribution costs. Irregular energy pricing can lead to unpredictable dairy commodity prices.
Weak global economic conditions also play a role. Economic sluggishness reduces consumer purchasing power and government budgets, affecting discretionary spending on premium dairy products and complicating dairy pricing.
Inflationary pressures further complicate the picture. Rising raw materials, labor, and transportation costs may force dairy producers to increase prices. However, if consumer demand doesn’t support these hikes, the market could experience high production costs and low retail prices.
Navigating the dairy market in 2024 will require careful monitoring of these risks. Industry stakeholders must remain vigilant and develop strategies to mitigate geopolitical, energy, and economic disruptions to maintain stability.
Outlook for Grain and Oilseed Prices: A Double-Edged Sword for Dairy Farmers in 2024
Rabobank’s 2024 forecast suggests a slightly softer outlook for grain and oilseed prices. This is attributed to an expected increase in global feed grain supply, which is favorable for dairy farm margins. Lower feed grain costs are anticipated to support dairy farmers in a volatile market. However, some commodities like palm oil may have more bullish outlooks, potentially adding cost pressures.
Reduced grain and oilseed prices can enhance farmgate margins by lowering a significant variable cost in dairy farming. This relief is vital as dairy producers deal with high operational expenses and fluctuating milk prices. By easing some financial burdens, better feed cost prospects could boost profitability and stabilize production despite uncertain commodity pricing and geopolitical risks.
Strategic Shifts in the EU Dairy Market: Anticipating Milk Price Dynamics and Export Challenges for 2024
Looking to the first half of 2024, the EU dairy market faces complex milk price dynamics and export challenges. Rabobank expects EU milk prices to rise, driven by recent gains in European dairy commodity prices and lower stock levels. Notably, several major dairy processors in northwest Europe have already increased milk prices for late 2023.
However, EU milk deliveries are forecast to decline by 0.5% year-on-year in Q1 and 0.4% in Q2 of 2024, indicating structural weaknesses. The second half of 2024 might see a slight decline of 0.2% year-on-year, suggesting a slow recovery.
EU export price competitiveness remains a concern due to high farmgate milk prices compared to global competitors. Despite these challenges, year-on-year volume growth is expected for Q4 2024, although supply limitations and a modest domestic demand recovery could impact results.
The US Dairy Market’s Path to Recovery: Forecasted Growth and Strategic Adjustments for 2024
The US dairy market is set for a modest recovery in 2024, with a predicted 1% growth in milk production year-on-year. Despite the herd size dropping to 9.37 million in October 2023, the lowest since January 2022, gradual expansion is expected throughout 2024. This growth aims to meet rising domestic and global demand.
Rabobank projections for first half 2024 price Class III milk at $17.78/cwt and Class IV at $19.24/cwt. Full-year estimates are $18.38/cwt for Class III and $20.37/cwt for Class IV, with Class IV consistently priced higher. These forecasts reflect a market transitioning through cautious optimism and strategic adjustments.
New Zealand and Australia: Navigating Production Declines and Export Challenges in 2024
New Zealand’s dairy sector faces a challenging outlook, with full-season production forecasted to decline by up to 2% year-on-year beyond the first half of 2024. This outlook is influenced by cautious budgeting, which affects farming practices and potentially impacts milk flows in the latter half of the season. Animal health management will be essential for a robust start to the 2024-2025 season, but intensified milking efforts due to lower forecasted milk prices could strain herd health.
Despite record farmgate milk prices buffering the sector from global fluctuations in Australia, dairy exports have significantly declined. Export volumes dropped by more than 13% year-on-year in the first three months of the new season, with notable reductions in milk powder ingredients, bulk cheese, and butter. The liquid milk segment also saw a 30% year-on-year decrease. A tight domestic milk supply and high farmgate milk prices relative to significant competitors partly explain this decline.
Additionally, Australia’s butter and cheese imports increased by 43% and 21% year-on-year, respectively. Domestic purchasing behaviors are shifting due to an income squeeze, with dairy purchases outperforming other discretionary food items but still showing some volume declines. The stabilization of Australia’s exportable surplus over 2023-2024 depends on a recovery in milk supply, though export competitiveness remains an immediate concern.
The Bottom Line
The global dairy market is cautiously moving towards recovery in 2024. Rabobank’s observations note an upward price trend, following the softness seen in 2023. Modest milk supply growth, better feed costs, and improved demand, particularly from China, foster this positive outlook.
Significant factors include stabilizing China’s import volume, strategic shifts in the EU, forecasted US milk production growth, and adjustments in New Zealand and Australia. Potential volatility due to geopolitical instability, energy market fluctuations, and macroeconomic uncertainties are also acknowledged. However, with strategic adjustments and risk mitigation, the sector is prepared for a steady recovery.
While challenges remain, signs of recovery are evident. Stakeholders must stay vigilant, adapt strategies, and leverage insights to navigate the complexities of 2024, ensuring resilience and growth in a dynamic market.
Key Takeaways:
The global dairy market is transitioning from a period of low commodity prices with a projected upward trend through 2024.
China’s steady import demand is crucial for driving price rallies in the Oceania region, and stabilized import volumes are expected in 2024.
Price volatility is anticipated due to geopolitical instability, volatile energy markets, and weak macroeconomic conditions.
A softer grain and oilseed price outlook will improve dairy farm margins globally.
EU milk prices are anticipated to strengthen in early 2024, yet export competitiveness may remain challenging due to high farmgate milk prices.
US dairy production shows a slow yet steady growth forecast with specific price estimates for Class III and IV milk segments.
New Zealand dairy production is expected to decline, while Australia faces reduced export competitiveness amid high domestic farmgate milk prices.
Overall, the 2024 outlook indicates cautious optimism with potential recovery driven by strategic shifts and stabilizing factors in critical markets.
Summary:
The global dairy market is facing a critical point, with Rabobank’s report indicating that dairy commodity prices are set to rise in 2024. By the end of 2023, the market faced limited new milk supply and sluggish demand, leading to soft commodity pricing. Despite a brief resurgence, global supply growth faltered due to lower milk prices, high costs, and weather disruptions. The market anticipated a Chinese rebalancing but saw significant shortfalls in imports for the second year. Rabobank’s analysis suggests a gradual rise in prices through 2024, promising stability and growth for the industry. However, price volatility will be a significant challenge in 2024, influenced by geopolitical instability, energy market fluctuations, weak global economic conditions, and inflationary pressures.
Explore the factors behind May’s exceptional dairy margins reaching $10.52 per cwt amid elevated feed prices. What were the consequences for indemnity payments, and how are dairy producers faring as a result?
The Dairy Margin Coverage (DMC) program has demonstrated remarkable resilience, showcasing a robust dairy market as May’s margins soared to $10.52 per cwt—the highest since November 2022. Despite escalating feed prices, the absence of indemnity payments for the third consecutive month underscores the industry’s ability to weather economic challenges and emerge stronger. This should reassure stakeholders about the stability of the dairy industry.
On June 28, the USDA National Agricultural Statistics Service (NASS) released its Agricultural Prices report. This report helps calculate the feed costs used to determine the May Dairy Margin Coverage (DMC) program margins and indemnity payments. The information provided by NASS shows essential trends and changes in the dairy industry and is a valuable resource for stakeholders.
In May, income over feed cost was $10.52 per hundredweight (cwt), the highest margin since November 2022. This high margin indicates an excellent economic situation for dairy producers despite the ongoing rise in feed prices.
May’s Feed Cost Analysis Reveals a Multifaceted Picture of Rising Expenses Across Key Feed Components
Feed Component
Price
Change from April
Change from May 2023
Alfalfa hay
$276 per ton
Up $16
Down $41
Corn
$4.51 per bushel
Up 12 cents
Down $2.03
Soybean meal
$388.65 per ton
Up $30.97
Down $34.93
May’s feed cost analysis reveals rising expenses across key feed components. Alfalfa hay averaged $276 per ton, up $16 from April but $41 lower than last year, reflecting complex market dynamics.
Corn prices rose to $4.51 per bushel, an increase of 12 cents from April but down $2.03 from May 2023, highlighting broader market changes.
Soybean meal cost $388.65 per ton in May, up $30.97 from April but down $34.93 from last year, indicating decreased cost pressures compared to the previous year.
Total feed costs, calculated using the DMC formula, reached $11.48 per cwt of milk sold, a 58-cent rise from April. The strong milk market has helped dairy producers maintain favorable margins despite higher feed costs.
May Marks a Robust Rebound in Milk Prices, Led by Upper Midwest States’ Surge
State
May 2024 Price ($/cwt)
April 2024 Price ($/cwt)
Change ($/cwt)
South Dakota
23.00
19.40
+3.60
Minnesota
22.90
19.50
+3.40
Iowa
22.80
19.60
+3.20
Wisconsin
22.70
20.00
+2.70
Florida
24.80
24.80
0.00
The U.S. average all-milk price for May rose to $22 per cwt, the highest since January 2023 and a notable rebound. This $1.50 increase from April is $2.90 higher than last year, highlighting a more robust market for dairy producers.
Upper Midwest states saw significant increases. South Dakota plunged to $23 per cwt, up $3.60 from April. Minnesota, Iowa, and Wisconsin followed with notable rises of $3.40, $3.20, and $2.70 per cwt, respectively.
These improvements were driven by a rally in Class III milk prices, reflecting favorable market conditions and positive changes for many dairy producers. This should instill a sense of optimism in stakeholders about the dairy industry’s future.
A Period of Financial Resilience: How Dairy Producers Are Navigating Feed Price Volatility with Robust Margins
Substantial income over feed costs has provided dairy producers with a crucial buffer against volatile feed prices. Despite the increased costs, robust milk prices have maintained positive margins, essential for sustaining operations. This impressive financial resilience should instill confidence in stakeholders about the stability of the dairy industry.
The lack of indemnity payments for the third month in a row highlights the solid financial footing of many producers. Producers have navigated without needing supplemental assistance with income over feed costs above the DMC program’s top coverage level. Year-to-date, indemnity payments for those enrolled in the 2024 program have remained steady at $4,270, indicating a stable period.
Even with rising feed prices, this sustained period of favorable margins bodes well for the industry. It allows producers to reinvest in their operations and prepare for future market uncertainties. As margins remain strong with predictions for further improvements, the outlook for dairy producers looks promising.
A Promising Horizon for Dairy Margins: Projected Stability and Growth
The future for dairy margins looks promising. Per the DMC online decision tool forecast on June 28, margins are expected to stay strong, exceeding $12 per cwt for the rest of the year. This positive outlook relies on stable feed costs and a favorable all-milk price, expected to be above $21 per cwt through December.
October is projected to achieve the highest margin in the program’s history at $13.74 per cwt. This forecast indicates potentially excellent income over feed cost margins, reminiscent of strong financial performance in early 2022. However, market conditions can change, which could affect these predictions.
The Bottom Line
Despite elevated feed costs, the dairy sector maintains resilience with favorable margins and strong milk prices. May 2024’s income over feed cost was $10.52 per cwt—the highest since November 2022. South Dakota led the Upper Midwest price surge at $23 per cwt. This strength has negated the need for indemnity payments, though producers watch market trends closely. Projections suggest continued strong margins, potentially matching 2022 levels. The June margin, to be announced on July 31, will shed more light on the dairy sector’s financial outlook.
Key Takeaways:
No indemnity payments for the Dairy Margin Coverage (DMC) program were issued for the third consecutive month.
Income over feed costs remains favorable for dairy producers despite rising feed prices.
May’s income over feed cost was $10.52 per hundredweight (cwt), the largest margin since November 2022.
Average milk price in May was $22 per cwt, representing an increase of $1.50 from April and $2.90 from the previous year.
Highest price improvements were recorded in the Upper Midwest states, with South Dakota leading at $23 per cwt.
Feed costs have increased across all components: corn, alfalfa hay, and soybean meal.
The May DMC total feed cost was $11.48 per cwt, up 58 cents from April.
Despite these feed cost increases, strong milk prices have maintained robust margins for producers.
Year-to-date indemnity payments are unchanged at $4,270 for producers enrolled in the 2024 program period.
Predicted margins are expected to be strong for the remainder of the year, potentially matching 2022 values.
Summary:
The Dairy Margin Coverage (DMC) program has reached its highest margin since November 2022, indicating an excellent economic situation for dairy producers despite the ongoing rise in feed prices. The absence of indemnity payments for the third consecutive month reassures stakeholders about the dairy industry’s ability to weather economic challenges and emerge stronger. The USDA National Agricultural Statistics Service (NASS) released its Agricultural Prices report on June 28, which helps calculate feed costs used to determine the May Dairy Margin Coverage (DMC) program margins and indemnity payments. In May, income over feed cost was $110.52 per hundredweight (cwt), the highest margin since November 2022. May marked a robust rebound in milk prices, driven by a rally in Class III milk prices, reflecting favorable market conditions and positive changes for many dairy producers. Substantial income over feed costs has provided dairy producers with a crucial buffer against volatile feed prices, maintaining positive margins essential for sustaining operations.
Find out how rising milk demand is reducing cheese stocks and affecting prices and exports. Will this trend keep changing the dairy market? Learn more here.
The dairy market is changing in a terrain defined by uncertainty. Growing demand for milk here and abroad has resulted in declining cheese supplies.
Over successive months, cheese supplies in cold storage have dropped, leading to a dramatic price rise and difficulties for new exporting companies. Reflecting this, the USDA observes, “Cheese markets are not bullish or bearish, but indecisive.” LaSalle Street shows this feeling with changing spot Cheddar block and barrel pricing.
“Cheese markets are not bullish or bearish, but indecisive.” – USDA
These factors affect home as well as foreign markets. While decreasing mozzarella sales and high prices discourage new export contracts, they show steady domestic demand for cheese. The erratic character of market dynamics points to stormy times ahead for those involved.
Spring Surprises: An Unanticipated Shift in Cheese Production and Inventories
Month
Production Volume (Million Pounds)
Year-over-Year Change (%)
January
1,102
+1.2%
February
1,018
+0.9%
March
1,165
-0.7%
April
1,150
-1.0%
May
1,190
-1.5%
Driven by the ‘spring flush,’ when cows produce more milk, spring often marks a period of higher cheese output in the dairy sector. This surplus of milk leads to more significant, less expensive supplies for cheese makers, which in turn drives more manufacturing and inventory build-up. However, this year, the situation was different due to rising milk costs and growing demand, resulting in a contraction in cheese supplies.
Still, spot milk prices were high this year as cheese’s local and export demand increased. This odd situation resulted in cheese supplies declining from March through May, the lowest May inventories since 2019.
The present situation emphasizes how global demand and price changes may disrupt established dairy industry supply lines.
Demand Dynamics: Unpacking the Surge in Milk Consumption and Its Ripple Effects
Time Period
Export Demand (Million Pounds)
Domestic Demand (Million Pounds)
Total Demand (Million Pounds)
Q1 2023
250
1,200
1,450
Q2 2023
300
1,250
1,550
Q3 2023
320
1,280
1,600
Q4 2023 (Projected)
340
1,300
1,640
For several reasons, both domestic and export milk demand has increased. American tastes for dairy goods like unique yogurts and handcrafted cheeses have changed. This shift in consumer preferences is further fueled by the economic recovery after the pandemic, which has increased disposable income and a greater focus on health and nutrition, thereby boosting the demand for dairy products.
Globally, U.S. milk products are much sought after because of their competitive price and superior quality. Rising Asian and Latin American emerging markets are increasingly looking for nutrient-rich diets. Additionally, increasing exports ease trade barriers.
This demand increase has limited milk supplies for cheese manufacture. Usually, the spring flush period sees an excess of inexpensive milk aimed toward cheese manufacturing; however, rising milk costs and growing demand have altered this year and resulted in a contraction in cheese supplies. The increase in milk costs has made cheese production more expensive, leading to a decrease in cheese supplies.
Strong export markets and rising domestic consumption have pressured milk supply, pushing cheese makers to negotiate a limited milk procurement scene. Strong cheese demand and shortage have caused market instability and price rises.
A Season of Scarcity: The Decline in Cheese Stocks Reveals Market Vulnerabilities
Month
2019
2020
2021
2022
2023
2024
January
1.37
1.41
1.48
1.50
1.52
1.46
February
1.35
1.38
1.45
1.47
1.50
1.44
March
1.33
1.35
1.42
1.45
1.47
1.41
April
1.32
1.33
1.41
1.43
1.46
1.38
May
1.31
1.32
1.39
1.41
1.44
1.34
This year’s noteworthy drop in cheese supplies Cheese stockpiles at the end of May amounted to 1.44 billion pounds, a 3.7% decline from May 2023, marking the lowest May total since 2019.
While prices were flat in June as the market battled to draw fresh export business, this inventory loss caused a price spike in April and May. While sales of mozzarella dropped, home demand for other cheeses remained robust. With CME spot Cheddar blocks climbing 6.5ȼ to $1.91 per pound and barrels sliding 4ȼ to $1.88, the USDA labeled the market “indecisive.”
Global Competition Heats: U.S. Cheese Exporters Face Escalating Prices and Adverse Exchange Rates
Month
Cheese Exports (Million lbs)
YoY Change (%)
Export Price ($/lb)
January
60.5
+2.4%
1.75
February
58.2
+3.1%
1.78
March
59.8
+1.8%
1.80
April
61.3
+4.5%
1.85
May
62.0
+3.0%
1.82
Exporters are battling intense worldwide competition and rising cheese costs. Both domestic and export demand has raised prices, so U.S. cheese-less competitiveness abroad has suffered. This has made it difficult—a difficulty that still exists—to get fresh export contracts.
The strong U.S. currency makes American goods more costly for overseas consumers, aggravating the situation. A lower euro helps European producers; they have raised milk output, strengthening their market share. This increase in European production, particularly in Poland, sharpens the competitiveness of American exporters.
Additionally, changing agricultural policy, European nations are slowing down dairy herd declines and boosting cheese production capacity. New EU rules mandating Dutch farmers to distribute manure across more extensive regions might lower cattle numbers but have little effect on total output shortly.
Despite the challenges, U.S. exporters have the opportunity to navigate the high domestic cheese prices, robust overseas market, and the currency’s economic impact. The key to maintaining a strong presence in the global cheese market lies in strategic orientation, creative pricing, and innovative marketing techniques. These strategies can help the industry adapt to the changing landscape and continue to thrive in the worldwide cheese market.
Despite the market’s unpredictability, the robust domestic demand for certain cheese types provides a sense of stability. While mozzarella sales may have dipped, the consistent demand for other cheeses has helped maintain market buoyancy amidst fluctuating prices and inventory levels. The enduring popularity of Cheddar, in particular, has been a boon for local manufacturers. The strong demand for a variety of cheese options is a testament to the industry’s ability to navigate market uncertainty.
Whey Market Dynamics: A Tale of Domestic Resilience and Export Challenges
Product
Domestic Price
Export Price
Trend
Whey Protein Concentrate
$0.45/lb
$0.38/lb
Stable
Whey Powder
$0.49/lb
$0.37/lb
Increasing
Though exports are sluggish, domestic solid demand supports the whey product industry. While export loads are in the mid $0.30s per pound, USDA notes that some load categories are grabbing rates “at and above the $0.45/lb. Mark.” The prices of CME spot whey powder have increased by 2ȼ to a four-month high of 49ȼ by local demand. Although export difficulties still exist, the domestic market demonstrates confidence, which leaves the whey product market in a unique and somewhat dubious state.
Butter Resilience and Emerging Fears: High Inventories Yet Potential Shortages Loom
Month
Butter Stocks (million pounds)
CME Spot Butter Prices ($/lb)
January
360
$2.95
February
370
$3.05
March
375
$3.10
April
378
$3.12
May
380
$3.125
Butter stockpiles rose by 3.4% by the end of May to 380 million pounds, the highest level since 2020 and 1993. Still, worries about a possible shortfall later in the year cloud this increase. Rising milk prices and hot weather have boosted CME spot butter prices to $3.125, up 3.5ȼ this week, illustrating the market’s response to high domestic demand and growing expenses.
Milk Powder Puzzles: Navigating the Setbacks in Global and Domestic Markets
Month
CME Spot Nonfat Dry Milk (Price per lb.)
Notable Market Movements
January
$1.05
Stable with minimal shifts in market dynamics
February
$1.08
Minor increase due to lower production volumes
March
$1.12
Gradual upward trend as export demand briefly rises
April
$1.15
Peak due to supply chain disruptions
May
$1.10
Initial decline after export challenges emerge
June
$1.18
Brief recovery, but long-term outlook remains uncertain
A disappointment at the Global Dairy Trade Pulse auction highlights the declining milk powder industry. CME spot nonfat dry milk is down 2.25ȼ to $1.1825. Soft worldwide demand causes prices to struggle to gather even with minimal U.S. production. Reduced global demand limits price rises even if local output levels fall short of past highs.
European Dairy Gains Momentum: Navigating Increased Production and Stringent Regulations in a Competitive Export Landscape
Europe’s increasing production capacity stands out as the worldwide dairy industry adjusts to competition and demand. With Europe and the UK producing around 31.5 billion pounds in April, a 0.3% rise from April 2023, European milk production exceeded last year’s levels in February, March, and April. While lousy weather hindered growth in Ireland and the UK, Germany and France reported modest output gains.
Reflecting local agricultural efficiency, Poland saw a 5.4% year-over-year increase. Still, this expansion presents some difficulties. New rules meant to satisfy EU climate pledges fall on European farmers. Though there are expectations for slower legislative changes after recent elections, current rules continue.
The EU Nitrate Directive ends Dutch dairy farmers’ exemption from manure derogation rules, aggravating their logistical problems. A 1.3% decline in Dutch milk output in April resulted from almost 40% of Dutch farmers needing help finding adequate space for manure spreading, reducing their cattle numbers.
Strict rules and this higher output are changing the competitiveness of dairy exports. A significant dollar deficit for American goods gives European manufacturers an advantage and complicates the export scene for American exporters.
Market Outlook: A Complex Interplay of Domestic Growth and International Competition
The market’s state shows a combination of domestic strength and foreign challenges. Domestically, growing expenses have driven strong demand for milk and certain cheeses, driving prices even if sales of mozzarella have slowed down. The recent increase in CME spot whey powder indicates this demand has also bolstered whey product prices.
Globally, when European manufacturers raise their production, more competition and an unfavorable exchange rate pose challenges to U.S. cheese exporters. Further strict environmental rules complicate the supply scene even further.
Futures in Class III and IV mirror industry challenges. While fourth-quarter Class IV contracts climbed somewhat, stabilizing in the mid-$21s per cwt, third-quarter Class III futures decreased; the July contract fell 81ȼ to $19.46 per cwt.
Although dairy farmers face market instability, decreased feed costs and high-class III and IV milk prices provide some hope for alleviation in a convoluted worldwide market.
After USDA’s Acreage and Grain Stocks figures, December corn futures reached a three-year low. Farmers planted 1.5 million more acres of maize than the early spring poll expected—91.5 million acres. Soybean acreage dropped 400,000 acres to 86.1 million.
September corn futures plummeted 32ȼ to $4.085 per bushel from a massive stockpile of corn acres. The December contract dropped 32ȼ as well, to $4.215. Though there is flooding in the Northern Plains, grain is plentiful and helps keep feed prices down.
The Bottom Line
Recently, the dairy market has shown a combination of volatility and resilience. Unlike past patterns, rising demand has reduced cheese supplies, pushing prices higher but not maintaining them. Strong domestic whey demand helps raise spot prices even in lean export markets. Though possible shortages due to weather and higher milk costs loom, butter supplies have risen. European competitiveness and worldwide demand issues are testing the milk powder sector.
Ahead, the dairy market is expected to negotiate challenging terrain. European manufacturing advantages and political demands might affect world commerce, posing difficulties for American manufacturers. Strong domestic dairy demand might help the price, but global economic and environmental issues will always be critical. Stakeholders have always to be vigilant and ready for changes in the industry.
Key Takeaways:
Cheese stocks have decreased significantly, with inventories at their lowest since 2019, influencing price changes.
Domestic milk demand continues to soar, while both domestic and export demands are impacting cheese production and pricing.
The whey product market remains strong domestically, though export challenges persist.
Butter stocks are high but fears of shortages later in the year have driven prices up.
Milk powder market faces setbacks due to soft global demand, despite light U.S. output.
European dairy production is ramping up, creating stiffer competition for U.S. exports amidst regulatory challenges.
Grain market upheaval as USDA reports higher-than-expected corn inventories and planted acreage, leading to a dip in corn futures.
Lower feed costs are anticipated to benefit dairy producers in the face of volatile market conditions.
Summary:
The dairy market is experiencing a shift due to increasing demand for milk both domestically and internationally, leading to declining cheese supplies. This year, the situation was different due to rising milk costs and growing demand, resulting in a contraction in cheese supplies. The USDA has observed that cheese markets are not bullish or bearish, but indecisive. This situation affects both domestic and foreign markets, with decreasing mozzarella sales and high prices discouragering new export contracts. The current situation emphasizes how global demand and price changes may disrupt established dairy industry supply lines. Both domestic and export milk demand have increased due to changing consumer preferences, economic recovery after the pandemic, and rising Asian and Latin American emerging markets seeking nutrient-rich diets. Strong export markets and rising domestic consumption have pressured milk supply, pushing cheese makers to negotiate a limited milk procurement scene. The decline in cheese stocks has revealed market vulnerabilities, with cheese stockpiles at the end of May averaging 1.44 billion pounds, a 3.7% decline from May 2023. The erratic character of market dynamics points to stormy times ahead for those involved in the dairy industry.
Uncover the factors behind the low Class III milk prices and delve into practical measures to enhance milk protein and butterfat content. What strategies can producers and processors implement for adaptation?
The U.S. dairy industry faces a critical challenge: persistently low Class III milk prices. These prices, which comprise over 50% of the nation’s milk usage and are primarily used for cheese production, are vital for the economic stability of dairy farmers and the broader market. The current price indices reveal that Class III milk prices align with the average of the past 25 years, raising concerns about profitability and sustainability. This situation underscores the urgent need for all stakeholders in the dairy industry to come together, collaborate, and explore the underlying factors and potential strategies for improvement.
Class III Milk Prices: A Quarter-Century of Peaks and Troughs
Over the past 25 years, Class III milk prices have fluctuated significantly, reflecting the dairy industry’s volatility. Prices have hovered around an average value, influenced by supply and demand, production costs, and economic conditions.
In the early 2000s, prices rose due to increased demand for cheese and other dairy products. However, the 2008 financial crisis led to a sharp decline as consumer demand dropped and exporters faced challenges.
Post-crisis recovery saw gradual price improvements but with ongoing unpredictability. Stability in the mid-2010s was periodically interrupted by export market changes, feed cost fluctuations, and climatic impacts on milk production. Increased production costs from 2015 to 2020 and COVID-19 disruptions further pressured prices.
In summary, while the average Class III milk price may seem stable over the past 25 years, the market has experienced significant volatility. Understanding these trends is not just important; it’s critical for navigating current pricing issues and strategizing for future stability. This understanding empowers us to make informed decisions and take proactive steps to address the challenges in the dairy industry.
The Core Components of Class III Milk Pricing: Butterfat, Milk Protein, and Other Solids
Examining Class III milk prices reveals crucial trends. Due to high demand and limited supply, butterfat prices have soared 76% above their 25-year averages. Meanwhile, milk protein prices have dropped by 32%, impacting the overall Class III price, essential for cheese production. Other solids, contributing less to pricing, have remained stable. These disparities call for strategic adjustments in pricing formulas to better align with market conditions and ensure sustainable revenues for producers.
Dissecting the Price Dynamics of Butter, Cheese, and Dry Whey in Class III Milk Pricing
The prices of butter, cheese, and dry whey are crucial to understanding milk protein prices and the current state of Class III milk pricing.
Butter prices have skyrocketed by 70% over the 25-year average due to increased consumer demand and tighter inventories. This marks a significant shift from its historically stable pricing.
Cheese prices have increased slightly, indicating steady demand both domestically and internationally. This trend reflects strong export markets and stable milk production, aligning closely with historical averages.
In contrast, dry whey prices have remained steady, reflecting its role as a stable commodity in the dairy sector—consistent demand in food manufacturing and as a nutritional supplement balances any supply fluctuations from cheese production.
Together, these trends showcase the market pressures and consumer preferences affecting milk protein prices. Understanding these dynamics is critical to tackling the broader challenges in Class III milk pricing.
Decoding the USDA Formula: The Intricacies of Milk Protein Pricing in Class III Milk
Understanding Class III milk pricing requires examining the USDA’s formula for milk protein. This formula blends two critical components: the price of cheese and the butterfat value of cheese compared to butter.
Protein Price = ((Cheese Price – 0.2003) x 1.383) + ((((Cheese Price – 0.2003) x 1.572) – Butterfat Price x 0.9) x 1.17)
The first part, ((Cheese Price—0.2003) x 1.383) depends on the cheese market price, which has been adjusted slightly by $0.2003. Higher cheese prices generally boost milk protein prices.
The second part, ((((Cheese Price – 0.2003) x 1.572) – Butterfat Price x 0.9) x 1.17), is more intricate. It adjusts the cheese price by 1.572, subtracts 90% of the butterfat price, and scales the result by 1.17 to match industry norms.
This formula was based on the assumption that butterfat’s value in cheese would always exceed that in butter. With butterfat fetching higher prices due to increased demand and limited supply, the formula undervalues protein from cheese. This mismatch has led to stagnant protein prices despite rising butter and cheese prices.
The formula must be reevaluated to align with today’s market, ensuring fair producer compensation and market stability.
Unraveling the Web of Stagnant Pricing in Class III Milk
Stagnant pricing in Class III milk can be traced to several intertwined factors. Inflation is a key culprit, having significantly raised production costs for dairy farmers over the past 25 years—these increasing expenses span wages, health premiums, utilities, and packaging materials. Yet, the value received for Class III milk has not kept pace, resulting in a perceived price stagnation.
Another factor is the shift in the value relationship between butterfat and cheese. Historically, butterfat’s worth was higher in cheese production than in butter, a dynamic in the USDA pricing formula for milk protein. Today’s market conditions have reversed this, with butterfat now more valuable in butter than in cheese. Consequently, heavily based on cheese prices, the existing formula must adapt better, contributing to stagnant milk protein prices.
Also impacting this situation are modest increases in cheese prices compared to the substantial rise in butterfat prices. The stable prices of dry whey further exert minimal impact on Class III milk prices.
Addressing these challenges requires a multifaceted approach, such as reconsidering USDA pricing formulas and strategically managing dairy production and processing to align with current market realities.
Class III Milk Producers: Navigating Low Prices through Strategic Adaptations
Class III milk producers have adapted to persistently low prices through critical strategies. Over the past 25 years, many have expanded their herds to leverage economies of scale, reducing costs per gallon by spreading fixed costs over more milk units.
Additionally, increased milk production per cow has been achieved through breeding, nutrition, and herd management advances. Focusing on genetic selection, high-productivity cows are bred, further optimizing dairy operations.
Automation has also transformed dairy farming, with robotic milking systems and feeding solutions reducing labor costs and improving efficiency. These technologies help manage larger herds without proportional labor increases, counteracting low milk prices.
Focusing on higher milk solids, particularly butterfat, and protein, offers a competitive edge. Producers achieve higher milk quality by enhancing feed formulations and precise nutrition, yielding better prices in markets with high-solid content.
An Integrated Strategy for Optimizing Class III Milk Prices
Improving Class III milk prices requires optimizing production and management across the dairy supply chain. Increasing butterfat levels in all milk classes can help align supply with demand, especially targeting regions with lower butterfat production, like Florida. This coordinated effort can potentially lower butterfat prices and stabilize them.
Balancing protein and butterfat ratios in Class III milk is crucial. Enhancing both components can increase cheese yield efficiency, reduce the milk needed for production, and lower costs. This can also lead to better control of cheese inventories, supporting higher wholesale prices.
Effective inventory management is critical. Advanced systems and predictive analytics can help producers regulate supply, prevent glutes, and stabilize prices. Maintaining a balance between supply and demand is crucial for the dairy sector’s economic health.
These goals require collaboration among producers, processors, and organizations like Ohio State University Extension, which provides essential research and services. Modernizing Federal Milk Marketing Orders (FMMO) to reflect current market realities is also vital for fair pricing.
Addressing Class III milk pricing challenges means using technology, improving farm practices, and fine-tuning the supply chain. Comprehensive strategies are essential for price stabilization, benefiting all stakeholders.
Strategic Collaborations: Empowering Stakeholders to Thrive in the Class III Milk Market
Organizations and suppliers play a critical role in optimizing Class III milk prices. Entities like Penn State Extension, in collaboration with the Pennsylvania Department of Agriculture and the USDA’s Risk Management Agency, offer valuable resources and guidance. These organizations provide educational programs to help dairy farmers understand market trends and best practices in milk production.
The Ohio State University Extension and specialists like Jason Hartschuh advance dairy management and precision livestock technologies, sharing research and providing hands-on support to enhance milk production processes.
The FMMO (Federal Milk Marketing Order) modernization process aims to update milk pricing regulations, ensuring a more equitable and efficient market system. Producers’ participation through referendums is crucial for representing their interests.
Processors should work with packaging suppliers to manage material costs, establish contracts to mitigate financial pressures and maintain stable operational costs.
These collaborations offer numerous benefits: improved milk yield and quality, better financial stability, and a balanced supply-demand dynamic for butterfat and protein. Processors benefit from consistent milk supplies and reduced production costs.
In conclusion, educational institutions, agricultural agencies, and strategic supply chain collaborations can significantly enhance the Class III milk market, equipping producers and processors to handle market fluctuations and achieve sustainable growth.
The Bottom Line
The low-Class III milk prices, driven by plummeting milk protein prices and stagnant other solids pricing, highlight an outdated USDA formula that misjudges current market conditions where butterfat is valued more in butter than in cheese. Compared to the past 25 years, inflation-adjusted stagnation underscores the need for efficiency in milk production via larger herds, higher yields per cow, and automation.
To address these issues, increasing butterfat and protein levels in Class III milk will improve cheese yield and better manage inventories. Engaging organizations and suppliers in these strategic adjustments is crucial. Fixing the pricing formula and balancing supply and demand is essential to sustaining the dairy industry, protecting producers’ economic stability, and securing the broader dairy supply chain.
Key Takeaways:
Class III milk, primarily used for cheese production, constitutes over 50% of U.S. milk consumption.
Despite an increase in butterfat prices by 76%, milk protein prices have plummeted by 32% compared to the 25-year average.
The USDA formula for milk protein pricing is a critical factor, with its reliance on cheese and butterfat values leading to current pricing challenges.
Inflation over the last 25 years contrasts sharply with stagnant Class III milk prices, necessitating strategic adaptations by producers.
Key strategies for producers include increasing butterfat levels, improving protein levels, and tighter inventory management for cheese production.
Collaborations between producers and processors are essential to drive changes and stabilize Class III milk prices.
Summary:
The U.S. dairy industry is grappling with a significant challenge: persistently low Class III milk prices, which account for over 50% of the nation’s milk usage and are primarily used for cheese production. These prices align with the average of the past 25 years, raising concerns about profitability and sustainability. Over the past 25 years, Class III milk prices have fluctuated significantly, reflecting the dairy industry’s volatility.
In the early 2000s, prices rose due to increased demand for cheese and other dairy products. However, the 2008 financial crisis led to a sharp decline as consumer demand dropped and exporters faced challenges. Post-crisis recovery saw gradual price improvements but with ongoing unpredictability. Stability in the mid-2010s was periodically interrupted by export market changes, feed cost fluctuations, and climatic impacts on milk production. Increased production costs from 2015 to 2020 and COVID-19 disruptions further pressured prices.
The core components of Class III milk pricing include butterfat, milk protein, and other solids. Butterfat prices have soared 76% above their 25-year averages due to high demand and limited supply, while milk protein prices have dropped by 32%, impacting the overall Class III price, essential for cheese production. Other solids, contributing less to pricing, have remained stable.
Understanding the price dynamics of butter, cheese, and dry whey in Class III milk pricing is crucial for navigating current pricing issues and strategizing for future stability. Butter prices have skyrocketed by 70% over the 25-year average due to increased consumer demand and tighter inventories. Cheese prices have increased slightly, indicating steady demand both domestically and internationally, while dry whey prices have remained steady, reflecting its role as a stable commodity in the dairy sector.
Understanding Class III milk pricing requires examining the USDA’s formula for milk protein, which blends two critical components: the price of cheese and the butterfat value of cheese compared to butter. This formula undervalues protein from cheese, leading to stagnant protein prices despite rising butter and cheese prices. The formula must be reevaluated to align with today’s market, ensuring fair producer compensation and market stability.
The stagnant pricing in Class III milk can be attributed to several factors, including inflation, the shift in the value relationship between butterfat and cheese, and modest increases in cheese prices. To address these challenges, a multifaceted approach is needed, such as reconsidering USDA pricing formulas and strategically managing dairy production and processing to align with current market realities.
Class III milk producers have adapted to persistently low prices through critical strategies, such as expanding herds to leverage economies of scale, increasing milk production per cow through breeding, nutrition, and herd management advances, and focusing on higher milk solids, particularly butterfat, and protein. This has led to better control of cheese inventories, supporting higher wholesale prices.
Improving Class III milk prices requires optimizing production and management across the dairy supply chain. Balancing protein and butterfat ratios in Class III milk is crucial, as it can increase cheese yield efficiency, reduce milk needed for production, and lower costs. Effective inventory management is essential, and advanced systems and predictive analytics can help producers regulate supply, prevent glutes, and stabilize prices.
Collaboration among producers, processors, and organizations like Ohio State University Extension, which provides essential research and services, and modernizing Federal Milk Marketing Orders (FMMO) to reflect current market realities is also vital for fair pricing. Comprehensive strategies are essential for price stabilization, benefiting all stakeholders.
Organizations and suppliers play a critical role in optimizing Class III milk prices. Entities like Penn State Extension, in collaboration with the Pennsylvania Department of Agriculture and the USDA’s Risk Management Agency, offer valuable resources and guidance to dairy farmers. They provide educational programs to help dairy farmers understand market trends and best practices in milk production.
The FMMO modernization process aims to update milk pricing regulations, ensuring a more equitable and efficient market system. Producers’ participation through referendums is crucial for representing their interests. Processors should work with packaging suppliers to manage material costs, establish contracts to mitigate financial pressures, and maintain stable operational costs.
In conclusion, educational institutions, agricultural agencies, and strategic supply chain collaborations can significantly enhance the Class III milk market, equipping producers and processors to handle market fluctuations and achieve sustainable growth. The low-Class III milk prices, driven by plummeting milk protein prices and stagnant other solids pricing, highlight an outdated USDA formula that misjudges current market conditions where butterfat is valued more in butter than in cheese.
Discover the latest CME cash dairy price shifts: butter and block cheese rise while barrels and nonfat dry milk dip. How will these changes impact your market strategy?
This Thursday, cash dairy prices presented a mixed picture on the Chicago Mercantile Exchange. Monitoring these daily fluctuations is essential, as they can impact everything from production costs to consumer prices at the grocery store. Let’s break down the latest movements in the cash dairy market.
Product
Price Change
Current Price
Sales Recorded
Dry Whey
$0.0000
$0.4850
None
Block Cheese
+$0.03
$1.91
Two
Cheese Barrels
-$0.02
$1.88
One
Butter
+$0.0175
$3.1075
Two
Nonfat Dry Milk
-$0.0050
$1.18
Eight
Here’s a quick summary of the day’s changes:
Dry whey maintained stability for a third consecutive day at $0.4850, with no sales recorded.
Block cheese prices made gains, surpassing barrel cheese prices:
Cheese barrels experienced a slight dip, dropping by $0.02 to $1.88, with one sale recorded.
Butter prices increased by $0.0175 to $3.1075, bolstered by two sales recorded at $3.0950 and $3.1075.
Nonfat dry milk prices decreased marginally by $0.0050 to $1.18, supported by eight sales ranging from $1.1725 to $1.18.
Find out how a stronger dollar is affecting CME cash dairy prices. Check out the latest trades and price changes for butter, blocks, barrels, etc. Want to know the specifics?
If you look at Chicago Mercantile Exchange (CME) cash dairy prices, you’ll notice that most categories are trending downward. This is mainly due to a stronger dollar, which typically pushes lower commodity prices, including dairy.
Here’s a quick snapshot of the current state of CME cash dairy prices:
Dry whey: Price increased by $0.0150, now at $0.4850 per pound
Cheese blocks: Decreased by $0.0175, closing at $1.8725 per pound
Cheese barrels: Fell by $0.0050, settling at $1.91 per pound
Butter: Dropped $0.0325 to $3.0325 per pound
Nonfat dry milk: Reduced by $0.0050, now at $1.1875 per pound
Dry whey rose by $0.0150 to $0.4850 per pound, with one trade recorded at this price, showing some market activity.
Cheese blocks dropped by $0.0175, settling at $1.8725 per pound. Factors like the stronger U.S. dollar and supply fluctuations are likely behind this trend, affecting the pricing and making U.S. exports less competitive.
Cheese barrels also fell by $0.0050 to $1.91 per pound. One trade was made at this price. These changes mirror those in block prices and reflect broader market adjustments.
Butter prices decreased by $0.0325 to $3.0325 per pound, which is notable compared to last week’s higher values. Six trades were made between $3.0175 and $3.0325, indicating continued market engagement despite the decline.
Nonfat dry milk experienced a slight dip of $0.0050 to $1.1875. The fact that seven trades were recorded within the $1.18 to $1.1875 range underscores the active participation in this commodity, keeping the market engaged.
The Bottom Line
On Tuesday, the CME cash dairy market predominantly witnessed lower prices, a trend largely influenced by a stronger dollar. While dry whey saw a slight increase, key dairy products like blocks, barrels, butter, and nonfat dry milk experienced a decline. Notably, sales activity was significant in butter and nonfat dry milk, reflecting the challenging market conditions for dairy prices.
Explore how record cheese exports and changes in China’s demand are impacting the US dairy economy in 2024. Will the industry continue to grow despite global challenges?
The U.S. dairy industry will start strong in 2024. The industry is hopeful and wary, given record-breaking cheese exports and shifting Chinese demand. “Record exports and increased domestic demand are positive,” Kathleen Noble Wolfley from Ever.Ag said, noting the encouraging patterns. These elements are guiding the American dairy industry toward a year of promise.
Positive Trends Amid Challenges: U.S. Dairy Economy Sees Record-Breaking Cheese Exports and Bolstered Domestic Demand
With record-breaking cheese exports of 75 million pounds and a 15% increase in domestic demand, the U.S. dairy business shows good trends despite obstacles. Cheese exports increased by 75 million pounds over the previous year, currently reaching markets in Mexico, South Korea, and Japan. Kathleen Noble Wolfley from Ever.Ag observed that this change relieved the domestic pricing pressures projected in 2023.
Mexico stands out by buying 35% of U.S. cheese exports. This solid demand worldwide and higher local consumption are driven by extensive brand campaigns, which provide a balanced market situation.
Looking forward to the remainder of 2024, these patterns indicate a bright future for the American dairy sector despite possible obstacles. Study more.
Unpredictability in Key Export Markets: The Emerging Challenges in China and Mexico
Export market concerns are intensifying in China and Mexico, where unpredictability is rising. Political developments in Mexico and a depreciated peso are complicating exports. This devaluation of money throws additional doubt on the commercial relationship, potentially leading to reduced purchase volumes and increased competition in other markets, exacerbating pressures on U.S. surplus management and pricing strategies.
China’s lower imports have meanwhile upset predicted market stability. According to reports, China could soon start exporting, intensifying rivalry and forcing American dairy farmers to seek fresh markets for expansion through [specific strategies].
Increasing Global Competition: Navigating the Challenges Posed by Decreased Shipping Costs and Strategic Trade Agreements
The growing competitiveness of other dairy-exporting nations resulting from lowered transportation costs adds to the complexity of the U.S. dairy export business. This allows nations such as Australia, New Zealand, and the European Union to present their dairy goods at more reasonable rates through strategic pricing, advanced logistics, and favorable trade agreements.
These nations’ speedier and cheaper delivery of goods, made possible by logistically efficient systems, disadvantages American exports. Furthermore, their good trade deals with China suggest that American manufacturers might find it difficult to maintain their market dominance in this vital area.
Further complicating the scene is China’s possible change in dairy import preferences depending on price and supply dependability. To be competitive in a market going more and more price-sensitive, U.S. exporters must continually innovate or cut prices.
Retail and Foodservice Boost: The Dynamic Role of Domestic Cheese Demand in the U.S. Dairy Economy
The U.S. dairy business is greatly affected by the growing domestic demand for cheese, particularly in the retail and catering industries. Major corporations are luring more customers with creative marketing, such as customized digital campaigns targeting specific demographics, and appealing discounts, such as buy-one-get-one-free offers. Restaurants have also ingeniously included cheese on their menus, driving more consumption.
The higher demand might raise cheese prices. Promotions drive regular customer purchases that rapidly deplete stocks and call for more manufacturing activity. Complicating the situation are “rolling brownouts” brought on by bovine influenza A in dairy manufacturing.
Sustained strong demand might drive cheese prices higher, causing stores to cut discounts to protect profit margins. This could lead to
shifts in consumer purchasing behavior, potentially decreasing overall cheese consumption as higher prices push budget-conscious shoppers toward more affordable alternatives. This delicate dance between maintaining market attractiveness through promotions and responding to the economic realities of supply and demand underscores the complex and dynamic character of the dairy market in 2024.
Assessing the Current Landscape: Production Challenges and Market Dynamics in the U.S. Dairy Industry
The U.S. dairy economy, though consistent, has experienced a slight drop in output compared to previous years. A significant factor contributing to this decline is Bovine Influenza A, often referred to as avian influenza in cows. This disease exacerbates the reduction in production, leading to what experts call “rolling brownouts”—periods of lowered output in affected herds. Typically, these rolling brownouts result in a 10% decline in milk production for about two weeks, followed by a recovery period of another two weeks.
Another major problem is the great expense and unavailability of heifers necessary for herd replenishment and expansion. This restricted availability tightens the milk supply and poses significant challenges for farmers hoping to increase their activities. These production difficulties draw attention to the intricate dynamics in the American dairy sector, which calls for farmers’ resilience and flexibility.
Forecasting Futures: Navigating Price Volatility and Strategic Planning for the U.S. Dairy Industry’s Year-End
Ever.Ag projects Class III futures ranging from $18 to $20 per hundredweight and Class IV ranging from $20 to $22 for the remainder of 2024. These forecasts suggest a cautiously optimistic outlook for the U.S. dairy industry, indicating potential price stability and favorable margins for producers. However, market volatility still poses significant challenges even with these hopeful forecasts. “We will continue to see volatility in these markets,” Kathleen Noble Wolfley notes, emphasizing the necessity of strategic planning as the year progresses. She also underscores the need for awareness and flexibility, advising industry stakeholders to remain vigilant and adaptive in response to rapid market shifts.
The Bottom Line
Despite the challenges, the U.S. dairy industry, buoyed by record cheese exports and increased local demand, is poised for a promising 2024. The industry’s resilience in navigating the erratic nature of key markets like China and Mexico, along with the ability to manage reduced herd growth and illness effects, instills confidence in its stakeholders. The key to success lies in adapting to these changing dynamics for strategic orientation and maintaining good margins.
Key Takeaways:
Record U.S. cheese exports in the initial months of 2024 have helped alleviate domestic market saturation.
Increased domestic demand for cheese in both restaurants and stores is buoying the market.
Key export markets like China and Mexico are becoming less predictable due to political and economic fluctuations.
Decreased shipping costs may result in increased global competition, potentially undercutting U.S. dairy prices.
Bovine influenza A is causing intermittent declines in milk production, further tightening the already constrained supply.
The high cost and limited availability of heifers are hindering farmers from expanding their herds.
Ever.Ag forecasts continued market volatility, with class III futures expected between $18 and $20 per hundredweight, and class IV between $20 and $22.
Summary:
The U.S. dairy industry is expected to start strong in 2024, driven by record-breaking cheese exports and a 15% increase in domestic demand. However, the industry faces challenges such as unpredictability in key export markets like China and Mexico, which may lead to reduced purchase volumes and increased competition in other markets. The growing competitiveness of other dairy-exporting nations adds complexity to the U.S. dairy export business. Domestic cheese demand plays a significant role in the U.S. dairy economy, with major corporations attracting customers through creative marketing and attractive discounts. However, higher demand might raise cheese prices, leading to stores cutting discounts to protect profit margins. This could lead to shifts in consumer purchasing behavior, potentially decreasing overall cheese consumption. Despite these challenges, the U.S. dairy industry is poised for a promising 2024, with resilience in navigating key markets, managing reduced herd growth, and adapting to changing dynamics for strategic orientation and maintaining good margins.
Find out the latest trends in Class III milk futures and market movements from the Chicago Mercantile Exchange. How will these changes affect your dairy farming plans?
Today, we observed relatively subdued activity across Class III and IV markets. Class III prices saw a general increase of 10-15 cents, influenced by a mix of spot results. Notably, only one Class IV contract has been traded, with butter and nonfat prices showing a decline. This slow start to the week is particularly noteworthy, given the high anticipation surrounding the recent Milk Production report, which is expected to have a significant impact on the market.
Mixed Movements in Milk Futures: Class III Climbs While Class IV Drags
Contract
Class III Price ($/cwt)
Class IV Price ($/cwt)
July 2024
$19.87
$21.21
August 2024
$20.00
$21.15
September 2024
$20.10
$21.10
The overall market movements for Class III and Class IV milk futures presented a mixed picture. Class III futures showed a moderate growth, increasing by 10-15 cents, which can be seen as a positive response to spot market variations. On the other hand, Class IV futures saw limited activity with predominantly downward trends, including a single contract traded and declines in butter and nonfat milk prices. This mix of movements sets the stage for a cautious start to the week, highlighting the potential risks and opportunities in the market following the recent Milk Production report.
Optimism in Class III Milk Futures Amid Mixed Spot Market Results
Class III milk futures showed signs of optimism as prices rose by 10-15 cents across all contracts. This uptick was primarily a reflection of mixed spot market results. Specifically, block cheese prices increased to $1.8900 per pound, likely bolstering confidence among traders. In contrast, barrel cheese prices slightly declined to $1.9150 per pound. The divergence in spot prices seemed to fuel the cautious yet hopeful sentiment observed in the futures market.
Class IV Milk Futures See Limited Activity Amid Sluggish Market
Class IV milk futures were subdued, reflecting the overall sluggish activity in the market today. At the time of writing, only one Class IV contract had been traded, highlighting the lackluster interest in this segment. This cautious trading behavior was mirrored by declines in both butter and nonfat dry milk prices. Butter settled at $3.0650 per pound, giving up $0.0250, and nonfat dry milk followed suit with similar downward adjustments. The dipping prices in essential dairy commodities likely contributed to the softer stance in Class IV futures.
Spot Market Sees Mixed Cheese Prices and Declines in Butter and Nonfat Dry Milk
Product
Price Per Pound
Change
Cheese Blocks
$1.8900
+ $0.0450
Cheese Barrels
$1.9150
– $0.0050
Butter
$3.0650
– $0.0250
Nonfat Dry Milk
$1.19
– $0.0025
The day’s spot market activity saw block cheese prices lift to $1.8900 per pound, marking an increase of $0.0450 per pound with two lots traded. In contrast, barrel cheese prices slipped slightly to $1.9150 per pound, a decrease of $0.0050, with just one load exchanged.
Butter prices also dipped today, settling at $3.0650 per pound, down by $0.0250 per pound with one lot sold. Meanwhile, nonfat dry milk prices decreased by $0.0025 to $1.19, with three sales recorded, ranging from $1.19 to $1.1950 per pound.
This pattern of dipping prices across essential dairy commodities indicates a market cautious at the start of the week, especially following the highly anticipated Milk Production report.
Mixed Futures Activity: Class III Shows Gains, While Class IV and Butter Futures Retreat
In today’s market, July Class III futures rose by 12 cents to $19.87 per hundredweight, indicating positive movement despite mixed spot results. This rise contrasts with the nearby Class IV contract, which saw a decrease, losing 12 cents and settling at $21.21 per hundredweight.
Trends in Q3 “all-cheese” futures were upbeat, ending the day positively at $2.0333 per pound, adding $0.0220. However, the butter futures market mirrored the spot market softness, with July futures coming in at $3.0550 per pound, down $0.0300.
Promising Crop Conditions: Corn and Soybeans Show Strong Potential
Crop
Date
% Planted
% Good to Excellent
Corn
June 23, 2024
98%
69%
Soybeans
June 23, 2024
97%
67%
The latest Crop Progress report sheds light on the current status of crucial feed crops, such as corn and soybeans, which are vital to the dairy industry. As of June 23, 69% of the corn crop was rated good to excellent. This indicates a robust potential for feed quality, directly impacting feed costs and milk production efficiency. Similarly, soybean planting has nearly completed, with 97% of the crop in the ground and 67% rated good to excellent. This positive outlook in crop conditions could lead to stable or reduced feed prices, offering a silver lining for dairy farmers navigating volatile market conditions.
The Bottom Line
The CME dairy report for June 24, 2024, highlights modest growth in Class III futures, with prices rising 10-15 cents. However, Class IV futures were primarily static, with minimal trading activity. Key spot prices for blocks and barrels showed mixed results, indicating a potentially stabilizing market. Additionally, butter futures softened slightly.
For dairy farmers, these market movements suggest a cautiously optimistic outlook. The increase in Class III futures might signal improving dairy margins, especially as feed costs are expected to stabilize with promising crop progress reports. Keeping a close eye on market trends through resources like the CME and Progressive Dairy will be crucial for making informed decisions. Utilizing tools like Dairy Revenue Protection could offer additional security against volatile price swings, ensuring your operations remain resilient in the coming weeks.
Key Takeaways:
Class III milk futures showed modest growth, rising 10-15 cents.
Class IV milk futures experienced minimal trading activity and a decline in prices.
Block cheese prices increased, while barrel cheese prices fell slightly.
Butter prices and futures saw a decrease, with minimal trading activity.
Corn crop progress remains strong, with 69% rated good to excellent.
Soybean planting is nearly complete, with a 67% good to excellent rating.
Dairy margins are projected to improve for the rest of the year due to stronger milk prices and lower feed costs.
Summary:
The dairy market has seen a mixed start to the week, with Class III and IV milk futures showing moderate growth and a cautious outlook. Class III prices increased by 10-15 cents overall, driven by mixed spot results. However, Class IV futures saw limited activity with predominantly downward trends, including a single contract traded and declines in butter and nonfat milk prices. This mix of movements sets the stage for a cautious start to the week, highlighting potential risks and opportunities in the market following the recent Milk Production report. Block cheese prices increased to $1.8900 per pound, while barrel cheese prices slightly declined to $1.9150 per pound. July Class III futures rose by 12 cents to $19.87 per hundredweight, indicating positive movement despite mixed spot results. Q3 “all-cheese” futures ended the day positively at $2.0333 per pound.
Learn how dairy producers are managing high milk prices and tough conditions to keep their barns full. Can they keep milk production steady despite these challenges?
Producers are making significant efforts to preserve their herds, often lowering milk yield standards to avoid slaughter. This collective action has led to the lowest dairy cow slaughter rates in eight years, indicating a shared commitment to increase herd sizes and milk output. However, external pressures such as severe weather and avian influenza pose additional challenges to this collective quest.
With the prospect of tightening milk supplies and reduced production, the dairy industry is entering a crucial period. The coming months will serve as a litmus test for the resilience and ingenuity of dairy producers across the nation. We invite you to delve deeper into the challenges they’ve overcome and the strategies they’re employing to navigate these turbulent times.
A Remarkable Feat: Dairy Producers Innovate to Sustain Herd Sizes Amid Soaring Milk Prices
Month
Springer Prices (2023)
Springer Prices (2022)
January
$2,500
$2,150
February
$2,600
$2,200
March
$2,700
$2,300
April
$2,800
$2,400
May
$3,000
$2,500
June
$3,100
$2,600
Dairy producers have demonstrated remarkable resilience in maintaining herd sizes despite soaring milk prices. They have invested over $3,000 in springers, a testament to their commitment to high-quality replacements. By adjusting milk yield standards, they have managed to retain more cows in the herd, avoiding the financial impact of sending them to the packer despite record-high beef prices.
Month
Cull Rate (2024)
Cull Rate (2023)
January
4.5%
5.2%
February
4.3%
5.0%
March
4.1%
4.8%
April
3.9%
4.6%
May
2.8%
4.3%
June
2.7%
4.1%
This strategic move led to a significant drop in dairy cow slaughter rates, with only 216,100 heads culled in May—an eight-year low. The decreased cull rates boosted herd numbers. The USDA’s Milk Production report revised April estimates upwards by 5,000 heads, and May saw an additional expansion by another 5,000 heads. Consequently, the U.S. milk parlors housed 9.35 million cows in May, the highest count in seven months, though still 68,000 head fewer than in May 2023.
USDA’s Revised Estimates Highlight Complexities in Dairy Sector Dynamics
The USDA’s latest Milk Production report, a comprehensive analysis of milk production, supply, and demand in the United States, brings new insights into the dairy sector. The revised estimate for April shows an increase of 5,000 head in the milk cow herd despite a slight decline from March. The herd grew by another 5,000 in May, totaling 9.35 million cows—the highest count in seven months but still 68,000 fewer than in May 2023.
Month
Milk Production (Billion Pounds)
Year-over-Year Change (%)
December
19.75
-0.2%
January
19.80
+0.3%
February
17.68
-0.9%
March
19.60
-0.4%
April
19.55
-0.6%
May
19.68
-0.9%
Milk output, however, presents a less encouraging picture. April’s production was adjusted to a 0.6% decline, and May followed suit with a 0.9% year-over-year decrease, dropping to 19.68 billion pounds.
These figures highlight the challenges facing the dairy industry. Even with herd growth, heat waves and avian influenza undermine yields. This could tighten milk supplies and increase prices, emphasizing the need for adaptive strategies in this volatile market.
Heat Waves and Avian Influenza Compound Pressures on Dairy Producers
Adverse conditions have taken a toll on milk yields, exacerbating dairy producers’ challenges. The heat wave sweeping through California, the Southwest, and parts of the eastern United States has subjected the dairy herd to significant thermal stress. Record-high overnight temperatures in Florida and the Northeast further hampered milk production. Dairy cows, sensitive to heat, generally eat less and produce less milk when temperatures soar, making it difficult for producers to maintain output levels. Similarly, the spread of avian influenza has reduced herd health, necessitated increased biosecurity measures, and decreased milk quality, further adding to the strain on production capabilities.
While Idaho was spared from the intense heat, it faced its own battle with avian influenza, leading to a significant year-over-year drop in milk output. The state’s milk production fell by 0.6% in May, starkly contrasting the 0.3% gain in April.
These challenges resulted in a nationwide decline in milk yields and total output. National average milk yields fell below prior-year levels, with total milk production dipping to 19.68 billion pounds in May, a 0.9% reduction from the previous year. The USDA revised its estimate for April milk output to show a 0.6% decline, up from the initially reported 0.4% deficit. These factors underscore adverse conditions’ significant impact on dairy production nationwide.
Worsening Conditions Signal Tightening Milk Supplies Ahead
As we look ahead, the dairy industry’s adaptability will be crucial as milk supplies could significantly tighten due to worsening conditions. The persistent heat wave in key dairy regions and the spread of avian influenza are adding strain to production capabilities. However, the industry’s ability to navigate these adverse conditions and maintain a stable supply chain instills confidence in its resilience.
Month
NDM Price ($/lb)
SMP Price ($/lb)
December 2022
1.10
1.12
January 2023
1.15
1.14
February 2023
1.18
1.17
March 2023
1.20
1.19
April 2023
1.22
1.21
May 2023
1.205
1.23
This tightening of milk supplies is already impacting milk powder production. As liquid milk availability diminishes, so does the capacity to produce milk powder. This constraint is evident in the market, with CME spot nonfat dry milk(NDM) prices hitting a four-month high at $1.205 per pound. The market recognizes that the looming supply shortage and upward pressure on NDM prices will likely persist.
The combined effects of climatic challenges and disease outbreaks highlight the precarious state of the dairy supply chain. Producers are preparing for a tough summer, where every pound of milk is crucial for meeting demand and stabilizing market prices. Navigating these tumultuous times will be critical to the industry’s resilience and adaptability.
A Seismic Shift: China’s Domestic Milk Production Transforms Global Dairy Markets
Year
Milk Production (billion pounds)
2019
74
2020
78
2021
82
2022
90
2023
97
China’s significant increase in domestic milk production over the past five years, adding roughly 23 billion pounds, has had a profound impact on global dairy prices. This surge is equivalent to the combined annual output of Texas and Idaho, underscoring the global reach of the dairy industry and the need for producers to stay informed about international market dynamics.
Data from last month underscores this trend: whole milk powder (WMP) imports fell by 33% from May 2023, the lowest May figure since 2017. Skim milk powder (SMP) imports plummeted 52% year-over-year, the lightest since 2016. The year-to-date milk powder imports are the slowest in nine years, prompting dairy processors to focus more on cheese production and broaden their market reach.
While China’s increased milk production hasn’t significantly affected whey imports, local factors like declining birth rates and financial challenges in the hog industry have lessened demand for whey in infant formula and animal feed. As a result, Chinese whey imports dropped by 9.4% last month compared to May 2023. The U.S. provided much of this supply, but the market’s slower growth has led to reduced overall volumes.
Dynamic Domestic Demand for High-Protein Whey and the Ripple Effects in the Dairy Market
Domestic demand for high-protein whey has been pivotal in maintaining dry whey inventories and stabilizing prices. Even with reduced exports to China, the U.S. market’s vital need for nutritional supplements and food ingredients has kept the demand high. This has prevented a surplus, helping prices hold firm. CME spot dry whey remains at 47ȼ, underscoring this consistent support.
Meanwhile, the intense heat has boosted ice cream sales, tightening cream supplies. This shift has slowed butter churning as more cream goes into ice cream production. Yet, butter demand stays strong, and prices are stable. At the Global Dairy Trade (GDT) auction, CME spot butter prices ended the week at $3.09. These trends show how weather impacts dairy product segments and market behaviors.
Cheese Price Challenges: Navigating Domestic Demand and Global Market Dynamics
Month
Cheddar Blocks
Cheddar Barrels
January
$1.95
$1.92
February
$2.02
$1.98
March
$2.05
$2.00
April
$1.98
$1.95
May
$1.92
$1.88
June
$1.845
$1.92
The recent dip in cheese prices highlights the complexities of market balance. Despite strong domestic demand, securing new export sales has been challenging, with prices close to $2, making U.S. cheese-less competitive globally. This week, CME spot Cheddar blocks dropped 12.5ȼ to $1.845, and barrels fell to $1.92.
This pricing slump has rippled through the futures market, affecting Class III and IV values. The June Class III contract fell 81ȼ to $19.86 per cwt, while fourth-quarter contracts increased slightly, indicating mixed market sentiments. Class IV futures remained steady, averaging $21.43, showing bullish expectations amid the current market challenges.
Weather Extremes and Market Sentiments: Navigating the Grain Market’s Unpredictable Terrain
Month
Corn Futures ($ per bushel)
Soybean Meal Futures ($ per ton)
Key Influences
January
$4.75
$370.00
Winter conditions, pre-planting speculation
February
$4.65
$365.00
More favorable weather outlooks
March
$4.50
$360.00
Spring planting preparations
April
$4.60
$355.00
Initial planting progress reports
May
$4.40
$350.00
Heavy rains, mixed planting progress
June
$4.35
$362.50
Flood issues in Midwest, market correction
The grain market faces weather challenges and market reactions this season. A wet spring boosted soil moisture in the Corn Belt, setting the stage for solid crop growth. However, heavy rains west of the Mississippi River have caused oversaturation and flooding fields in Nebraska, Iowa, South Dakota, and Minnesota. This excess moisture, now a concern, hampers fieldwork and threatens crops.
In contrast, the eastern regions have seen hot and dry conditions. Initially, this was good for crops, but persistent heat is now stressing them, potentially affecting yields if it continues.
Despite these adverse conditions, grain markets remain surprisingly calm. July corn futures have dipped by 13 cents to $4.35 per bushel, and December contracts hit a four-month low at $4.53. Conversely, July soybean meal prices have risen, reaching $362.50 per ton. This reveals agricultural markets’ intricate and often unpredictable nature, where traders and producers constantly adapt to changing conditions and signals.
The Bottom Line
Dairy producers have shown remarkable resilience as milk prices soar. Despite record-high beef prices, they’ve kept herd sizes steady, investing in springers and reducing cull rates to combat the challenges posed by rising costs. The USDA’s data revision underscores slight expansions in the dairy herd, but producers are under pressure from a heat wave and avian influenza, affecting yields and supply.
With worsening conditions, milk supplies are tightening, influencing milk powder production and prices. China’s significant boost in domestic milk production has reshaped global markets, making the landscape competitive for dairy exporters. Domestically, demand for high-protein whey remains strong, while cheese prices struggle despite robust demand, revealing a complex market environment.
Extreme weather and fluctuating grain markets add to the industry’s challenges. Strategic adjustments in herd management, leveraging domestic solid demand for certain products, and adapting to global changes will be crucial. Dairy producers’ ability to innovate and respond to these challenges will determine their success and sustainability.
Key Takeaways:
Dairy producers paid $3,000 or more for springers to keep their barns full amidst soaring milk prices.
The dairy cow slaughter rate dropped to an eight-year low in May, with just 216,100 head being culled.
The USDA reported a 5,000 head increase in the April milk-cow herd estimate and a further 5,000 head rise in May.
Despite heightened efforts, national average milk yields dipped below prior-year volumes, with overall milk output dropping by 0.9% year-over-year to 19.68 billion pounds.
Heat waves and avian influenza exacerbated the situation, particularly affecting dairy operations in Idaho and many parts of the United States.
China’s increased domestic milk production has significantly reduced its reliance on imports, impacting global dairy product prices and competition.
Although Chinese whey imports declined, domestic demand for high-protein whey in the U.S. remains strong, keeping prices firm.
Ice cream demand due to hot weather has tightened cream supplies and slowed butter churning, keeping butter prices robust while cheese prices faced a decline.
Weather conditions have varied widely, with floods in the Corn Belt and heat stress on crops in the east, affecting grain market sentiments.
Summary:
The dairy sector is facing a surge in milk prices due to increased demand, supply chain disruptions, and consumer preferences. Producers are lowering milk yield standards to preserve herds, leading to the lowest dairy cow slaughter rates in eight years. However, external pressures like severe weather and avian influenza pose additional challenges. The USDA’s Milk Production report shows an increase in the milk cow herd, but milk output is less encouraging. The dairy industry’s adaptability is crucial as milk supplies could tighten due to worsening conditions. The market is also facing a shortage of nonfat dry milk (NDM) and skim milk powder (SMP) imports, with China’s domestic milk production significantly impacting global dairy prices. Domestic demand for high-protein whey is pivotal in maintaining dry whey inventories and stabilizing prices. The grain market faces weather challenges and market reactions, but grain markets remain calm.
Explore the unusual shifts in dairy markets: Class III futures rise while cheese and grain prices fall. What will the USDA Milk Production report reveal for May?
As the dairy markets reopened after the mid-week break in honor of Juneteenth, a significant cultural event was celebrated annually on June 19 to commemorate the ending of slavery in the United States. Traders and analysts were keenly looking for a clear direction. It was a peculiar day indeed — while the cheese spot market moved lower, Class III futures were higher. Let’s delve into these unusual market movements and unravel the factors.
Understanding the underlying numbers can provide clarity as the dairy markets react to a whirlwind of influences. Below is a snapshot of the current market trends:
Market
Price
Change
Volume
Class III Futures
$18.75/cwt
+0.50
10,000 contracts
Cheese Blocks
$1.8525/lb
-0.0075
13 loads
Cheese Barrels
$1.9300/lb
-0.0100
7 loads
Nonfat Dry Milk
$1.2075/lb
+0.0175
1 lot
Corn (Dec Futures)
$4.5675/bushel
-0.0750
50,000 contracts
Soybeans (Dec Futures)
$11.50/bushel
-0.1250
45,000 contracts
Class III Futures Market Sees Surprising Uptick Amid Recent Downward Trends
The Class III futures market saw an interesting uptick despite recent declines. This rebound was a bit surprising. What could be driving this shift? One possibility is the market catching its breath. After falling prices, minor adjustments and corrections are normal. Traders might see recent lows as too harsh, sparking a buying spree. Expectations of positive news might also play a role, prompting a preemptive move. Whatever the cause, this uptick adds a new dynamic to an already complex market. Understanding these fluctuations is not just important, it’s crucial to our role as traders and analysts, as it allows us to anticipate and react to market changes.
A Day of Divergence: Cheese Spot Market Buckles Amid Class III Futures Rally
This was an unusual day for the cheese spot market. The cheese sector faced a downward trend despite Class III futures moving higher. ‘Blocks ‘, a type of cheese, dipped to $1.8525 per pound with 13 loads trading. ‘Barrels ‘, another type of cheese, slipped by a penny to $1.9300 per pound with seven lots exchanged. So, what’s behind this decline? It seems to boil down to supply and demand dynamics and external economic factors. An oversupply of cheese or reduced demand from critical buyers might drive prices down. Economic uncertainties and fluctuations in global dairy trade could also impact the market.
Grain Markets Plunge as Crop Conditions Brighten and Futures Hit Lows Since February
Corn and soybeans saw a significant drop in the grain markets, driven by good crop conditions and ‘technical selling ‘, a strategy where traders sell based on technical indicators rather than fundamental analysis. December futures fell to $4.5675 per bushel, the lowest since February. A positive crop outlook has reassured traders, leading to a wave of selling and pushing prices down.
Nonfat dry milk prices increased to $1.2075 per pound, up $0.0175, with one lot traded. This rise could be due to higher market demand, rising production costs, or shifts in consumer behavior towards dairy products. These elements, along with other factors, will be critical to watch to understand broader dairy market trends.
New Zealand’s Milk Production: A Temporary Decline or a Long-term Trend?
New Zealand’s milk production has declined for the third month. May saw a 4.3% drop year-over-year on a milk solids basis and a 6.2% decrease on a tonnage basis. This might seem concerning, but NZX attributes it to variable weather and pasture conditions. Despite these drops, the production levels align with the five-year rolling average. So, while the recent declines are notable, they’re part of a long-term pattern with both highs and lows. This decline could have implications for the global dairy market, as New Zealand is a major exporter of dairy products.
The Bottom Line
The dairy markets had an unusual day. While the cheese spot market fell, Class III futures unexpectedly rose, reflecting the inherent unpredictability of the market. Grain markets dropped due to good crop conditions and technical selling, with December futures at their lowest since February. Nonfat dry milk prices rose slightly, hinting at increased demand. New Zealand’s milk production declined for the third consecutive month, sparking questions about future trends. All eyes are now on tomorrow’s USDA Milk Production report for May, a reminder of the constant vigilance required in our field.
Key Takeaways:
Cheese spot market prices dropped while Class III futures saw a surprising increase.
Grain markets took a significant hit, with December futures for corn and soybeans reaching lows not seen since February.
Nonfat dry milk prices witnessed a notable rise, suggesting potential increased market demand or rising production costs.
New Zealand’s milk production continued to decline for the third consecutive month due to variable weather and pasture growth conditions.
The upcoming USDA Milk Production report for May is a significant watch factor for tomorrow’s market movements.
Summary:
Dairy markets experienced an unusual day, with Class III futures rising unexpectedly and grain markets dropping due to good crop conditions and technical selling. The cheese spot market saw prices drop to $1.8525 per pound and barrels to $1.9300 per pound, driven by supply and demand dynamics and external economic factors. The grain market experienced a significant drop due to good crop conditions and technical selling, with December futures falling to $4.5675 per bushel, the lowest since February. Nonfat dry milk prices increased to $1.2075 per pound, up $0.0175, due to higher market demand, rising production costs, or shifts in consumer behavior towards dairy products. New Zealand’s milk production has declined for the third consecutive month, with a 4.3% drop year-over-year on a milk solids basis and a 6.2% decrease on a tonnage basis. The USDA Milk Production report for May will provide further insights into future trends.
Explore the reasons behind the global dairy market’s slower price recovery amidst dwindling demand and surging production in China. What implications does this hold for global dairy prices? Find out more.
Rabobank’s Q2 Global Dairy Report, titled “Searching for Equilibrium,” provides a comprehensive analysis of the worldwide dairy market. It reveals that the market is experiencing a slower-than-expected price recovery. The primary factors contributing to this trend are lower worldwide demand and the increasing local milk output in China. The report further explains that the initial surge in global dairy prices in late 2023 and early 2024 was primarily due to importers restocking at lower prices, rather than increased consumer demand. This complex interplay of factors underscores the need for stakeholders to stay informed and aware of the market dynamics.
Commodity
Price (US$ per tonne)
Change (%)
Recent Gains
Skim Milk Powder
$2,629
3.5%
Consistent
Anhydrous Milk Fat
$7,365
3.5%
Consistent
Butter
$6,931
5.1%
Strong
Whole Milk Powder
$3,408
2.9%
Steady
Cheddar
$4,239
0%
Stable
Decoding the Supply Chain: How Strategic Restocking Inflated Dairy Prices
Commodity
Date
Price (US$ per tonne)
Change (%)
Skim Milk Powder
22 May 2024
2,629
3.5%
Anhydrous Milk Fat
22 May 2024
7,365
3.5%
Butter
22 May 2024
6,931
5.1%
Whole Milk Powder
22 May 2024
3,408
2.9%
Cheddar
22 May 2024
4,239
0%
Knowing the mechanics underlying the first spike in world dairy prices in late 2023 and early 2024 shows one crucial tendency. Rabobank’s Q2 Global Dairy Report shows that importers’ intentional restocking at lower prices rather than consumer demand drove the jump. Globally, market prices momentarily surged as importers restocked their supplies at reasonable costs. This synthetic surge covered the underlying poor consumer demand, suggesting that the price rise did not reflect a steady increase in dairy consumption.
Navigating Market Turbulence: Global Dairy Faces Demand Challenges and Supply Surpluses in Q2 2024
Region
Q1 2024 Demand (in million tons)
Q2 2024 Demand (in million tons)
Quarter-over-Quarter Change (%)
North America
12.3
12.1
-1.6%
Europe
17.5
17.3
-1.1%
Asia
21.0
20.6
-1.9%
Latin America
9.5
9.3
-2.1%
Africa
6.7
6.6
-1.5%
Oceania
2.8
2.8
0%
Q2 2024 presented interesting difficulties for the worldwide dairy industry. Along with rising milk output in China, a significant market participant, weak global demand resulted in lower dairy imports from China and downward pressure on world pricing. This scenario underlined the complicated dynamics of declining consumer confidence and increasing local production, therefore tempering prior predictions of a continuous price rebound. The market is now in a phase of cautiousness and adjustment.
China’s Growing Self-Sufficiency: A Stark Contrast in Global Dairy Production Forecasts
Year
Milk Production (Million Metric Tons)
Growth Rate (%)
2019
31.9
4.5
2020
33.0
3.4
2021
34.8
5.3
2022
36.5
4.9
2023
38.0
4.1
2024 (Forecast)
39.2
3.2
China’s role in the global dairy market is becoming increasingly significant. The country’s milk output projection for 2024 has been raised, indicating a substantial increase in China’s output. This shift is altering the dynamics of dairy imports worldwide. In contrast, other major dairy-producing countries such as the U.S. and the E.U. are expecting only a slight rise in milk production. Senior dairy economist Michael Harvey points out that this disparity underscores the challenges global exporters face in adjusting to China’s rising self-sufficiency and the delayed recovery in other regions.
Consistent Gains Amidst Uncertainty: Analyzing the 3.3% Rise in Dairy Prices at the GDT Auction
Commodity
Price (US$ per tonne)
% Change
Skim Milk Powder
2,629
3.5%
Anhydrous Milk Fat
7,365
3.5%
Butter
6,931
5.1%
Whole Milk Powder
3,408
2.9%
Cheddar
4,239
No Change
The GDT auction on May 22 revealed a significant trend in world dairy markets. The latest 3.3% increase in dairy prices to US$3861 per tonne marked the tenth gain out of the last twelve auctions, indicating strong performance in many dairy industries. These consistent increases in prices suggest a robust demand, even in uncertain markets.
Reversing their early May retreat, Chinese bidders returning to the most recent auction have lifted prices over 10% above long-term norms. Chief Economist of Westpac NZ Kelly Eckhold points out that this comeback might improve their milk price projection for the 2024–25 season to be NZ$8.40 (US$5.14). China’s increasing demand helps to justify a positive view of world dairy pricing despite continuous difficulties.
Diverse Commodity Movements: Skim Milk Powder and Anhydrous Milk Fat Lead Price Increments while Cheddar Stays Static
Prices for skim milk powder and anhydrous milk fat increased by 3.5% to US$2,629 and US$7,365 per tonne, respectively. Butter climbed 5.1% to US$6,931 per tonne. Rising by 2.9%, whole milk powder brought US$3,408 per tonne. At US$4,239 per tonne, Cheddar stayed the same.
U.S. Dairy’s Persistent Production Woes: Navigating the Multifaceted Decline Amidst Deflationary Pressures
State
Change in Milk Production (YOY)
California
+0.2%
Wisconsin
+2.5%
South Dakota
+12.3%
New York
0%
Idaho
-0.1%
Reflecting a disturbing pattern, April represented the tenth straight month of decreased U.S. milk output. One crucial component is a more miniature dairy herd—74,000 fewer cows than last year—that results in 9.34 million total. Though each cow produces more, general output has fallen. Constant dairy deflation has further complicated the economic environment for farmers by inhibiting growth and investment. Regional differences are also apparent; California experienced more yields per cow but had fewer cows. These elements imply that stabilizing the U.S. dairy sector might still be difficult.
The U.S. Dairy Sector Battles Persistent Deflation: CPI Slips 1.3% in April Reflecting Ongoing Market Challenges
Month
U.S. Dairy CPI Change
January
-0.5%
February
-0.7%
March
-1.0%
April
-1.3%
April’s U.S. dairy CPI dropped 1.3% year-on-year, eight consecutive months of deflation. This steady drop emphasizes the difficulties still facing the market.
Regional Disparities in U.S. Milk Production: A Complex Landscape of Growth and Stagnation
The geographical differences in U.S. milk output provide a mixed picture. Wisconsin and South Dakota have shown outstanding performance, with respective year-on-year growth of 2.5% and 12.3%. On the other hand, California has experienced a 9,000 cow drop but still saw a modest 0.2% increase in productivity, marking its second month of gain. While Idaho had a small drop of 0.1%, New York’s output has stalled, exhibiting no year-on-year variation. These differences draw attention to the complex dynamics of the American dairy industry, where areas experiencing expansion also face difficulties.
European Dairy Landscape: Gearing Up for a Resilient Market Amidst Global Uncertainties
Month
Price (€/100 kg)
January
45.90
February
46.05
March
46.33
April
46.31
In April, the preliminary E.U. average farmgate milk price dropped 0.2% to €46.31 per 100 kg. Rabobank is still optimistic despite this downturn; led by sustained increases, more significant fat and protein composition, and more premiums, prices might reach €50 per 100 kg. Reflecting a solid market amid worldwide uncertainty, Rabobank predicts the 2024 E.U. farmgate basic milk prices to average about €47.5 per 100 kg.
The Bottom Line
Despite the challenges, the global dairy industry is demonstrating resilience. The industry is grappling with declining demand and rising milk output in China, which is hindering price recovery. Additional hurdles include subdued consumer confidence and cautious shopping after a restocking phase. However, Rabobank maintains a cautiously hopeful view. It anticipates that lower feed prices and consistent output in key areas by year-end will bolster the market. While recovery might be erratic and delayed, the long-term market dynamics indicate a steady improvement, instilling optimism in stakeholders.
Key Takeaways:
The global dairy market is experiencing a more gradual price recovery than initially expected, influenced by factors such as fluctuating global demand and China’s changing import needs. Rabobank’s latest report provides an in-depth analysis of the current landscape and future projections. Here are the key takeaways:
Global dairy prices surged in late 2023 and early 2024 due to importers’ restocking rather than a robust consumer demand.
Weaker global demand and increased domestic milk production in China have tempered expectations for a steady price increase through 2024.
China has revised its milk production forecast upwards, contrasting with modest growth anticipated in other major dairy-producing regions for Q3 2024.
Dairy prices at the Global Dairy Trade (GDT) auction rose by 3.3% to US$3861 per tonne on May 22, marking the 10th increase in the last 12 auctions.
US April milk production fell by 0.4% year-on-year, and the consumer price index (CPI) for dairy and related products decreased by 1.3% year-on-year in April, continuing an eight-month deflation trend.
European farmgate milk prices fell slightly to €46.31 per 100 kg in April, with Rabobank projecting stable to incremental gains throughout the year.
Summary:
The Rabobank Q2 Global Dairy Report suggests a slower-than-expected price recovery in the global dairy market due to lower worldwide demand and increasing local milk output in China. The initial surge in global dairy prices in late 2023 and early 2024 was primarily due to importers restocking at lower prices, rather than increased consumer demand. China’s growing self-sufficiency in the global dairy market is causing a significant shift in dairy import dynamics, with its milk output projection for 2024 raising significantly. Meanwhile, major dairy-producing countries like the U.S. and the E.U. are expecting only a slight rise in milk production. The GDT auction on May 22 revealed a 3.3% increase in dairy prices to US$3861 per tonne, with Chinese bidders lifting prices over 10% above long-term norms. The U.S. dairy sector faces persistent production woes, with April representing the tenth straight month of decreased milk output. The European dairy landscape is gearing up for a resilient market amid global uncertainties, with Rabobank predicting lower feed prices and consistent output in key areas by year-end.
Learn More:
To delve deeper into market trends and implications, explore our related articles:
Discover how surging whey prices are boosting Class III dairy values and shaking up the market. What’s driving this change and what does it mean for the industry?
After dropping to a low of 36 cents on April 12 and 15, the whey powder market has shown significant recovery. The CME spot dry whey price has surged to 48 cents per pound, marking the highest price since late February.
“Domestic demand for high-protein whey products has given a sizable boost to dairy protein values, and processors have directed much of the whey stream into high-protein concentrates,” said Sarina Sharp, analyst with the Daily Dairy Report.
According to USDA data, production of whey protein concentrate (WPC), which contains 50% to 89.9% protein, reached an all-time high in 2023. In the first four months of this year, output for both WPC with 50% to 89.9% protein and whey protein isolates (WPI), which contain at least 90% protein, increased by 9.7% and 9.6%, respectively, compared to the same period in 2022.
WPC and WPI are utilized as ingredients in:
Infant formula
Sports drinks
Nutrition shakes
These products are high in protein. In comparison, lower-protein whey powder is often used in animal feed or in human food products, such as baked goods, chocolate and other candies, fortified dairy products, ice cream, infant formula, and clinical nutrition products.
“Increasing output of WPC and WPI, however, has not been enough to push whey powder production below early-2023’s already depressed volumes,” Sharp said. “The combination of modestly higher output and slower exports pushed whey powder prices to six-month lows in mid-April.”
Whey powder production for the January through April period increased by 1.9% compared to the previous year. However, more recently, dry whey production has been slowing down.
“Plant downtime and the use of whey solids for higher protein concentrates has kept dry whey availability in check,” wrote USDA’s Dairy Market News in a recent report.
“Tighter whey powder inventories have propelled spot whey prices up an impressive 30%, or 11 cents, in less than two months,” Sharp noted. “While most of the drama in the Class III space has occurred in cheese markets, whey has played an important supporting role. Its two-month rally has boosted Class III values by 66 cents.”
Key Takeaways:
The whey powder market has rebounded, climbing to 48 cents per pound by late February from mid-April lows.
Domestic demand for high-protein whey products has substantially buoyed dairy protein values.
Whey protein concentrate (WPC) and whey protein isolates (WPI) production reached record highs in the first four months of 2023.
WPC and WPI are popular ingredients in high-protein products like infant formula and sports drinks, while lower-protein whey is used in animal feed and various food products.
Despite increased WPC and WPI output, overall whey powder production remains slightly higher than earlier 2023 levels due to slower exports.
Reduced dry whey production is due to plant downtime and diversion of whey solids to higher protein concentrates.
Tightened whey powder inventories have resulted in a 30% increase in spot whey prices over less than two months.
The rally in whey prices has contributed to a 66-cent boost in the Class III values.
Summary:
The whey powder market has seen a significant recovery after dropping to a low of 36 cents on April 12 and 15. The CME spot dry whey price has surged to 48 cents per pound, marking the highest price since late February. Domestic demand for high-protein whey products has given a significant boost to dairy protein values, and processors have directed much of the whey stream into high-protein concentrates. Production of whey protein concentrate (WPC) and whey protein isolates (WPI) reached an all-time high in 2023, with output increasing by 9.7% and 9.6% compared to the same period in 2022. WPC and WPI are used as ingredients in infant formula, sports drinks, and nutrition shakes. However, increasing output of WPC and WPI has not been enough to push whey powder production below early-2023’s already depressed volumes. Whey powder production for the January through April period increased by 1.9% compared to the previous year. Tighter whey powder inventories have propelled spot whey prices up an impressive 30%, or 11 cents, in less than two months.
Discover why U.S. fluid milk sales and cheese exports are surging despite a decline in production. How is this shift impacting the dairy market? Read more to find out.
Unexpectedly for the U.S. dairy business, fluid milk sales and cheese exports are rising even as milk output steadily declines. Adjusting for the leap year, fluid milk sales jumped by about 100 million pounds in the first four months of the year over the previous year. Cheese exports concurrently reach a record 8.7 percent of total output from February to April, the most ever for any three months or even one month. These unexpected patterns can be attributed to a variety of factors, including changing consumer preferences, global market dynamics, and technological advancements in dairy production. The wider consequences for the dairy industry, such as shifts in market share and potential economic impacts, are also investigated in this paper.
Despite the challenges of falling milk output, the U.S. dairy industry is demonstrating remarkable resilience with the rise in fluid milk and cheese exports. This unexpected trend holds promising implications for producers and consumers, instilling a sense of hope and optimism in the industry.
As the dairy industry negotiates these changes, fast rises in cheese prices have significantly raised the Class III price, underlining the market’s reaction. Examine the elements underlying these patterns and the possible long-term effects on domestic consumption and foreign commerce.
With a roughly 100 million pound gain and a 0.7 percent leap year-adjusted surge, this unprecedented spike in fluid milk sales highlights a dramatic change in consumer behavior. Rising health awareness and the availability of dairy substitutes have usually been causing fluid milk intake to drop. But this increase might point to changing market dynamics or fresh enthusiasm for milk’s nutritious value.
Dairy Product
Change in Consumption (Percentage)
Fluid Milk
+0.7%
American Cheese
-1.2%
Yogurt
+2.4%
Non-American Cheeses
+1.5%
Butter
-0.8%
Ice Cream
-1.0%
The changes in domestic dairy consumption create a complicated scene for the American dairy business. While butter, ice cream, and American cheese consumption have dropped, fluid milk sales may have increased due to changing habits or knowledge of nutritional value. Growing worries about health, animal welfare, and environmental damage define this downturn.
On the other hand, demand for yogurt and non-American cheeses has surged. Yogurt’s probiotics and health advantages attract health-conscious customers. Non-American cheeses benefit from their superior quality, appeal to refined tastes, and clean-label tendencies.
This difference draws attention to shifting customer demands and the need for dairy farmers to adjust. Stakeholders trying to seize market possibilities in a dynamic economic environment must first understand these trends.
American Cheese Exports Set New Record: A Game-Changer for the U.S. Dairy Market
The U.S. dairy market has witnessed a notable shift in export trends over the past year, which can largely be attributed to evolving global demand and intensified trade relations. Cheese exports, in particular, have set new benchmarks, reflecting both opportunities and challenges in the international marketplace. Below is a detailed table outlining the changes in cheese exports over the past year:
Month
Cheese Exports (Million Pounds)
Year-over-Year Change (%)
January 2023
60
5.2%
February 2023
58
4.9%
March 2023
65
7.5%
April 2023
70
9.8%
May 2023
72
11.1%
June 2023
68
8.3%
July 2023
75
10.7%
August 2023
80
12.5%
September 2023
78
11.4%
October 2023
82
13.2%
November 2023
85
14.1%
December 2023
88
15.3%
Key Export Markets: Japan, Mexico, South Korea
Emerging Opportunities: Southeast Asia, Middle East
With 8.7% of total output moving abroad, the United States saw an increase in cheese exports between February and April. This fantastic number emphasizes the increasing worldwide market for American cheese. The milestone points to a change in the strategic emphasis of the U.S. dairy sector as producers show their capacity to meet and surpass the demands of foreign markets, therefore implying a future in which exports will be more important economically.
Milk Production Plunge: Unpacking the Multifaceted Decline in the U.S. Dairy Sector
In examining the shifting landscape of the U.S. dairy market, it’s imperative to consider the nuances in milk productiontrends that have unfolded over the past year. These trends highlight the recent downturn in production and provide a lens through which we can better understand the broader dynamics at play.
Month
Milk Production (billion pounds)
% Change (Year-over-Year)
April 2022
18.1
-0.4%
March 2022
17.9
-0.5%
February 2022
16.0
-0.6%
January 2022
17.5
-0.7%
December 2021
17.7
-0.8%
November 2021
16.8
-0.9%
October 2021
16.9
-1.0%
September 2021
16.0
-1.1%
August 2021
18.0
-1.2%
July 2021
18.2
-1.3%
June 2021
17.8
-1.4%
May 2021
18.1
-1.5%
Adjusting for the leap year, the continuous reduction in U.S. milk production—0.4 percent in April—has lasted 10 months. For the dairy sector, this development begs serious questions.
Many factors are driving this slump. First, dairy farmers have been under pressure from changing consumer tastes that influence demand. Growing demand for plant-based and dairy substitutes is reshaping the market share controlled initially by cow’s milk. Furthermore, changing customer behavior and ethical and environmental issues influence production levels.
The low cow count raises yet another critical question. Modern and conventional dairy states have battled dwindling or stagnating cow numbers. Growth patterns in cow counts have slowed dramatically in contemporary dairy states since 2008; some years even show reductions. This has lowered milk availability, together with a volatile macroeconomic backdrop.
Dairy farmers also face many operational difficulties, such as supply chain interruptions, personnel shortages, and the need for fresh technologies. These problems tax the industry’s ability to sustain past output levels even as manufacturers seek creative ideas.
Dealing with these entwined problems would help to stop the drop in output and guarantee the resilience and sustainability of the American dairy market against changing consumer tastes and financial uncertainty.
Turbulent Trends: How Consumer Values and Supply Chain Challenges Propelled Cheese Prices Skyward
The past year has witnessed significant fluctuations in the dairy market, with particular emphasis on cheese prices, which have experienced rapid increases. This section breaks down the price trends over the past year to provide a comprehensive understanding of the market dynamics.
Month
Class III Milk Price (per cwt)
Cheese Price (per lb)
Butter Price (per lb)
May 2022
$25.21
$2.29
$2.68
June 2022
$24.33
$2.21
$2.65
July 2022
$22.52
$2.00
$2.61
August 2022
$20.10
$1.95
$2.50
September 2022
$21.86
$2.10
$2.55
October 2022
$21.15
$2.03
$2.53
November 2022
$20.72
$2.01
$2.60
December 2022
$21.55
$2.05
$2.58
January 2023
$20.25
$1.98
$2.55
February 2023
$18.67
$1.85
$2.50
March 2023
$19.97
$1.92
$2.55
April 2023
$20.25
$2.01
$2.52
May 2023
$23.30
$2.35
$2.70
Many complex elements reflecting more significant market dynamics drove the increase in cheese prices throughout May. The dairy sector has seen a paradigm change as consumer tastes center on health, environmental issues, and animal welfare more and more. These higher ethical standards call for more rigorous behavior, which drives manufacturing costs. A turbulent macroeconomic climate, ongoing supply chain interruptions, and workforce difficulties further limit cheese supplies. Cheese prices skyrocketed as demand for premium dairy products continued locally and abroad, and supply ran low.
The May Class III price, which rose by $3.05/cwt from the previous month, was substantially affected by this price increase. Primarily representing the worth of milk used for cheese manufacture, the Class III price is a benchmark for the larger dairy market. This sharp rise emphasizes how sensitive commodity prices are to quick changes in specific sectors, stressing the cheese market’s importance in the national dairy economy. Dairy farmers must balance growing expenses with remaining profitable while meeting changing customer expectations.
The Bottom Line
The surprising surge in fluid milk sales and record-breaking cheese exports within the changing terrain of the U.S. dairy industry contrasts sharply with the continuous drop in milk output. The 0.7 percent rise in milk sales points to a change in consumer behavior, motivated by a fresh enthusiasm for classic dairy products. On the other hand, American cheese’s demand internationally has skyrocketed; 8.7% of output is exported, suggesting great worldwide demand and a possible new income source for home producers.
Adjusting for the leap year, the consistently declining milk output—now at ten straight months of year-over-year decline—showcases important production sector issues probably related to feed price volatility and long-term changes in dairy farming techniques. Reflecting these supply restrictions and shifting market dynamics, the substantial rise in cheese prices fuels a significant increase in the May Class III price.
These entwined tendencies point to both possibilities and challenges for American dairy farmers, implying a tricky balancing act between satisfying home demand, profiting from foreign markets, and negotiating manufacturing efficiency and cost control.
Key Takeaways:
In an evolving landscape marked by shifting consumer preferences and unprecedented export achievements, the U.S. dairy market has experienced stark contrasts in its fluid milk sales, cheese exports, and milk production. Below are the key takeaways from these recent developments:
U.S. fluid milk sales rose by nearly 100 million pounds, or 0.7% on a leap year-adjusted basis, during the first four months of this year.
While domestic consumption of most major dairy products decreased, yogurt and non-American types of cheese saw increased domestic demand.
A record 8.7% of total U.S. cheese production was exported between February and April, marking an all-time high for this period.
April 2023 witnessed a 0.4% decline in U.S. milk production compared to April 2022, continuing a ten-month trend of lower year-on-year production figures.
Cheese prices surged in May, driving the May Class III price up by $3.05 per hundredweight from the previous month.
Summary:
The U.S. dairy industry has experienced a significant increase in fluid milk sales and cheese exports, despite declining milk output. Fluid milk sales jumped by about 100 million pounds in the first four months of the year, while cheese exports reached a record 8.7% of total output from February to April. This unexpected trend can be attributed to changing consumer preferences, global market dynamics, and technological advancements in dairy production. The wider consequences for the dairy industry include shifts in market share and potential economic impacts. Despite these challenges, the U.S. dairy industry is demonstrating remarkable resilience with the rise in fluid milk and cheese exports. This trend holds promising implications for producers and consumers, instilling a sense of hope and optimism in the industry. However, as the dairy industry negotiates these changes, fast rises in cheese prices have significantly raised the Class III price, underlining the market’s reaction. American cheese exports set a new record for the U.S. dairy market, reflecting both opportunities and challenges in the international marketplace. Addressing these entwined problems would help prevent the drop in output and guarantee the resilience and sustainability of the American dairy market against changing consumer tastes and financial uncertainty.
Learn More:
For further insights into this evolving landscape, consider exploring the following articles:
Understand the 0.5% drop in the Global Dairy Trade index, even though butter and skim milk powder saw price increases. What does this mean for the dairy industry’s future?
The Global Dairy Trade (GDT) index is a crucial barometer for dairy prices worldwide, reflecting supply and demand dynamics within the dairy industry. It’s significant as it guides stakeholders, from farmers to large dairy corporations, in making informed decisions. On Tuesday, the GDT index experienced a slight dip, falling by 0.5% during the trading session.
Product
Price (per metric ton)
Change (%)
Butter
$7,350
+6.2%
Lactose
$801
+1.9%
Skim Milk Powder
$2,766
+0.7%
Cheddar Cheese
$4,205
-1.0%
Anhydrous Milk Fat
$7,317
+1.2%
Whole Milk Powder
$3,394
-2.5%
The latest trading session saw mixed performances across different dairy products. Specifically, the GDT index fell 0.5%, indicating a slight overall decline. While prices were up for butter, lactose, and skim milk powder, this positive trend was counterbalanced by decreases in anhydrous milk fat, Cheddar cheese, and whole milk powder. Additionally, buttermilk powder and Mozzarella cheese were not traded during this session.
Butter saw a substantial increase, climbing 6.2% to $7,350 per metric ton, translating to $3.33 per pound. Lactose experienced a rise of 1.9%, reaching $801 per metric ton, or $0.36 per pound. Skim milk powder also went up by 0.7%, priced at $2,766 per metric ton, or $1.25 per pound.
Conversely, anhydrous milk fat fell 2.5% to $7,317 per metric ton, or $3.31 per pound. Cheddar cheese decreased by 1% to $4,205 per metric ton, equivalent to $1.90 per pound. Whole milk powder dropped 1.7% to $3,394 per metric ton, or $1.53 per pound.
Interestingly, both buttermilk powder and Mozzarella cheese were notably absent from Tuesday’s trading session. This lack of availability could potentially tighten supply chains, leading to increased prices for these products in future sessions. With fewer items on offer, winning bidders might have concentrated their purchasing power on the other available products, slightly shifting market dynamics. Keeping an eye on future sessions where these products are reintroduced could provide valuable insights into their influence on overall market trends.
This session saw robust activity, with 106 winning bidders engaging in 21 rounds of competitive bidding. Collectively, these participants procured an impressive 16,787 metric tons of dairy products. Such high levels of participation demonstrate strong demand, despite the slight decline in the overall Global Dairy Trade index.
Let’s dive into the specifics of the pricing changes for each product:
Butter:Butter prices saw a significant increase of 6.2%, rising to $7,350 per metric ton, or $3.33 per pound. This notable rise indicates a strong demand for butter on the market.
Lactose: Lactose experienced a modest increase of 1.9%, bringing the price to $801 per metric ton, or $0.36 per pound. This reflects a steady interest in lactose from buyers.
Skim Milk Powder: This product observed a healthy upward trend of 3.0%, with prices reaching $2,766 per metric ton, or $1.25 per pound. The rise in skim milk powder prices showcases its growing demand.
Cheddar Cheese: Despite other product price increases, Cheddar cheese saw a slight decline of 1%, dropping to $4,205 per metric ton, or $1.90 per pound. This minor dip could suggest a fluctuation in market preference or supply.
Anhydrous Milk Fat: This commodity reported a small bump of 0.9% in its pricing, now at $7,317 per metric ton, or $3.31 per pound. The marginal increase points to a consistent demand for anhydrous milk fat.
Whole Milk Powder: Whole milk powder prices fell by 1.7%, decreasing to $3,394 per metric ton, or $1.53 per pound. The decline could indicate a shift in buyer preference or market dynamics.
These variances in product pricing highlight the dynamic nature of the global dairy market, influenced by fluctuating supply and demand factors.
In summary, the Global Dairy Trade index took a slight dip of 0.5%, reflecting a mixed bag of price changes across various dairy products. Notably, butter saw a significant increase of 6.2%, while Cheddar cheese and whole milk powder experienced declines of 1% and 2.5%, respectively. These fluctuating prices underscore the dynamic and often unpredictable nature of the dairy market.
Looking ahead, these changes may signal a period of adjustment within the global dairy market. The rise in prices for products like butter and anhydrous milk fat suggests a strong demand in specific segments, whereas the drop in whole milk powder and Cheddar cheese prices could indicate potential oversupply or shifting consumer preferences. As market participants continue to navigate these fluctuations, staying informed and adaptable will be key to leveraging opportunities and mitigating risks.
Key Takeaways:
The Global Dairy Trade index dropped by 0.5% in the latest trading session.
Butter, lactose, and skim milk powder prices increased.
Prices fell for anhydrous milk fat, Cheddar cheese, and whole milk powder.
Buttermilk powder and Mozzarella cheese were not available in this session.
106 winning bidders purchased a total of 16,787 metric tons of dairy products.
Price highlights include butter at $7,350 per metric ton and Cheddar cheese at $4,205 per metric ton.
Summary:
The Global Dairy Trade (GDT) index fell by 0.5% during the trading session, but butter prices increased by 6.2% to $7,350 per metric ton. Lactose prices rose by 1.9% to $801 per metric ton, skim milk powder prices rose by 0.7% to $2,766 per metric ton, anhydrous milk fat prices fell by 2.5% to $7,317 per metric ton, cheddar cheese prices decreased by 1% to $4,205 per metric ton, and whole milk powder prices dropped by 1.7% to $3,394 per metric ton. The absence of buttermilk powder and Mozzarella cheese from Tuesday’s trading session may tighten supply chains and lead to increased prices in future sessions.
Explore how robust Class III Milk prices and soaring whey and cheese demand influence dairy margins in June. What role will Mexico’s demand play in shaping future trends?
June experienced stable dairy margins, notably increasing during the spot period due to high Class III Milk prices. This rise provided much-needed support in an otherwise flat margin trend. The resilience in Class III Milk prices was crucial in maintaining market stability during the volatile spot period. While margins remained steady, the strong demand for Class III Milk underscores market forces and exciting potential growth areas for industry stakeholders.
Understanding the Forces Behind Rising Class III Milk Prices
Month
Class III Milk Price (per cwt)
Change from Previous Month
January
$18.50
+0.25
February
$19.00
+0.50
March
$19.75
+0.75
April
$20.00
+0.25
May
$20.25
+0.25
June
$20.30
+0.05
Dairy farmers and market analysts have noticed rising Class III milk prices. Strong cheese and whey demand are key drivers.
Cheese Demand: Mexico’s appetite for U.S. cheese has surged, reflected in record-setting exports. This strong demand directly impacts Class III milk prices since cheese production relies heavily on this milk.
Whey Demand: Whey is also seeing renewed interest. Tight whey powder inventories pushed prices to their highest since February, increasing Class III milk prices further. This 30% price spike underscores whey’s significant role in future milk contracts.
These factors and slower shipments to China and Southeast Asia have shifted focus to Mexico, bolstering demand and sustaining high-Class III milk prices. Understanding this helps you see the link between dairy product demand and milk pricing.
Navigating Recent Trends in the Whey Market
Month
Spot Whey Price (per lb)
Price Change (cents)
April 2023
$0.37
–
May 2023
$0.44
+7
June 2023 (first half)
$0.48
+4
Let’s examine the recent trends in the whey market. Over the past two months, whey prices have surged by about 30%, or 11 cents, significantly impacting the dairy sector.
This increase is primarily due to tighter whey powder inventories, highlighting how low stock levels push prices higher. On the demand side, renewed strength, especially from key markets, has also bolstered whey prices.
The ripple effects of this price surge are evident in the Class III futures market, contributing to a notable gain of about 66 cents. This showcases whey’s importance in shaping Class III Milk prices and influencing dairy margins.
Given the current scenario, it is imperative for those involved in the dairy industry, including producers and traders, to remain vigilant. A comprehensive understanding of these trends can significantly aid in navigating the market and making informed decisions.
The Unwavering Impact of Mexican Demand on U.S. Cheese Prices
Product
April 2022 (million pounds)
April 2023 (million pounds)
Change (%)
Total Dairy Exports to Mexico
124.6
142.9
14.7%
Cheese Exports to Mexico
32.6
38.0
16.6%
Butter Production
197.4
207.8
5.3%
Cheese Production
1,166.1
1,187.0
1.8%
Mozzarella Production
383.6
407.1
6.1%
Cheddar Production
332.4
303.8
-8.6%
Cheese demand plays a pivotal role in the dairy market, mainly thanks to Mexico’s strong appetite for U.S. cheese, which has led to record-high prices. In April, cheese exports to Mexico hit 38 million pounds, highlighting this continued trend.
This demand positively impacts not just cheese but the entire U.S. dairy sector. Higher cheese prices contribute to rising Class III Milk prices, offering stability to dairy margins even as shipments to markets like China and Southeast Asia slow down.
It’s essential to remain aware of potential changes, such as economic fluctuations in Mexico, that could affect future demand. For now, Mexico’s consistent cheese demand supports strong U.S. dairy margins.
U.S. dairy exports to Mexico surged in April, hitting 142.9 million pounds—up 18.3 million from last year. Cheese exports set a new record at 38 million pounds, surpassing the previous high in February. This highlights Mexico’s vital role in the U.S. dairy market, as exports to China and Southeast Asia slow.
With 30% of U.S. dairy exports going to Mexico, their market’s demand significantly supports American dairy prices.
In April, the U.S. shipped 142.9 million pounds of dairy products to Mexico, up 18.3 million from last year. This was the second-highest monthly export level on record. Cheese exports alone hit a record 38 million pounds, showing strong demand for U.S. dairy.
Since early 2023, demand from China and Southeast Asia has decreased, but Mexico has helped fill the gap. This demand has been crucial in stabilizing prices and preventing a potential downturn.
Mexican demand plays a vital role in U.S. dairy exports. As shipments to other regions slow, this strong market helps maintain prices despite external challenges.
Claudia Sheinbaum’s presidential win has raised questions about the Mexican Peso and future U.S. dairy exports. Analysts worry her socialist policies could weaken the Peso, which dropped 5% in two days, reaching its lowest since October 2023. This devaluation might make U.S. dairy products pricier for Mexican buyers, possibly reducing demand. With 30% of U.S. dairy exports going to Mexico, a prolonged weak Peso could impact the U.S. dairy market. Exporters may need to find new markets or tweak pricing to keep their foothold in Mexico.
April’s Dairy Production: Butter’s Rise and Cheese’s Mixed Signals
Month
Price (cents/lb)
January
250
February
255
March
260
April
265
May
270
June
275
In April, butter output reached 207.8 million pounds, marking a 5.3% increase from the previous year. On the other hand, cheese production showed a mixed pattern. Total cheese output was up by 1.8%, reaching 1.187 billion pounds. However, within this category, mozzarella production surged by an impressive 6.1%. Cheddar cheese output saw a decline of 8.6% compared to last year.
Strategic Moves: Leveraging Historical Margins for Future Gains
Intelligent investors are extending coverage in deferred marketing periods to leverage strong margins. By locking in positions at or above the 90th percentile of the past decade, they’re ensuring stability and profitability despite market fluctuations. This proactive strategy, backed by historical data, helps make informed strategic decisions.
The Bottom Line
June’s Dairy Margin Watch highlights critical market drivers. Class III Milk prices remain high due to solid cheese demand and tighter whey powder supplies. Increased U.S. dairy exports to Mexico also play a crucial role despite potential economic concerns following recent political changes. April’s dairy production data shows a rise in butter output but mixed cheese production signals.
Understanding these can help dairy producers make intelligent decisions to protect margins. Now is an excellent time to consider leveraging historically strong margins by extending coverage in deferred periods. Stay proactive and informed.
For tailored strategies, consider subscribing to the CIH Margin Watch report. Visit www.cihmarginwatch.com
Key Takeaways:
Welcome to this month’s Dairy Margin Watch. Here are the key takeaways from the latest trends and developments shaping the dairy market:
Class III Milk prices remain strong due to robust demand for cheese and whey.
CME spot whey prices have surged by 30% over the past two months, reaching their highest level since February.
U.S. dairy exports to Mexico saw a significant increase, with cheese exports setting new records.
Concerns arise over the potential impact of recent political changes in Mexico on the value of the Peso and subsequent dairy demand.
April’s dairy production statistics reveal a rise in butter output, but mixed signals for cheese production, particularly a decline in Cheddar output.
Strategic coverage in deferred marketing periods is crucial to leverage historically strong margins.
Summary:
June’s dairy margins increased significantly due to high Class III Milk prices, which were crucial for maintaining market stability during the volatile spot period. Key drivers of rising milk prices include cheese demand and whey demand, with Mexico’s appetite for U.S. cheese leading to record-setting exports. Whey demand is also seeing renewed interest, with tight whey powder inventories pushing prices to their highest since February. Mexican demand plays a pivotal role in the dairy market, mainly due to Mexico’s strong appetite for U.S. cheese, leading to record-high prices. In April, cheese exports to Mexico reached 38 million pounds, highlighting this continued trend. However, Claudia Sheinbaum’s presidential win has raised questions about the Mexican Peso and future U.S. dairy exports, as analysts worry that her socialist policies could weaken the Peso, making U.S. dairy products pricier for Mexican buyers and potentially reducing demand. Understanding these factors can help dairy producers make intelligent decisions to protect margins and leverage historically strong margins by extending coverage in deferred periods.
Discover how surging domestic cheese demand is driving Class III futures to record highs. Can U.S. producers keep up amid global market shifts and rising competition?
Robust domestic cheese demand has pushed Class III futures to unprecedented heights. Reflecting worries about U.S. cheese production capacity and intense competition in export markets, third-quarter contracts shot an average of $21.28 per cwt. Attracting new overseas customers will be difficult given that U.S. cheese prices are among the highest worldwide, affecting long-term prospects.
Although high prices discourage new business, domestic consumption lowers cheese inventory. This results in a complicated situation where limited production capacity and competitive exports cause restrictions even as strong demand drives short-term advantages. These dynamics will define present results and future sustainability.
Commodity
Avg Price
Qty Traded
4 wk Trend
Cheese Blocks
$1.9445
17
Stable
Cheese Barrels
$2.0060
13
Increase
Butter
$3.0940
10
Increase
Non-Fat Dry Milk
$1.1940
26
Stable
Whey
$0.4750
3
Increase
We will investigate the extent and ramifications of these events for the U.S. cheese industry.
Global Shifts: Strategic Cheese Production Adjustments and Their Rippling Effects on the U.S. Market
Region
Projected Increase (%)
Key Factors
Europe
3.5%
Decrease in fluid milk demand, better margins in cheese production
New Zealand
4.0%
Higher profitability in cheese, decline in milk powder prices
Australia
2.8%
Shift from milk powder to cheese due to higher margins
United States
2.3%
Strong domestic demand, export competition
The global cheese market is undergoing significant changes. USDA experts in Australia, New Zealand, and Europe are anticipating strategic surges in cheese output. This shift is driven by two main trends: a decrease in fluid milk consumption and declining profit margins for milk powder. These forecasts indicate that processors in these regions are adapting to the increased value that cheese markets offer and are prepared to redirect more milk into cheese production. As fluid milk loses its appeal and milk powder becomes less profitable, producers are increasingly focusing on more lucrative cheese manufacturing.
Despite the projected global expansion of cheese production, the U.S. dairy sector has demonstrated remarkable resilience. Currently, robust domestic demand is driving record Class III futures and high U.S. cheese prices. This resilience, coupled with the strategic changes in the global cheese market, is helping to maintain a positive outlook and keep U.S. cheese competitive in other markets.
The expected worldwide rise in cheese output points to fewer export prospects, even if today’s market supports high local pricing and demand. This might finally influence Class III values and cheese prices, stressing the intricate link between the U.S. market and worldwide production policies.
Weathering the Storm: How Strategic Moves and Climate Trends Propel U.S. Cheese Prices
Several key factors are contributing to the current surge in U.S. cheese pricing. Notably, record-breaking cheese shipments from November through April have significantly impacted American cheese supplies. This decrease in supply, combined with strong domestic demand fueled by effective promotional strategies from major retailers, has further tightened the market.
Grasping the strategic movements and climatic patterns that influence U.S. cheese pricing is crucial. An unusually hot June is forecasted for the Midwest, and adverse weather conditions, including searing temperatures in California and the Southwest, have curtailed milk production. These factors are driving up cheese prices and straining the milk supply, thereby creating an expected but challenging market situation. This understanding empowers policymakers to make informed decisions.
Market Surge: Dynamic Movements in the CME Spot Prices for Various Dairy Commodities
The CME spot market for many dairy products saw noteworthy swings this week. Strong domestic demand and inventory changes drove cheddar barrels, which soared by 6.5 cents to $2.02 per pound. Likewise, Cheddar blocks dropped 12.5 cents to $1.97 a pound, underscoring limited supply and strong demand.
Prices in the whey market remained constant at 47 cents per pound, reflecting robust local demand for high-protein goods despite poor exports. This denotes stability at the extreme of the current range.
Strong worldwide demand for butterfat keeps butter prices high even though they marginally dropped 0.25 cents to $3.09 per pound.
Class III Futures Soar Amid Robust Cheese Demand While Class IV Contracts Retreat
Contract
Milk Class
Price
Change
July 2024
Class III
$20.67
+0.75
August 2024
Class III
$21.13
+0.75
July 2024
Class IV
$21.00
-0.30
August 2024
Class IV
$21.00
-0.30
Strong demand for domestic cheese has driven Class III futures to unprecedented heights, with July ending at $20.67 and August closing at $21.13. Driven by strong cheese markets and solid whey prices, this spike contrasts significantly with the fall in Class IV contracts, which dropped almost 30ȼ but still above $21 for 2024.
The higher Class III futures present promising financial opportunities for dairy farmers, encouraging increased milk output. Despite potential obstacles such as low slaughter volumes, high heifer prices, and the risk of disease outbreaks, which could complicate milk production, the potential for financial expansion remains excellent. This optimistic outlook should inspire confidence in the audience.
It is still being determined if high prices are sustainable. Strong worldwide demand for U.S. dairy and climate disruptions might sustain high prices longer than usual, presenting a problematic but profitable scene for dairy farmers, even if the decline in Class IV futures would indicate market corrections.
Butterfat Bonanza: Global Demand and Scarcities Propel U.S. Butter Prices to New Heights
Butterfat components must be raised more drastically to fulfill our need for cream-based goods. American butter prices have been so high that they have raised markets. At the height of the pandemic shortage in October 2022, German and Dutch butter values reached their maximum levels. At last week’s Global Dairy Trade auction, butter peaked at a two-year high and exceeded $3 per pound. Butter melted somewhat on LaSalle Street, sliding 0.25ȼ to a still-buoyant $3.09.
Likewise, the markets for milk powder are consistent. CME spot nonfat dry milk (NDM) concluded at $1.1925, down a negligible 0.25ȼ from the start of the week. Due to decreased output and improved consumer demand in important regions outside China, prices are rising in Europe, Oceania, and South America. Tightened milk supply and higher cheese pricing might increase demand for NDM to strengthen cheese vats in Mexico and the United States.
Dairy Dilemmas: Navigating Financial Strains, Disease Outbreaks, and Climatological Threats
The dairy industry has significant challenges. Low slaughter levels and high heifer prices point to slight expansion. The bottleneck of diminishing replacement heifers hinders herd increase. The spread of avian influenza throughout the Midwest and mountain regions has further taxed chicken production and indirectly affected dairy operations because of complex agricultural supply lines.
Key dairy areas, including California and the Midwest, are dangerous from a developing heat wave. As cows experience heat stress, high temperatures will reduce milk production. This climatic difficulty strikes when consumer demand for dairy is still strong, aggravating the supply-demand mismatch and maintaining high prices.
These elements—limited herd expansion, disease outbreaks, and lower milk output due to weather—suggest that high dairy prices will last longer than usual. The sector finds this problematic as it aims to raise production to satisfy the high customer demand.
The USDA’s most recent crop balance sheet report surprised a few people. Unchanged U.S. corn output projections meant that July corn futures were constant at $4.485 a bushel. July soybean meal jumped to $360.60 per ton, up by $7.70, mirroring lower output from spring downtimes at primary crushers.
Black Sea region’s bad weather reduced forecasts of world wheat yield. Still, the American market was mostly unaffected, paying more attention to local projections. The Western Corn Belt is expected to have heavy rain; warm, sunny Midwest weather has been ideal. These seasons have restored soil moisture, therefore guaranteeing strong summer crop development. Feed costs stay low and steady, which helps dairy farmers, given the robust demand for cheese and butterfat.
The Bottom Line
Strong domestic cheese demand drives Class III futures to fresh highs despite intense worldwide rivalry and rising overseas output. Rising temperatures affecting milk output and strategic market maneuvers have constrained cheese supply, driving stratospheric prices on the CME spot market.
Planned increases in cheese production from Australia, New Zealand, and Europe call into doubt the sustainability of present U.S. pricing levels. Rising U.S. cheese prices make landing new export agreements improbable, which might change world trade dynamics in the following months.
The dairy sector is negotiating obstacles from environmental conditions and the development of illnesses like avian influenza to economic constraints like low slaughter volumes and high heifer prices. In this usually changing sector, these elements might help to maintain high prices longer than usual.
High cheese demand and limited supply help Class III futures to continue firm, yet the long-term prediction hinges on addressing production problems and changes in world market behavior. The larger dairy market will watch these changes as dairy farmers aim to optimize production, balancing optimism with prudence.
Key Takeaways:
High Class III Futures: Driven by strong domestic cheese demand, Class III futures have reached new highs, averaging $21.28 per cwt. for third-quarter contracts.
Limited Impact on Exports: Current U.S. cheese prices are expected to hinder new export business, with a foreseeable decline in exports later this year.
Record Cheese Exports: Between November and April, record cheese shipments helped reduce U.S. cheese inventories.
Climate Challenges: Sweltering temperatures in California and the Southwest, coupled with an unusually hot June forecast for the Midwest, have curtailed milk production.
Persistent Demand for Butterfat: Global demand for butterfat remains high, with U.S. butter prices influencing international markets.
Whey and Nonfat Dry Milk Markets: Steady whey prices and a stable milk powder market, with some regional price increases due to lower production and better demand outside China.
Class IV Futures Decline: While Class III futures have surged, Class IV futures have retreated slightly, impacting profit margins for dairy producers.
Agricultural Market Stability: USDA’s latest crop updates provided no significant changes, leaving commodity prices mostly unchanged, with corn and soybean meal prices stable.
Summary: The global cheese market is experiencing significant changes, with USDA experts in Australia, New Zealand, and Europe anticipating strategic surges in cheese output due to a decrease in fluid milk consumption and declining profit margins for milk powder. This shift indicates that processors in these regions are adapting to the increased value of cheese markets and are ready to redirect more milk into cheese production. Despite the projected global expansion of cheese production, the U.S. dairy sector has demonstrated remarkable resilience, driving record Class III futures and high U.S. cheese prices. Key factors contributing to the current surge in U.S. cheese pricing include record-breaking cheese shipments from November through April, strong domestic demand, and strategic movements and climatic patterns. An unusually hot June is forecasted for the Midwest, and adverse weather conditions, including searing temperatures in California and the Southwest, have curtailed milk production, driving up cheese prices and straining the milk supply. Class III futures present promising financial opportunities for dairy farmers, encouraging increased milk output. However, it is still uncertain if high prices are sustainable. The butter industry faces significant challenges due to global demand and scarcities, leading to high butter prices. High cheese demand and limited supply may help maintain high prices longer than usual.
Find out why cheese prices are climbing. Learn how milk market issues and local disruptions are affecting your favorite dairy products. Get the details here.
Another day of positive growth in the cheese market. Higher CME spot prices have led to a significant increase in block values, reaching the highest level since August 2023. With futures finishing 6.4 cents higher at $2.1390 a pound, it has driven the August all-cheese price to fresh life-of-contract highs. While milk output is a concern in certain cheese-making areas, the overall market is showing promising signs.
Commodity
Current Price
Change
Highest Price Since
Block Cheese
$2.1390 per pound
+6.4 cents
August 2023
Spot Blocks
$1.9825 per pound
+$0.0450
–
Barrel Cheese
$2.0225 per pound
+$0.0125
–
Butter
$3.0900 per pound
-$0.0150
–
Leading Chicago’s dairy market activity today:
With four shipments sold, spot blocks increased to $1.9825 per pound, gaining $0.0450.
Barrels likewise rose to $2.0225 per pound, earning $0.0125.
The lone red on the board was butter, which slid to $3.0900, down $0.0150.
Stability in the dairy market is evident as Class III futures improved, with contracts for third quarters concluding at $21.28 per hundredweight, up $0.45 for the day. Simultaneously, adjacent Class IV contracts remained steady at $21.35, indicating a balanced market.
Though steady from last week, Midwest spot milk prices this week averaged—$1.50, significantly above last year’s price of—$7.75 and the five-year average of—$2.73. Cow comfort still presents difficulties in many areas of the United States, resulting in limited supply.
Summary: The cheese market has seen positive growth, with higher CME spot prices leading to a significant increase in block values, reaching the highest level since August 2023. Futures finished 6.4 cents higher at $2.1390 a pound, driving the August all-cheese price to fresh life-of-contract highs. Despite concerns about milk output in certain cheese-making areas, the overall market is showing promising signs. Chicago’s dairy market activity saw spot blocks increase to $1.9825 per pound and barrels to $2.0225 per pound. Class III futures improved, with contracts for third quarters ending at $21.28 per hundredweight, up $0.45. Midwest spot milk prices averaged $1.50, significantly above last year’s price and the five-year average of $2.73.
Uncover USDA’s 2024-25 forecast: stable milk output, higher dairy prices, and beef trends. How will these affect your business and market plans?
Comprising important elements such as milk production, dairy pricing, and changing patterns, the USDA’s thorough prediction for 2024–25 presents a full picture of the dairy industry. This projection—a great tool for market analysts—has great relevance for farmers, manufacturers, and other stakeholders driving their strategic decisions.
Stable Milk Output Projections Set the Stage for Increased Exports and Rising Prices
Category
2023
2024
2025
Total Milk Production (billion pounds)
226.4
227.3
229.3
Class III Milk Price ($/cwt)
—
17.90
17.70
Class IV Milk Price ($/cwt)
—
20.50
20.10
All-Milk Price ($/cwt)
—
21.60
21.50
Since last month, the milk production forecasts for 2024 and 2025 have been constant, suggesting a harmonic approach to cow inventory levels. This consistency and the expectation of higher cheese shipments have resulted in an upward estimate for commercial exports on a fat basis for 2024 while skim-solids-based exports stay the same.
The forecasts of solid worldwide demand provide a picture of the global dairy industry and drive the increasing export projections for fat and skim-solids bases. Farmers, producers, and other interested parties, including manufacturers, depend on this realization as they make plans for 2025. Driven by planned imports of butter and milk protein-containing products, import forecasts for 2024 are also on the rise; similarly, projections for 2025 show the same increases.
The recent price increases’ positive trend has helped raise the price estimates for butter, cheese, whey, and nonfat dry milk (NDM) for 2024. Milk prices in Class III and Class IV are thus rising. Furthermore, the all-milk price projection was raised to $21.60 per cwt. For those in the market, this upward trend in pricing shows encouraging signals.
Butter, cheese, and whey prices will rise as the strong demand for dairy products continues until 2025. Though the NDM forecast stays, the same, higher product costs have driven up the Class III and IV milk price projections. The predicted 2025 all-milk price these days is $21.50 per cwt.
Beef Forcast
Looking forward to 2025, increased slaughter for outlying quarters more than offsets decreased predicted slaughter in the first quarter. These cattle will most likely be sold and killed in the second half of the year because they are put on feed in the first half. Furthermore, clothing weights are projected to stay high throughout 2025.
Given the limited cattle and beef supply, average prices for 2025 should be higher than those for 2024. With prices hitting $186 per cwt in the fourth quarter, the fed cattle price projection for 2024 was calculated at $184 per cwt. The average throughout 2023 per cwt was $175.54.
Feed Supply, Price Forecasts
The WASDE data from the USDA provides possible information on dairy feedstuff availability and pricing:
Comparatively, the 2024-25 U.S. corn projection is the same this month compared to the previous month.
Forecasts for global coarse grain output for 2024–25 show 1.4 million tons down to 1.511 billion. Relative to last month, this month’s foreign coarse grain prognosis shows lower output, somewhat greater trading, and smaller ending stockpiles. Foreign corn output is slightly higher, rising for Ukraine and Zambia, somewhat offset by a decline in Russia.
From the May projection, the expected season-average corn price received by growers remained the same at $4.40 per bushel, down 25 cents from the 2023-24 average of $4.65 per bushel.
This month’s U.S. soybeans for 2024–25 show greater starting and ending stockpiles.
Higher starting stockpiles indicate lower crush for 2023–24, down 10 million bushels on less soybean meal.
The Bottom Line
Based on the USDA’s most recent estimates, milk output is predicted to be constant for 2024–25 despite expected price rises resulting from significant demand for dairy products. Likewise, beef output is steady, yet tighter supply might lead to more expensive goods.
Though pricing trends have dropped compared to past years, feed supply predictions for maize and soybeans reveal an unaltered view. As dairy and cattle farmers control expenses, this might provide both possibilities and problems.
Juggling consistent output, price changes, and feed expenses will be vital for the agricultural sector. Markets for dairy and beef must adapt and be creative to ensure profitability and sustainability.
Key Takeaways:
Milk Production: Milk production forecasts for 2024 and 2025 remain unchanged from last month, with only slight adjustments. The 2024 production is estimated at 227.3 billion pounds, a modest increase from 2023’s total of 226.4 billion pounds.
Milk Prices: Price forecasts for butter, cheese, whey, and nonfat dry milk (NDM) are raised for 2024 due to recent price strength. The Class III milk price is now forecast at $17.90 per hundredweight (cwt), while Class IV is projected at $20.50 per cwt. The all-milk price is raised to $21.60 per cwt.
2025 Milk Production: The production estimate for 2025 remains steady at 229.3 billion pounds. Prices for butter, cheese, and whey are expected to rise due to strong demand, while NDM prices remain stable. Class III milk is forecast at $17.70 per cwt and Class IV at $20.10 per cwt. The all-milk price for 2025 is $21.50 per cwt.
Beef Outlook: Beef production and average cattle prices are forecast to rise in 2025. Despite lower expected slaughter in the first quarter, increased slaughter in subsequent quarters and higher dressed weights are expected to sustain production levels.
Feed Supply: The 2024-25 U.S. corn outlook remains unchanged, with foreign coarse grain production slightly lower. Soybean beginning and ending stocks are projected higher, with the soybean price forecast at $11.20 per bushel. Dairy-quality alfalfa hay prices averaged $315 per ton in April.
Summary: The USDA’s 2024-25 forecast provides a comprehensive view of the dairy industry, including milk production, pricing, and changing patterns. It predicts steady milk output, increasing exports, and rising prices. The global dairy industry’s solid demand forecasts drive export projections for fat and skim-solids bases. Import forecasts for 2024 and 2025 show the same increases, driven by planned imports of butter and milk protein-containing products. The positive trend in price increases has raised milk prices in Class III and Class IV for 2024. Beef forecasts show increased slaughter for outlying quarters, while average prices for 2025 are expected to be higher than those for 2024. Balancing consistent output, price changes, and feed expenses will be crucial for the agricultural sector.
Discover the latest trends in milk and cheese markets. Prices are steady, but what does this mean for your grocery bill? Find out how it impacts your budget today.
The milk markets , while not making significant strides, are showing a steady upward trend. This stability is a positive sign for our stakeholders, indicating a predictable market. In the cheese markets, we saw a peaceful scenario, with blocks settling at $1.9375 per pound, up $0.0025, and five lots exchanged. Barrels held at $2.0100 per pound with three loads traded. Butter was also steady today at $3.1050, with no lots sold.
The Consumer Price Index, a crucial marker of market stability, surprisingly remained flat between April and May. This unexpected turn of events is sure to pique the interest of our stakeholders. However, it rose 3.3% from a year ago, which was slightly lower than the 3.4% forecasted by analysts. In May, grocery prices remained steady from April but saw a 1.0% increase year-over-year. The cost of eating out also saw a slight increase in May, with prices rising 0.4% month-over-month and 4.0% on the year.
Let’s delve into the specifics of Class III and Class IV milk prices. Class III milk finished the day mostly unchanged, with June down a penny at $19.77, July up 7 cents to $20.60, and August at $21.07. Class IV milk was softer, with June at $21.15, July down 20 cents to $21.35, and August at $21.50/cwt. These details will help our stakeholders understand the current market conditions and plan their strategies accordingly.
Key takeaways:
Cheese market prices have shown minimal changes, with blocks at $1.9375 per pound and barrels at $2.0100 per pound.
Butter prices remain steady at $3.1050 per pound.
The Consumer Price Index held flat between April and May, increasing by 3.3% year-over-year.
Grocery prices in May were unchanged from April but climbed by 1.0% compared to the previous year.
Eating out became marginally more expensive in May, with a 0.4% month-over-month increase and a 4.0% rise year-over-year.
Class III milk prices remained mostly unchanged, with slight variations across different months.
Class IV milk prices showed a slight downward trend for June and July.
Summary: Milk markets are showing a steady upward trend, indicating a predictable market for stakeholders. Cheese markets are experiencing a peaceful scenario with blocks at $1.9375 per pound, barrels at $2.0100 per pound, and butter at $3.1050. The Consumer Price Index remained flat between April and May, slightly lower than analysts’ forecast of 3.4%. Grocery prices remained steady from April but saw a 1.0% increase year-over-year. The cost of eating out also saw a slight increase in May, rising 0.4% month-over-month and 4.0% on the year. Class III and Class IV milk prices have remained mostly unchanged, with Class III milk down a penny in June, July up 7 cents to $20.60, and August at $21.07. These details will help stakeholders understand the current market conditions and plan their strategies accordingly.
Learn how milk futures suggest better prices ahead despite market volatility and rising demand. Will tighter supplies and more exports lift dairy markets?
Understanding the market dynamics, especially the recent trends in Class III futures, is crucial. It can equip you with the knowledge to navigate through these uncertain waters. Stay informed and be prepared for fluctuations that could significantly impact your bottom line.
Month
Class III Futures Price ($ per cwt)
Class IV Futures Price ($ per cwt)
January
21.35
23.50
February
22.10
24.30
March
20.85
23.00
April
19.60
22.10
May
18.50
21.00
June
19.20
22.40
Milk Futures Signal a Brighter Horizon for Dairy Farmers
The potential for a brighter horizon for dairy farmers this year is signaled by milk futures. If spot prices hold, milk prices could surpass last year’s levels. This optimistic outlook is driven by several factors, including increased demand and supply constraints, which could further boost prices.
Firstly, increased demand plays a significant role. Both domestic and international markets show a heightened appetite for dairy products, especially cheese and butterfat.
Secondly, supply constraints could further boost prices. Cheese inventories haven’t exceeded last year’s levels. If demand continues to rise, the supply may struggle to keep pace, pushing prices upward.
It’s also worth noting that volatility in recent milk markets could become more pronounced as summer progresses. The indicators point positively toward better milk prices compared to last year.
Month
Cheese Exports (Metric Tons)
Butterfat Exports (Metric Tons)
January
24,000
6,500
February
22,500
6,200
March
26,000
6,800
April
28,500
8,000
May
27,000
7,500
The Stability in Cheese Inventory: A Beacon for Dairy Farmers
The stability in cheese inventory signals good news for dairy farmers. With international demand rising, especially in quicker-rebounding markets, you can expect further price gains. High cheese exports will likely continue, cushioning against domestic shortages.
Butterfat exports surged 23% in April, hinting at record butter prices. If domestic consumption follows suit, the dairy sector could have a profitable year. Watch these trends closely as they shape market dynamics.
The crop outlook remains strong despite planting delays. With 75% of corn rated good/excellent, a bountiful harvest is expected. This could lower feed costs and boost profits. While some input costs are high, stable grain prices and improving milk futures suggest a better income over feed margin.
As summer progresses, a proactive approach is essential. The market’s volatility demands your attention. Monitor both local and international trends to navigate the ups and downs, maximizing gains and minimizing setbacks.
Record Cheese Exports: A Promising Outlook for Dairy Farmers
International cheese demand has surged, with record-high cheese exports in March and April. This increase has provided strong market support. More domestic cheese is being sold internationally, reducing inventory levels and potentially tightening supplies.
The impact on future prices could be significant. Continued strong demand and tighter supplies may boost cheese prices. As global market dynamics favor U.S. cheese, this could mean better margins and a more stable income for dairy farmers.
The Butter Market: Rising Exports Foreshadow Potential Records
The butter market is showing robust signs. In particular, April witnessed a substantial increase in butterfat exports, soaring by 23%. This upward trend in exports is not just a fleeting moment; it sets a solid foundation for potentially record-high butter prices this year. As both domestic and international demand for butter continues to rise, the market outlook becomes increasingly favorable. This spike in demand, coupled with the surge in butterfat shipments, could very well propel butter prices to new heights, instilling confidence in dairy farmers about the market’s potential.
April’s Income Over Feed Margin: A Glimpse of Dairy Farming Resilience
April’s income over feed price was $9.60 per cwt, marking the second month without Dairy Margin Coverage payments. This positive signal for dairy farmers shows profitable conditions without government support.
Looking ahead, the stability of grain prices and the positive trend in milk futures should inspire optimism. Despite planting delays, grain prices remain steady, and 75% of the corn crop is rated good to excellent. A strong crop could mean lower grain prices and feed costs, potentially boosting income over feed margins and improving profitability. This promising outlook could reduce reliance on Dairy Margin Coverage payments, offering a brighter future for dairy farmers.
With steady or falling grain prices and positive milk futures, dairy farmers might see continued profitability, reducing reliance on Dairy Margin Coverage payments. This outlook benefits farmers navigating market volatility.
Grain Market Conditions: A Silver Lining for Dairy Farmers
Let’s shift focus to the grain market. Planting delays have yet to affect grain prices significantly. The early corn condition looks very positive, with 75% rated as good to excellent. That sets the stage for a robust harvest.
If this trend holds, expect a large corn crop, likely lowering corn prices. This means reduced feed costs for dairy farmers, leading to better income over feed margins and improved profitability despite volatile milk market conditions.
The Bottom Line
The dairy market is experiencing significant volatility, especially in Class III futures. However, current trends suggest milk prices could improve. Cheese inventory is stable, hinting at tighter supplies if demand rises. Meanwhile, cheese and butterfat exports have surged, boosting market confidence.
In April, income over feed margins was resilient, with stable grain prices suggesting favorable conditions for dairy farmers. Despite some planting delays, strong crop conditions for corn indicate ample supply and potentially lower feed costs. These factors contribute to a positive milk price outlook if spot prices hold and demand grows.
Key Takeaways:
Milk futures suggest better prices compared to last year if current spot prices hold.
Demand dynamics: Improved international cheese demand boosts market optimism.
April saw a 23% increase in butterfat exports, hinting at possible record-high butter prices.
Grain market: Initial crop conditions are favorable, potentially leading to lower grain prices.
No further Dairy Margin Coverage program payments expected due to improved income over feed conditions.
Summary: The dairy market is experiencing significant volatility, especially in Class III futures, and this turbulence is expected to persist and escalate as summer approaches. Milk futures indicate a brighter horizon for dairy farmers this year, with spot prices holding and milk prices potentially surpassing last year’s levels. Increased demand for dairy products, particularly cheese and butterfat, is driving optimism. Supply constraints could further boost prices, as cheese inventories haven’t exceeded last year’s levels. Stability in cheese inventory signals good news for dairy farmers, as international demand is rising, especially in quicker-rebounding markets. High cheese exports will likely continue, cushioning against domestic shortages. The butter market is showing robust signs, with record-high cheese exports in March and April providing strong market support. More domestic cheese is being sold internationally, reducing inventory levels and potentially tightening supplies.
Discover how milk futures signal stronger prices amid rising cheese demand and market volatility. Will this trend continue to benefit dairy producers and consumers?
The dairy markets have seen increased volatility, with Class III futures showing significant ups and downs. I mentioned this earlier, and it happened sooner than expected. Expect more volatility as summer progresses. Traders are reacting quickly to cash movements or perceived price changes. Milk futures suggest milk prices could be better than last year if spot prices remain steady. Prices will improve if demand rises and supplies tighten. Cheese inventory hasn’t exceeded last year’s levels, hinting at potential supply tightening if demand grows. Manufacturers say cheese demand is up but not enough to cut inventory.
Month
Total Cheese Exports (Metric Tons)
Change from Previous Year
Butterfat Exports (Metric Tons)
Change from Previous Year
March 2023
50,022
+20.5%
2,350
+15%
April 2023
46,271
+27%
2,881
+23%
International cheese demand has seen a remarkable improvement. In March, cheese exports surged to 50,022 metric tons, a 20.5% increase from the previous year and the highest recorded. April followed suit with a 27% rise over April 2023, reaching 46,271 metric tons, the second highest on record.
Month
Class III Closing Price (per cwt)
Price Change (%)
Market Sentiment
January
$19.20
+3.2%
Optimistic
February
$18.75
-2.3%
Neutral
March
$20.10
+7.2%
Strong
April
$21.00
+4.5%
Bullish
May
$21.25
+1.2%
Stable
June
$21.85
+2.8%
Optimistic
The outlook for cheese exports is bright, providing strong market support. Butterfat exports also jumped in April, reaching 2,881 metric tons—up 23% from last year and the first year-over-year increase since November 2022. This could lead to record-high butter prices, thanks to higher demand and the highest butter prices yet for this time of year. Increasing domestic demand and potential for rising international demand could push prices even higher.
April income over feed price was $9.60 per cwt.
Second month with no Dairy Margin Coverage program payments.
Current grain prices and milk futures suggest no future payments under the program.
Planting delays haven’t impacted grain prices.
Initial crop condition for corn is 75% good/excellent.
One of the highest initial ratings for a crop, possibly leading to a large supply and lower prices.
This could improve income over feed significantly.
Summary: Dairy markets are experiencing increased volatility, with Class III futures showing significant fluctuations. Traders react quickly to cash movements or price changes, and milk prices could improve if spot prices remain steady. Cheese inventory has not exceeded last year’s levels, suggesting potential supply tightening if demand grows. International cheese demand has seen a remarkable improvement, with cheese exports rising 20.5% in March and 27% in April. The outlook for cheese exports is bright, providing strong market support. Butterfat exports also jumped in April, reaching 2,881 metric tons, up 23% from last year and the first year-over-year increase since November 2022. This could lead to record-high butter prices due to higher demand. Income over feed price in April was $9.60 per cwt, with no Dairy Margin Coverage program payments.
Find out how increased Mexican demand is boosting U.S. dairy exports amid economic and political changes. How will rising prices affect future trade?
The landscape of U.S. dairy exports is shifting, mainly driven by growing Demand from Mexico. As the dairy sector adapts to economic and political changes, Mexican importers are crucial in shaping current trends. With April shipments to Mexico up 13%, reaching 55,478 metric tons of milk solids equivalent (MSE), the Demand for U.S. dairy is thriving.
Mexico’s Demand is boosting export volumes and revitalizing various dairy categories, from cheese to butter and low-protein whey. Though recent political events have added complexity, favorable economic conditions, and competitive pricing drive this surge. This article explores these factors, focusing on crucial product performances and future market dynamics.
Rebound in U.S. Dairy Shipments: April Sees 13% Spike Following March Decline, Driven by Mexican Demand.
The recent export data reveals a strong recovery in U.S. dairy shipments, showing a 13% increase in April to 55,478 metric tons of milk solids equivalent (MSE). This marks a significant rebound from March’s 24% decline, mainly due to reduced milk powder exports. The April surge highlights the resilience of the U.S. dairy export market and the robust Demand from Mexico. This Demand has been crucial in driving recovery and growth, setting the industry up for continued success despite economic and political fluctuations.
Record Cheese Exports and Broad Dairy Growth to Mexico
USDEC reported that the surge in dairy exports to Mexico was widespread across various product categories. Cheese exports were robust, setting a new record with volumes reaching 17,249 metric tons, a 53% increase. Notable rises were also seen in “other cheese” categories, such as cheddar and gouda, which soared by 73%, while shredded cheeses increased by 43%.
Other dairy products also showed robust growth; butter exports more than doubled to 169 metric tons, and low-protein whey shipments, including dry whey and permeate, surged by 79%. Although nonfat dry milk volumes were down for the eighth month, the 2% decline was the smallest since the downtrend began late last year.
Unprecedented Surge in Butter and Whey Exports Amidst Shifting Trends in Nonfat Dry Milk
Other dairy products also showed robust growth; butter exports more than doubled to 169 metric tons, and low-protein whey shipments, including dry whey and permeate, surged by 79%. Although nonfat dry milk volumes were down for the eighth month, the 2% decline was the smallest since the downtrend began late last year.
Possible Stabilization Signals for Nonfat Dry Milk (NFDM) Amid Slight Decline
The ongoing decline in nonfat dry milk (NFDM) volumes saw a slight reprieve, with only a 2% decrease in April, the smallest drop since late last year. This could indicate a stabilization phase for NFDM, which is crucial for various industrial applications. The modest reduction reflects market dynamics, where Demand for cost-effective dairy solutions persists despite rising cheese prices. This trend may signal steadier times ahead for NFDM in the Mexican market.
A Confluence of Economic Strength and Recovery Driving Mexican Dairy Demand
Mexico’s post-pandemic solid recovery has significantly boosted consumer purchasing power, sustaining high levels of dairy consumption. The competitive pricing of U.S. dairy products, driven by efficient production techniques and favorable exchange rates, further fuels this Demand. A relatively strong peso enhances the attractiveness of American exports, solidifying this growing trade relationship.
Political Dynamics Post-Election: Peso Depreciation Injects Volatility into U.S.-Mexico Dairy Trade
Political influences have dramatically impacted U.S. dairy exports to Mexico. The recent election caused the peso to depreciate by 4% against the dollar. This currency fluctuation challenges Mexican importers, who face higher costs, and U.S. exporters, who navigate an uncertain market environment.
Despite this dip, the peso remains stronger than pre-pandemic levels, thanks to Mexico’s resilient local economy. However, economic growth is slowing, and the initial post-COVID recovery is losing momentum. These factors could affect dairy exports, making it essential for exporters to monitor political developments closely.
As U.S. dairy prices rise, driven by higher production costs and global market trends, the balance of political and economic forces will shape future Demand. Mexican buyers might prefer cheaper options like nonfat dry milk instead of premium cheese. This highlights the need for exporters to adapt to the evolving landscape to maintain trade flows amid uncertainties.
Anticipating Shifts: Rising U.S. Dairy Prices May Catalyze Strategic Adjustments in Mexican Import Patterns
Rising U.S. dairy prices may prompt Mexican buyers to recalibrate their import strategies. As cheese prices climb, they might shift towards more economical dairy alternatives, like nonfat dry milk, to maintain local cheese production. The post-election resilience of the peso could help buffer price sensitivity, preserving strong trade relations. As Mexico’s economy recovers, Demand for high-value dairy products, including organic cheese and butter, is expected to remain robust, though with strategic adjustments for price variations. This dynamic landscape underscores a flexible dairy trade adapting to economic shifts.
The Bottom Line
The recent data showcases a notable recovery in U.S. dairy exports, primarily fueled by Mexican Demand across various products. Significant increases in cheese exports and strong growth in butter and whey shipments underscore the broad appeal of U.S. dairy in Mexico. While nonfat dry milk exports have declined, they are starting to stabilize. This Demand is supported by a strong economy and competitive U.S. prices, though recent political events, like election-related peso volatility, present new obstacles. As U.S. dairy prices rise, strategic adjustments may be needed to sustain this crucial export market. Ultimately, Mexican Demand continues to be critical, underpinning U.S. dairy exports amid economic and political shifts.
Key Takeaways:
April shipments to Mexico soared to 55,478 metric tons of milk solids equivalent (MSE), marking a 13% year-over-year increase.
Record cheese exports reached 17,249 metric tons, a 53% rise, driven by a notable 73% increase in “other cheese” categories like cheddar and gouda.
Butter exports more than doubled to 169 metric tons, while low-protein whey shipments surged by 79%.
Nonfat dry milk (NFDM) volumes saw a slight decline of 2%, the smallest dip in an eight-month downtrend.
A strong local economy and competitive pricing have supported robust Mexican demand, although recent political events, including election-related volatility, present potential challenges.
Future demand trends may shift due to rising U.S. dairy prices, possibly affecting the balance between cheese and NFDM imports.
Summary: The U.S. dairy export landscape is undergoing significant changes due to growing demand from Mexico, which is boosting export volumes and revitalizing dairy categories like cheese, butter, and low-protein whey. The recent export data shows a 13% increase in U.S. dairy shipments to Mexico, with cheese exports setting a new record. Other dairy products also showed robust growth, with butter exports more than doubling to 169 metric tons and low-protein whey shipments surged by 79%. Despite a slight decline in nonfat dry milk (NFDM) volumes, the ongoing decline may signal steadyer times ahead for NFDM in the Mexican market. Mexico’s post-pandemic solid recovery has significantly boosted consumer purchasing power, sustaining high levels of dairy consumption. The competitive pricing of U.S. dairy products, driven by efficient production techniques and favorable exchange rates, further fuels this demand.
Senators urge USDA to restore fair milk pricing to combat farmer losses. Can reverting to the old formula save dairy farmers from economic hardship? Learn more.
If you’re a dairy farmer, you’ve likely experienced the harsh financial realities of recent changes in the milk pricing formula. Since 2018, many in the dairy industry have been grappling to stay afloat. Revenue has plummeted, casting a shadow of uncertainty over the future. The issue originates from the alteration of the ‘higher of ‘ Class I pricing formula for fluid milk, resulting in over $1.1 billion in lost revenue for Class I skim milk over the last five years.
“Ensuring fair compensation and stabilizing milk prices are critical for the survival of our dairy farmers and their communities,” said Senator Kirsten Gillibrand.
Senator Gillibrand, Chair of the Senate Agriculture Subcommittee on Livestock, Dairy, Poultry, Local Food Systems, and Food Safety and Security, has recognized the urgent situation. Leading a strong bipartisan effort with 13 other senators, she is urging the USDA to revert to the previous formula. This united push aims to repair the economic damage and stabilize the dairy market.
The Crucial Role of FMMO’s “Higher” Pricing Formula in Dairy Market Stability
The Federal Milk Marketing Order (FMMO) system, created in 1937, aims to stabilize milk prices and ensure fair market conditions for dairy producers. This system sets minimum milk prices, categorized into four classes based on its use. Class I milk—for fluid consumption—traditionally commands the highest price due to its critical role in the consumer market.
Previously, the “higher of” Class I pricing formula linked the price of Class I milk to the higher value between Class III (cheese) and Class IV (butter and powdered milk) prices. This approach aimed to ensure dairy farmers received fair compensation, reflecting market trends and minimizing economic volatility.
However, the 2018 Farm Bill changed this formula. It introduced an averaging method, which calculates Class I prices based on the average of Class III and Class IV prices plus a fixed differential. This change aimed to simplify pricing and provide more predictability. Unfortunately, it led to significant revenue losses for dairy farmers, amounting to over $1.1 billion in lost Class I skim milk revenue over the past five years, causing widespread financial strain in the dairy farming community.
The Economic Ramifications of the Current Class I Pricing Formula
The ongoing financial difficulties faced by dairy farmers have reached a critical point, prompting bipartisan action from the Senate. To emphasize the gravity of the issue, it’s essential to examine the direct impact of the altered Class I pricing formula on dairy farmers’ revenues over the past five years.
Year
Revenue Loss Due to Pricing Formula Change (in millions)
2018
$250
2019
$220
2020
$200
2021
$230
2022
$200
Data Source: Senators’ Letter to USDA, outlining economic impacts on dairy farmers from 2018-2022 due to the Class I pricing formula change.
The current Class I pricing formula has had a significant and far-reaching economic impact on dairy farmers. Since the 2018 Farm Bill changed the formula, dairy producers have lost $1.1 billion in Class I skim milk revenue. This substantial financial loss has weakened many dairy operations, pushing some toward insolvency. The revised formula, which moves away from the ‘higher of ‘ pricing method, has introduced volatility that disrupts milk price stability. This instability hampers farmers’ budget planning and aggravates agricultural uncertainties.
This pricing volatility affects the entire dairy supply chain, impacting feed suppliers, equipment manufacturers, and the rural economy. Farmers, who need stable pricing to manage costs and plans, face increased financial strain. As their revenue decreases, their ability to invest in farm improvements, employee wages, and community contributions diminishes. The instability caused by the current formula threatens the long-term viability of the American dairy industry, requiring urgent reform.
A Unified Appeal for Economic Justice in Dairy Farming
The senators’ letter to Secretary Tom Vilsack highlights the urgent need to revert to the “higher of” Class I pricing formula. They argue that the change made in the 2018 Farm Bill has caused a financial crisis, costing dairy farmers over $1.1 billion in lost revenue. The previous “higher” formula provided fair and predictable compensation, ensuring stability in the dairy sector.
This bipartisan call to action, backed by influential senators like Kirsten Gillibrand (D-NY), Roger Marshall (R-KS), and Bob Casey (D-PA), underscores the shared concern for the future of dairy farming and the broader economic impacts. The senators are urging the USDA to reinstate the ‘higher mover in upcoming policy updates, aligning with the Federal Milk Marketing Order system’s goal of stable milk pricing and adequate supply.
The Far-Reaching Economic Impact of Dairy Pricing Instability
Beyond affecting dairy farmers directly, the flawed Class I pricing formula has widespread economic impacts. Rural areas, heavily reliant on agriculture, suffer as decreased farmer incomes mean less local spending and reduced investments in nearby businesses such as feed suppliers and equipment dealers.
This financial strain disrupts the food supply chain, affecting dairy processors and retailers who face unpredictable pricing, leading to higher consumer costs and potential shortages of dairy products. This volatility can erode consumer trust in the food supply.
Reinstating the ‘higher of’ mover is crucial for stabilizing the dairy market. This formula supports a predictable economic environment by offering fair compensation reflecting market conditions. It aligns with the Federal Milk Marketing Order’s goal to ensure a steady supply of fluid milk, contributing to a resilient agricultural sector supporting local economies despite market changes.
Senators’ Urgent Call to Action: A Pivotal Moment for Fair Milk Pricing
The senators’ urgent plea for immediate action from the USDA underscores the critical necessity to revert to the ‘higher class I pricing formula, which has been instrumental in ensuring fair compensation for dairy producers. This call for change is of utmost importance as the USDA embarks on its modernization efforts of the Federal Milk Marketing Order (FMMO) system. The upcoming decisions made by the USDA are not just regulatory updates; they are pivotal moves that must align with the fundamental goals of promoting stable milk pricing and guaranteeing an adequate supply of fluid milk. The financial well-being of dairy farmers and the broader economic stability hinge on these critical reforms.
Key Takeaways:
Bipartisan Effort: Led by Senator Kirsten Gillibrand and supported by 13 other senators, the call to restore the “higher of” Class I pricing formula aims to address revenue losses and stabilize the dairy market.
Financial Impact: Since the 2018 Farm Bill modification of the pricing formula, dairy farmers have incurred over $1.1 billion in lost Class I skim milk revenue.
Economic Ramifications: The unstable pricing formula affects not only dairy farmers but the wider agricultural supply chain, including feed suppliers and equipment manufacturers.
Call to Action: The senators’ letter to Secretary Tom Vilsack emphasizes the urgent need for reform to safeguard the long-term viability of the American dairy industry.
Alignment with FMMO Goals: Reinstating the “higher of” pricing formula aligns with the Federal Milk Marketing Order’s objective of ensuring a steady milk supply and stable market conditions.
Summary: The dairy industry has been grappling with financial difficulties since 2018, with over $1.1 billion in lost revenue for Class I skim milk over the past five years. The change in the ‘higher of’ Class I pricing formula for fluid milk, which linked the price of Class I milk to the higher value between Class III and Class IV prices, has led to significant revenue losses for dairy farmers. The revised formula has disrupted milk price stability, hampering farmers’ budget planning and aggravated agricultural uncertainties. This volatility affects the entire dairy supply chain, impacting feed suppliers, equipment manufacturers, and the rural economy. Farmers, who require stable pricing to manage costs and plans, face increased financial strain as their revenue decreases. The instability caused by the current formula threatens the long-term viability of the American dairy industry, requiring urgent reform. Senators’ letter to Secretary Tom Vilsack emphasizes the urgent need to revert to the “higher of” Class I pricing formula, arguing that the change in the 2018 Farm Bill has caused a financial crisis, costing dairy farmers over $1.1 billion in lost revenue. Reinstating the ‘higher of’ formula is crucial for stabilizing the dairy market and aligning with the Federal Milk Marketing Order’s goal to ensure a steady supply of fluid milk, contributing to a resilient agricultural sector supporting local economies despite market changes.
Dive into April’s U.S. cheese production trends. Curious about the rise of Italian cheese and the decline of American cheese? Uncover the compelling data and regional details.
April presented a mixed landscape for U.S. cheese production, with both promising gains and notable declines. According to the USDA, total cheese output, excluding cottage cheese, reached 1.19 billion pounds, up 1.8% year-over-year but down 3% from March. Italian-type cheese production rose by 6.2% from last year to 504 million pounds, though it fell 2.8% from March. On the other hand, American cheese production declined by 4.7% year-over-year and 4.3% from March, totaling 468 million pounds.
“The mixed trends in U.S. cheese production signal both resilience and challenges within the industry,” the USDA report suggests.
Category
Production (Million Pounds)
Year-Over-Year Change
Month-Over-Month Change
Total Cheese (excluding cottage)
1,190
+1.8%
-3.0%
Italian-Type Cheese
504
+6.2%
-2.8%
American Cheese
468
-4.7%
-4.3%
Butter
208
+5.3%
-1.0%
Nonfat Dry Milk
173
-12.7%
—
Skim Milk Powder
36.3
-20.8%
—
Dry Whey
—
+2.1%
—
Lactose
—
-1.5%
—
Whey Protein Concentrate
—
-6.1%
—
Hard Ice Cream
64.7 million gallons
+7.3%
—
Mixed Signals in April U.S. Cheese Production Reflecting Varied Trends
According to the USDA data, total cheese output, excluding cottage cheese, reached 1.19 billion pounds in April. This marks a 1.8% increase compared to the same period last year but shows a 3% decrease from March. The production dynamics underscore a mixed trend in U.S. cheese production for the month, reflecting both year-over-year growth and month-over-month decline.
Italian Cheeses Shine Year-Over-Year Despite Monthly Dip
Italian-type cheese production showcased a remarkable upturn, reflecting a year-over-year surge of 6.2%, culminating at 504 million pounds. Despite this annual growth, the month-over-month comparison revealed a marginal dip of 2.8% from March. This duality underscores both the strong demand for Italian cheeses over the year and the seasonal or market-driven fluctuations that influence monthly production volumes.
American Cheese Production Faces Significant Challenges in April
Amid the intricate landscape of U.S. cheese production, American cheese has faced a particularly challenging month. Specifically, April witnessed a decline in American cheese output, both when compared year-over-year and month-over-month. Production fell by 4.7% from April last year, resulting in a total output of 468 million pounds. The month-over-month comparison is similarly bleak, with a 4.3% decrease from March, accentuating the downward trend in this particular cheese category. This dual decline highlights ongoing shifts within the industry, signaling potential adjustments in consumer demand and production focus.
Butter Production Sees Minor Monthly Dip Amidst Impressive Annual Growth
Butter production trends exhibited a complex pattern, reflecting the overarching variability in the dairy sector. While there was a minor decline of just over 1% in butter output compared to March, the sector demonstrated resilience with a notable 5.3% increase compared to the same period last year. This duality in trends is indicative of broader market dynamics and seasonal production adjustments. In total, April’s butter production reached 208 million pounds, underscoring both the short-term and long-term shifts in the dairy landscape.
Sharp Declines in Dry Dairy Products Highlight April’s Downturn
Dry dairy products presented a downward trend in April, with significant declines observed in both nonfat dry milk and skim milk powder production. Nonfat dry milk saw a steep reduction, recording a 12.7% drop to reach a total of 173 million pounds. Skim milk powder production experienced an even sharper decline of 20.8%, culminating in a total output of 36.3 million pounds compared to the same period last year.
Contrasting Fortunes Within Dry Dairy Production Reflect April’s Complex Landscape
Nevertheless, not all dry dairy products shared the same fate. Dry whey production, for instance, edged up by 2.1%, offering a glimmer of optimism amidst broader declines in the sector. Specifically, dry whey output reached notable levels, counteracting the overarching downtrend. Conversely, lactose production did not fare as well, registering a 1.5% decline. Even more striking was the significant 6.1% decrease in whey protein concentrate production. Collectively, these figures underscore the mixed results within the dry dairy product landscape, highlighting areas of both growth and notable declines.
Unprecedented Fluctuations in Frozen Dairy Production: Hard Ice Cream Surges While Other Categories Slide
Frozen dairy product output varied significantly in April, illustrating a mixture of trends within the industry. The production of hard ice cream notably climbed by an impressive 7.3%, reaching 64.7 million gallons. This increase stands in stark contrast to the declines observed in other frozen dairy categories. The production of low-fat ice cream, sherbet, and frozen yogurt all experienced downturns, highlighting the sector’s fluctuations and the diverse consumer preferences shaping production dynamics.
Regional Production Trends: Wisconsin’s Cheddar Supremacy and California’s Mozzarella Dominance
In examining regional production trends, the data reveals that Wisconsin continues to dominate the Cheddar cheese market, producing an impressive 60.38 million pounds in April. California follows, contributing 21.29 million pounds to the nation’s Cheddar cheese supply.
Turning attention to Mozzarella, California leads with a substantial output of 134.14 million pounds, while Wisconsin is not far behind, generating 93.13 million pounds. This makes California the unrivaled leader in Mozzarella production, though Wisconsin’s figures are commendable.
When looking at overall cheese production, Wisconsin emerges as the top-producing state with an aggregate output of 281.48 million pounds. California comes in second, followed closely by Idaho and New Mexico. These states collectively form the backbone of the U.S. cheese manufacturing industry, each playing a crucial role in meeting domestic and international demand.
The Bottom Line
April’s cheese production data from the USDA paints a complex picture of the dairy industry, characterized by both advancements and setbacks. Italian-type cheeses exhibited impressive year-over-year growth, driven by a notable 6.2% increase, even as they faced a slight month-over-month decrease. In stark contrast, American cheese suffered significant declines both annually and monthly, highlighting underlying production challenges.
The broader dairy landscape reflected similar dualities. Butter production experienced a modest monthly dip but demonstrated robust annual growth. The production of dry dairy products such as nonfat dry milk and skim milk powder saw sharp drops, whereas dry whey managed a slight increase.
Frozen dairy products also showed variability, with hard ice cream production surging, while other categories like low-fat ice cream and frozen yogurt declined. Regionally, Wisconsin and California continued to dominate specific cheese categories, underscoring their pivotal roles in national dairy production.
Overall, these intricate trends underscore the multifaceted nature of the U.S. dairy industry, highlighting areas of growth and the need for strategic adjustments in response to declining segments.
Key Takeaways:
Total cheese production in April saw a slight year-over-year increase of 1.8%, despite a 3% drop from March.
Italian-type cheese production rose by 6.2% year-over-year but decreased by 2.8% from the previous month.
American cheese production experienced declines both year-over-year and month-over-month, down by 4.7% and 4.3% respectively.
Butter production was up by 5.3% compared to April of last year, although it saw a minor decline from March.
Dry dairy products faced significant declines: nonfat dry milk dropped by 12.7% and skim milk powder by 20.8% year-over-year.
Dry whey production slightly increased by 2.1%, while lactose and whey protein concentrate production declined by 1.5% and 6.1% respectively.
Hard ice cream production surged by 7.3%, but low-fat ice cream, sherbet, and frozen yogurt production all decreased.
Wisconsin led in Cheddar cheese production, contributing 60.38 million pounds, whereas California was the top producer of Mozzarella with 134.14 million pounds.
Summary: In April, U.S. cheese production experienced a mixed landscape, with both positive and negative trends. The USDA reported a total cheese output of 1.19 billion pounds, up 1.8% year-over-year but down 3% from March. Italian-type cheese production rose by 6.2% to 504 million pounds, while American cheese production declined by 4.7% year-over-year and 4.3% from March, totaling 468 million pounds. This dual decline highlights ongoing shifts within the industry, signaling potential adjustments in consumer demand and production focus. Butter production saw a minor monthly dip, while dry dairy products showed a downward trend, with significant declines observed in nonfat dry milk and skim milk powder production. Dry whey production edged up by 2.1%, but lactose production and whey protein concentrate production also saw a decline. Frozen dairy product output varied significantly, with hard ice cream production climbing by 7.3% to reach 64.7 million gallons. Wisconsin continues to dominate the Cheddar cheese market, producing an impressive 60.38 million pounds in April.
Explore the remarkable rise in U.S. dairy exports this April, bolstered by unprecedented cheese shipments and significant whey growth. Will this upward trajectory persist amidst global economic changes?
The latest figures from the United States Dairy Export Council (USDEC) reveal a significant achievement-a 3% increase in U.S. dairy exports in April. This rise not only balances out earlier declines but also reduces the year-to-date export deficit to 1.6%. This positive trend is a result of various factors such as increased demand from key markets and competitive pricing strategies, which we are determined to maintain.
Product
April 2023 Exports (Metric Tons)
Year-Over-Year Change (%)
Key Markets
Cheese
46,270
27%
Mexico, Southeast Asia, South Korea, Middle East/North Africa, Caribbean, Japan
High-Protein Whey
Not Specified
26%
China, Brazil
Low-Protein Whey
Not Specified
8%
Mexico
Butter and Anhydrous Milk Fat
Not Specified
23% / 100%+
Global Markets
Nonfat Dry Milk/Skim Milk Powder
Not Specified
-2%
South America, Caribbean
U.S. cheese exports surged by 27% in April, reaching 46,270 metric tons—the second-highest on record for a month. Mexico set an all-time high with 17,249 metric tons, a 53% increase. Other regions also saw significant gains: Southeast Asia (102%), South Korea (69%), Middle East/North Africa (40%), the Caribbean (24%), and Japan (11%). These figures underscore the solid global demand and competitive pricing for U.S. cheese.
High-protein whey exports grew significantly, nearly tripling to China and rising 66% to Brazil, showcasing increased demand. Low-protein whey also saw gains, up 8% for the year, with Mexico leading at a 79% increase. These numbers highlight the widespread appeal of U.S. whey products.
April saw the first year-over-year increase in butterfat exports since November 2022, highlighting renewed global interest in U.S. dairy products. Butter exports grew by 23%, and anhydrous milk fat exports more than doubled, showcasing the rising demand for these high-value ingredients.
Even with higher domestic butter prices, U.S. products have remained competitive globally, especially compared to the European Union and New Zealand. This price competitiveness has been vital in boosting butterfat exports, reinforcing the U.S.’s strong and stable position in the global dairy market.
Nonfat dry and skim milk powder exports declined by 2%, driven by reduced shipments to China and Vietnam. Despite this, South America and the Caribbean showed strong growth, helping to offset losses in Asia. This highlights the need for U.S. dairy exporters to diversify their markets to navigate global trade complexities. For more insights, check out global dairy trade predictions. As we look to May, U.S. dairy exports face many opportunities and challenges. The gradual global economic recovery could boost demand for dairy products, and severe droughts in key Mexican milk-producing areas may increase import demand, benefiting U.S. exports to this top market. However, rising U.S. cheese prices reduce the competitive edge over exporters like New Zealand and the EU, potentially slowing cheese export growth. Geopolitical uncertainties also threaten global trade by affecting supply chains, market access, and currency rates.
U.S. dairy exporters have a promising future ahead. By staying adaptable, leveraging strengths in high-protein whey, and exploring new markets, we cannot only continue to diversify but also expand our reach, opening up new avenues for growth and success.
Key Takeaways:
Overall Export Growth: U.S. dairy exports increased by 3% year-over-year, effectively reducing the year-to-date export deficit to 1.6%.
Cheese Exports: A remarkable 27% surge in cheese exports, driven by strong demand from Mexico, Southeast Asia, and South Korea, reaching the second-highest volume on record for a single month.
High-Protein Whey: High-protein whey product exports rose by 26%, with China’s imports nearly tripling and Brazil’s increasing by 66%.
Butterfat Revival: Butter and anhydrous milk fat exports saw their first year-over-year increase since November 2022, growing by 23% and more than doubling, respectively.
Competitive Pricing: Despite rising U.S. butter prices, they remained competitive compared to European Union and New Zealand prices, bolstering global demand.
Challenges Ahead: While the global economic recovery and severe droughts in key Mexican milk-producing states offer opportunities, rising U.S. cheese prices and geopolitical uncertainties pose potential risks.
Summary: The US Dairy Export Council (USDEC) reported a 3% increase in dairy exports in April, reducing the year-to-date export deficit to 1.6%. This growth is attributed to increased demand from key markets and competitive pricing strategies. Key markets included Mexico, Southeast Asia, South Korea, Middle East/North Africa, Caribbean, and Japan. U.S. cheese exports reached 46,270 metric tons, the second-highest on record for a month. High-protein whey exports grew significantly, with Mexico leading at a 79% increase. Butterfat exports saw the first year-over-year increase since November 2022, highlighting renewed global interest in U.S. dairy products. Despite higher domestic butter prices, U.S. products remain competitive globally, especially compared to the European Union and New Zealand. Nonfat dry and skim milk powder exports declined by 2%, while South America and the Caribbean showed strong growth. However, challenges such as global economic recovery, severe droughts in key Mexican milk-producing areas, rising cheese prices, and geopolitical uncertainties threaten global trade.
Uncover the surge of bullish trends on LaSalle Street pushing Class III & IV futures to record highs. Will the dairy markets keep climbing? Delve into the latest insights today.
The bulls are back on LaSalle Street, setting fresh records in dairy futures. Class III and some Class IV futures hit life-of-contract highs this week, making waves in the dairy markets. While some Class III contracts dipped slightly by week’s end, Class IV futures rose about 30ȼ. Third-quarter Class III stands solidly above $20 per cwt. Fourth-quarter contracts hover in the high $19s. Class IV futures are robust in the $21s and $22s.
Prices climbed across the CME spot market, led by whey – the unsung hero of the Class III complex.
The recent surge in whey powder, with a significant 13.25% increase, along with solid gains in Cheddar blocks and barrels, is a clear indicator of the market’s strength. This bullish trend in Class III and IV futures not only highlights the current market strength but also promises potential growth and stability.
Product
Avg Price
Qty Traded
4 Wk Trend
Whey
$0.4445
7
13.25% increase
Cheese Blocks
$1.8660
13
Up
Cheese Barrels
$1.9550
13
Up
Butter
$3.1040
5
Stable
Non-Fat Dry Milk (NDM)
$1.1895
31
Up
Class III Futures Soar: A Promising Summer and Year-End Forecast
Contract
Price as of Last Week
Price This Week
Change
July Class III
$19.50
$20.25
+3.85%
August Class III
$19.75
$20.45
+3.54%
September Class III
$20.00
$21.10
+5.50%
October Class III
$19.20
$20.10
+4.69%
November Class III
$19.00
$19.75
+3.95%
December Class III
$18.50
$19.40
+4.86%
The steady trend of class III futures, which are on a roll this summer and heading into the end of the year, offers a clear outlook for dairy producers. With contracts from July through December hitting life-of-contract highs and third-quarter Class III prices solidly above $20 per cwt., there is robust demand in the market. The prices for the fourth quarter, settling in the $19s, further reinforce the potential profitability for dairy producers.
Class IV Futures Climb Higher: Butter and NDM Lead the Charge
Month
Avg Price
Qty Traded
4 wk Trend
July 2024
$21.50
10
⬆
August 2024
$21.75
12
⬆
September 2024
$22.00
14
⬆
October 2024
$21.95
11
⬆
November 2024
$22.10
13
⬆
December 2024
$22.25
15
⬆
Class IV futures are on the rise, now solidly in the $21s and $22s. This reflects the strong and resilient market fundamentals of the dairy sector. The hike in Class IV prices highlights robust demand for butter and nonfat dry milk (NDM), both showing remarkable performances recently. With higher butter output meeting strong demand and climbing NDM prices, these components are crucial to Class IV’s upward trend. This surge boosts market sentiment and provides dairy producers with better financial incentives to increase production despite current challenges, instilling a sense of stability and confidence in the market.
A Week of Robust Gains: Whey Leads the Charge in the CME Spot Market
The CME spot market buzzed this week, with significant gains led by whey. Spot whey powder jumped 5.5ȼ, a solid 13.25% increase, hitting 47ȼ per pound for the first time since February. This rise shows the strong demand for high-protein whey products as manufacturers focused more on concentration.
Spot Cheddar also saw gains, with blocks up 3.5ȼ to $1.845 per pound and barrels rising 1.5ȼ to $1.955 per pound. This climb, even with a drop in Cheddar production, reflects strong domestic and international cheese demand, especially with U.S. cheese exports to Mexico hitting record highs.
Nonfat dry milk (NDM) increased by 2.75ȼ to $1.195 per pound, supported by a robust Global Dairy Trade auction. Despite the price rise, NDM stocks saw their most significant March-to-April jump, suggesting slower exports.
Butter prices edged slightly, by a fraction of a cent, to settle at $3.0925 per pound. Despite a 5.3% year-over-year production increase, the continued strength in butter prices indicates strong demand holding up the market prices.
April’s Milk Output: High Components Drive Record-Breaking Butter Production
Month
Butter Production (million pounds)
Year-Over-Year Change (%)
January
191.0
+4.0%
February
181.3
+3.5%
March
205.5
+5.1%
April
208.0
+5.3%
The bulls are back in charge on LaSalle Street. July through December Class III and a smattering of Class IV futures notched life-of-contract highs this week. While most Class III contracts ultimately settled a little lower than they did last Friday, Class
April’s milk output brought some notable developments. Despite lower overall volume than last year, higher milk components led to an uptick in cheese and butter production. Manufacturers churned out nearly 208 million pounds of butter, a 5.3% increase over April 2023. This marks the highest butter output for April, only behind April 2020, when pandemic shutdowns diverted cream to butter production. This spike in butter output indicates solid market demand despite the large volumes.
Record Cheese Production in April: Mozzarella and Italian-Style Cheeses Shine
Cheese Type
April 2023 Production (Million lbs)
April 2024 Production (Million lbs)
Year-over-Year Change (%)
Mozzarella
379
402
+6.2%
Italian-Style
496
527
+6.2%
Cheddar
349
319
-8.6%
Total Cheese
1,170
1,191
+1.8%
April saw U.S. cheese production reach new heights, with Mozzarella and Italian-style cheeses leading the charge. Mozzarella production hit record levels, and Italian-style cheese output was up 6.2% compared to last April. This high demand ensures quick consumption or export, avoiding the stockpiles that sometimes affect Cheddar.
Cheddar, however, experienced an 8.6% drop in production from last year, showing a 5.9% decline from January to April compared to 2023. Yet, strong cheese exports, especially to Mexico and key Asian markets, are balancing things out. Exports are up 23% year-to-date, which helped push cheese prices above $2 briefly.
Continued export growth might be challenging, with cheese prices around $1.90, but the trends are promising for U.S. cheese producers.
Whey Powder Renaissance: Demand for High-Protein Products Fuels Price Surge
Whey powder, often underrated in the dairy market, is returning thanks to a strong demand for high-protein products. Health-conscious consumers are driving this trend, leading manufacturers to concentrate more on whey and produce less powder. Although April’s whey powder output matched last year’s, stocks have declined. This reduced supply and steady demand have fueled the current price surge. The recent 5.5ȼ gain, a 13.25% increase, underscores the market’s strength.
A Tale of Supply and Demand: NDM Production Slumps While Stockpiles Surge Due to Sluggish Exports
Nonfat Dry Milk (NDM) and Skim Milk Powder (SMP) production fell significantly in April to 209.6 million pounds, down 14.2% year-over-year, marking the lowest April output since 2013. Despite this, NDM stocks surged, hitting a record March-to-April increase. Slower exports are the leading cause. In April, the U.S. exported 144 million pounds of NDM and SMP, down 2.5% from last year and the lowest for April since 2019. This highlights the delicate balance between production, stock levels, and international trade.
Promising Prospects: Mexico’s Shift to NDM Could Boost Exports and Stabilize Markets
There’s hope for increased NDM export volumes, particularly to Mexico. Higher cheese prices might push Mexico to import more affordable NDM instead of cheese. Mexican manufacturers can use NDM to boost their cheese production efficiently. This shift could reduce current NDM stockpiles and stabilize market prices.
Proceed with Caution: Navigating Volatility and Barriers in Milk Production
The recent data highlight extreme volatility in the dairy complex. While high prices are tempting, caution is crucial. There are significant barriers to milk production expansion. High interest rates make investments riskier, and a scarcity of heifers limits rapid growth. Even issues like the bird flu impact the supply chain and market stability.
Economic Incentives and Strategic Tools Empower Dairy Producers to Boost Output and strategically navigate the market. This potential for strategic growth and control over the market dynamics can be a powerful motivator for dairy producers and traders. The current market conditions for dairy producers are a strong incentive to boost milk production. Class III futures are up $3.50 from last year, and with corn prices down $1.55, feed costs are more affordable, making it easier to increase output.
Despite market ups and downs, there’s a great chance to protect your margins. You can lock in current high prices using futures and options, ensuring steady profits. The Dairy Revenue Protection (DRP) insurance program offers a safety net against price drops or production issues. These tools help you navigate the market smartly and aim for maximum profitability.
The feed markets had their ups and downs this week but ended up close to where they started. July corn settled at $4.4875, a slight increase of 2.5ȼ. Meanwhile, July soybean meal dropped $4.10 to $360.60 per ton.
Farmers are almost done planting their crops, with just a few acres left. A drier forecast will help them wrap up. Although heavy spring rains posed initial challenges, they also improved moisture reserves for the upcoming summer months.
Less favorable global farming conditions might boost U.S. export prospects, stabilizing prices and preventing steep drops. With average weather, a large U.S. harvest is expected, potentially lowering feed costs even more.
The Bottom Line
The current dairy market offers both opportunities and challenges for producers. Class III and IV futures show solid gains and higher prices thanks to robust demand and reduced milk output. Whey and cheese markets are performing exceptionally, and export volumes could improve. However, volatility remains a concern. High interest rates, scarce resources, and global health threats add to the uncertainty. Farmers can secure attractive margins using strategic tools like futures, options, and insurance programs. Favorable planting conditions and resilient feed markets provide added support. Staying informed and agile will be vital to capitalizing on these dynamics while managing risks.
Key Takeaways:
Strong bullish trends observed in Class III and IV futures, with significant life-of-contract highs.
Third-quarter Class III prices solidly above $20 per cwt, and fourth-quarter contracts in the $19 range.
Class IV futures robustly in the $21s and $22s, driven by high demand for butter and NDM.
Whey powder prices surged with a 13.25% gain, hitting 47ȼ per pound for the first time since February.
Cheddar blocks and barrels showed solid gains at the CME spot market, indicating strong market fundamentals.
April’s milk output featured high components, leading to record-breaking butter production.
U.S. cheese production hit record levels in April, driven by escalating Mozzarella and Italian-style cheese output.
Strong demand for high-protein whey products spurred a price surge, backed by decreased dryer availability.
NDM production saw a slump, affected by sluggish exports, but stockpiles surged with the largest March-to-April increase ever.
Mexico’s potential shift to importing more NDM could stabilize export volumes and market dynamics.
Dairy producers incentivized to boost milk production despite barriers, with improved futures and feed margins.
Feed markets exhibited resilience, with minor fluctuations in corn and soybean meal prices.
Summary: The dairy market has seen a strong bullish trend, with Class III and some Class IV futures hitting life-of-contract highs this week. Class IV futures are robust in the $21s and $22s, reflecting the strong and resilient market fundamentals of the dairy sector. The recent surge in whey powder and solid gains in Cheddar blocks and barrels is a clear indicator of the market’s strength, promising potential growth and stability. Class III futures are on a roll this summer and heading into the end of the year, offering a clear outlook for dairy producers. Contracts from July through December hit life-of-contract highs, and third-quarter Class III prices solidly above $20 per cwt., reinforcing potential profitability for dairy producers. Class IV futures are on the rise, now solidly in the $21s and $22s, reflecting the strong and resilient market fundamentals of the dairy sector. The surge in Class IV prices highlights robust demand for butter and nonfat dry milk (NDM), both showing remarkable performances recently. In April, U.S. cheese production reached record levels, with Mozzarella and Italian-style cheeses leading the charge.
Cash dairy prices held steady to higher levels amid light trading activity Friday on the Chicago Mercantile Exchange. Here’s a quick glance at the movements:
“Dry whey saw a slight uptick, gaining $0.0175 to settle at $0.47. Two sales were logged at $0.46 and $0.47 respectively.”
Dry Whey: Increased by $0.0175 to $0.47 with two sales recorded at $0.46 and $0.47.
Cheese Market: Remained quiet. Forty-pound cheese blocks held steady at $1.8450, and no sales were recorded.
Cheese Barrels: Unchanged at $1.9550, with no sales recorded.
Butter: Regained most of Thursday’s losses, climbing $0.0425 to $3.0925. One sale was recorded at $3.10.
Nonfat Dry Milk: Unchanged at $1.1950, with no sales recorded.
This mix of steady and upward movements reflects the market’s cautious approach on the day. How will this trend evolve? Stay tuned for more updates.
Today’s dairy market saw significant movements, especially in Class III milk prices. May Class III milk was released at $18.55, while Class IV finished at $20.50. This marked a day where Class III milk experienced a limit move lower. Traders were early sellers ahead of the dairy products trade at 11 am CST.
Commodity
Price Movement
Current Price
Butter
-6 ¾ cents
$3.09 1/2/lb
Cheddar Blocks
-3 cents
$1.86/lb
Cheddar Barrels
-1 ½ cents
$1.94 1/2/lb
Whey
Unchanged
$0.44/lb
Grade A Non Fat Dry Milk
+1 cent
$1.20/lb
Corn (July)
–
$4.39 ¼/bu
Corn (Harvest)
–
$4.59/bu
Soybeans
-1 ¾ cents
$11.77/bu
Soybean Meal
+2.00
$359.50/ton
Class III milk prices tumbled further: June fell 35 cents to $19.50/cwt, July dropped 72 cents to $20.15/cwt, and August declined 73 cents to $20.36/cwt. The balance of 2024 Class III milk followed suit, dropping between 28 to 44 cents.
Class IV milk also faced losses. June dropped 3 cents to $21.31, July went down 33 cents to $21.65, and August decreased by 48 cents to $21.77/cwt.
“Grain prices continued to drop, with corn sliding due to good rain in the Midwest to $4.39 ¼ in July and $4.59/bu at harvest. Soybeans slipped only a penny and ¾ to $11.77/bu, while soybean meal rose by $2.00 to $359.50/ton.”
Learn how May 2024 milk prices differed across the US. Which states gave dairy farmers the best earnings? Check out our state-by-state comparison.
Have you ever wondered why milk prices vary from state to state? It’s not just a simple question—it’s essential for understanding the economic landscape that dairy farmers navigate. This article, set against the backdrop of the US dairy farming sector, delves into the May 2024 milk prices across the United States.
Comparing milk prices isn’t just about numbers; it reveals the pressures and opportunities shaping the dairy industry. Examining these differences gives you a clearer picture of how factors like local demand, production costs, and state policies impact farmers.
Understanding the disparity in milk prices helps farmers and sheds light on trends affecting the entire country.
This article explains why these price differences matter and what they reveal about the U.S. dairy farming sector. You’ll find comparisons and insights illuminating the economic realities facing dairy farmers today.
Sourcing and Accuracy: Behind the May 2024 Dairy Price Analysis
Our analysis of May 2024 milk prices draws on multiple reliable sources. We gathered data from Illinois Farm Business Farm Management (FBFM) Association records, USDA reports, and state agricultural departments. This data was then cross-referenced with regional market reports and verified with dairy producers nationwide to ensure accuracy.
We surveyed dairy producers nationwide and cross-referenced with regional market reports. To ensure data accuracy, we clarified any discrepancies directly with producers.
Inflation adjustments were made using the Consumer Price Index (CPI) for dairy products, ensuring that current market conditions were reflected.
We focused on states like California, Wisconsin, and New York for their significant milk production. States with varied regional pricing trends were also included for a comprehensive national view.
Rest assured, our robust data sources, diligent data collection, inflation adjustments, and strategic state selection ensure the reliability of our May 2024 milk price analysis. You can trust the insights and recommendations we provide to navigate the dairy market.
Milk Price Trends in May 2024: A Beacon of Economic Optimism for Dairy Farmers
Region
May 2024 Milk Price ($ per cwt)
May 2023 Milk Price ($ per cwt)
YoY Change (%)
Northeast
21.50
19.75
8.86%
Midwest
21.00
19.20
9.38%
South
20.75
18.90
9.79%
West
20.95
19.10
9.69%
In May 2024, average milk prices in the U.S. increased, reflecting significant market shifts. The national average hit $20.30 per hundredweight (cwt), up from $18.75 in May 2023 and $19.50 in April 2024. This rise is attributed to reduced cow culling and better export performance.
Increased domestic consumption has also boosted milk prices, signaling a potential opportunity for dairy farmers. This demand surge began in late 2023 and continued into 2024, driven by household and food service needs. The milk market remains resilient despite a drop in cheddar cheese and mozzarella prices, offering a glimmer of hope in these challenging times.
Regional variances show some states with sharper price rises due to localized supply issues and varying production costs. Overall, the trend looks promising for dairy farmers.
These changes suggest cautious economic optimism for the U.S. dairy market, which faces challenges like regional production differences and fluctuating domestic demand. Looking ahead, factors such as weather conditions, global trade policies, and consumer preferences will continue to influence milk prices, making it crucial for dairy farmers to stay informed and adaptable.
Regional Breakdown of May 2024 Milk Prices: Climate, Costs, and Market Impact
Region
Average Milk Price (per cwt)
Key Influencing Factors
Northeast
$21.50
Cold climate, High production costs
Midwest
$20.20
Favorable climate, Low production costs
West
$19.80
Drought conditions, Export demand
Southeast
$20.75
High feed costs, Moderate climate
Southwest
$20.00
Tight milk supplies, Strong domestic use
When looking at May 2024 milk prices across the U.S., we see apparent regional differences:
Northeast: Milk prices here are higher. The cold climate raises heating costs and affects feed quality. Plus, proximity to big cities like New York drives demand and prices.
Midwest: Prices are stable thanks to robust dairy infrastructure and ample feed resources. While cheese prices, particularly cheddar, dropped by 8.5%, diversified dairy production keeps incomes steady.
South: Lower milk prices are seen here due to the hot climate, which increases cooling costs and stresses dairy cows. Higher feed costs and lower demand also play a role, though better export performance offers some hope.
West: California’s dairy farmers face moderate prices influenced by high feed and water costs from ongoing drought conditions. However, rising butter stocks help stabilize prices.
These regional prices are shaped by climate, feed costs, and market demand, showing how important it is for dairy farmers to adapt to changing conditions.
Unpacking May 2024 Milk Prices by State: Key Patterns and Outliers
Grasping the milk prices by state for May 2024 is essential to understanding the broader trends and economic impacts on dairy farmers. Let’s examine the data from different states and spot key patterns and outliers.
State
May 2024 Price per cwt ($)
April 2024 Price per cwt ($)
Trend
Analysis
California
21.30
20.85
▲ 2.2%
Strong export markets and stable production.
Wisconsin
22.10
21.50
▲ 2.8%
Increased output per cow and regional demand stability.
New York
20.75
20.20
▲ 2.7%
Higher domestic use and tight supplies.
Texas
19.80
19.50
▲ 1.5%
Recovering from regional production declines.
Idaho
21.00
20.60
▲ 1.9%
Stable production and export performance.
Pennsylvania
20.60
20.05
▲ 2.7%
Increase in local demand and tighter supplies.
Milk prices in May 2024 vary by region. California, a key dairy producer, charges $3.75 per gallon, while Florida charges the highest, $3.90 per gallon. This difference stems from production costs, climate, and market demand.
Understanding the Economic Impact of Milk Prices on Dairy Farmers
Understanding the economic impact of milk prices on dairy farmers is crucial. Variations in milk prices can affect profitability, sustainability, and the long-term viability of dairy farms across states.
Higher milk prices often lead to improved incomes and more significant investment in farm infrastructure. This can mean better herd health management and higher productivity. Conversely, lower prices may reduce profitability, making it difficult for farmers to cover costs and potentially leading to smaller herds or delayed updates.
Profitability impacts sustainability, too. Higher revenue can help farmers adopt sustainable practices like advanced feed systems or better waste management, benefiting both efficiency and the environment. Lower prices might force cost-cutting, compromising sustainability efforts and posing long-term risks.
Varying milk prices also affect the long-term viability of dairy farms. Consistently higher prices encourage farmers to pass their operations to future generations, preserving farming traditions. Persistent low prices, however, could force exits from the industry, reducing the number of operational dairy farms.
In conclusion, while higher milk prices generally support dairy farmers’ profitability, sustainability, and viability, lower prices create significant challenges. Balancing these fluctuations is vital for the overall health of the dairy sector. To navigate these price variations, dairy farmers can consider strategies such as diversifying their product offerings, improving operational efficiency, and exploring new markets.
Dairy Farmer Journeys: A Glimpse Into State-Specific Innovations
Every dairy farmer’s journey is unique, and in May 2024, milk prices have impacted them differently. Here’s a look at a few of their stories:
Case Study 1: Illinois – The Adaptive Farmer
For over two decades, John Miller, a dairy farmer in Illinois, saw a revenue boost in May 2024 with improved milk prices. “This year, prices help us reinvest in better feed and expand our herd,” he says. Enrolled in the Illinois Farm Business Farm Management (FBFM) Association, John uses essential data to make informed decisions, seeing a brighter, more sustainable future.
Case Study 2: California – The Sustainable Visionary
Maria González, running a mid-sized organic dairy farm in California, is a champion of sustainable farming. The rise in butter stocks and strong export performance in May 2024 boosted her farm’s profitability. “Higher prices allow us to maintain organic certifications and invest in eco-friendly tech,” Maria shares. Still, she is cautious due to regional production disparities and slower domestic demand.
Case Study 3: Wisconsin – The Technological Innovator
Wisconsin’s Ryan Thompson embraces technology at his family’s dairy farm. Improved milk prices in May 2024 enabled advanced herd management tools, including the Livestock Indemnity Program (LIP) decision tool by the USDA. “These tools help with loss documentation, saving time and reducing stress,” says Ryan. Milk prices offer operational stability and growth despite a slight dip in cheese prices.
These stories highlight the diverse experiences of dairy farmers across the United States. May 2024, milk prices have provided relief and optimism, enabling farmers to adapt, innovate, and invest in their operations.
Understanding Milk Price Dynamics: Policies, Subsidies, and Market Forces at Play
Understanding milk price dynamics involves evaluating policies, subsidies, and market forces. These measures provide stability, helping farmers withstand market fluctuations. In May 2024, several factors stood out.
The USDA introduced a new online Livestock Indemnity Program (LIP) decision tool and farm loan resources. This initiative aids farmers with loss documentation and financial aid, potentially stabilizing milk prices by reducing financial strain and preventing abrupt market exits.
Market forces were also crucial. Early May saw a significant reduction in cow culling, with slaughter volumes dipping below 50,000 head for the first time in nearly eight years. This shift points to altered herd management strategies, likely influenced by improving milk prices and more robust export performance. Stable cheese inventories and rising butter stocks also supported a favorable pricing landscape.
External market conditions, such as changes in domestic use, also impacted supply and demand dynamics. Increased domestic use due to higher disappearance rates in late 2023 and into 2024 shaped the pricing environment.
The interplay of these policy tools and market adaptations highlights the complexity behind dairy pricing. While higher milk prices brought economic optimism, the ongoing balance of production and demand continued to define the financial landscape for dairy farmers in May 2024.
Embracing the Future: Insights from May 2024’s Dairy Price Data
Looking ahead, May 2024 data offers insights into future milk price trends. With a significant drop in cow culling, herd management is shifting. This trend could lead to more stable herd sizes, impacting supply and prices positively.
Strong export performance and better domestic use create dual opportunities for farmers. Exports provide a lucrative market while growing domestic consumption signals further potential.
Yet, challenges remain. Regional production disparities and slower domestic demand in some areas create economic imbalances. States like Illinois may innovate, but others might need help with these issues.
Price drops in essential dairy products like cheddar and mozzarella hint at market volatility. Farmers may need to adjust production strategies to stay competitive.
On a positive note, tools like the USDA’s online Livestock Indemnity Program (LIP) decision tool offer valuable risk management and planning resources.
In summary, May 2024 promises better milk prices and strong exports. However, balancing these opportunities with ongoing challenges is critical to profitability and sustainability in milk production.
The Bottom Line
May 2024’s dairy price analysis shows a mix of optimism and challenges for dairy farmers. While improved prices and robust exports are positive, regional disparities and varying market forces bring different hurdles and opportunities. State-by-state variations in climate, operational costs, and market conditions significantly affect milk prices.
Staying informed about policy changes, market trends, and regional insights is crucial. Embracing innovative practices, adjusting herd management, and leveraging new technologies can enhance sustainability and profitability. By being adaptable and informed, the dairy industry can better navigate economic fluctuations and seize emerging opportunities.
Key Takeaways:
National Price Increase: The national average milk price rose to $20.30 per hundredweight (cwt), a significant boost for dairy farmers.
Regional Variations: Prices experienced notable differences across states due to localized supply issues and production costs.
Economic Drivers: Factors such as reduced cow culling, better export performance, and increased domestic consumption contributed to the price surge.
Climate Impact: Weather conditions played a crucial role, with colder climates in the Northeast leading to higher prices, and hotter Southern climates contributing to lower prices.
Technological and Sustainable Advances: Dairy farmers in states like Wisconsin and California are leading the way with tech innovations and sustainable practices, respectively.
Summary: Milk prices in the US have risen significantly in May 2024, reaching $20.30 per hundredweight (cwt), reflecting the challenges and opportunities in the dairy industry. This rise is attributed to reduced cow culling, improved export performance, and increased domestic consumption. Regional variations show some states with sharper price rises due to localized supply issues and varying production costs. However, the trend is promising for dairy farmers, suggesting cautious economic optimism. Factors such as weather conditions, global trade policies, and consumer preferences will continue to influence milk prices, making it crucial for farmers to stay informed and adaptable. Regional breakdowns show Northeast experiences higher prices due to cold climate, Midwest prices remain stable due to robust infrastructure, South experiences lower prices due to hot climate, higher feed costs, lower demand, and better export performance, and West farmers face moderate prices due to drought conditions.
Find out why cheese prices are leveling off. See the main reasons behind this trend and what it means for the market. Want more details? Keep reading.
Two major factors have been influencing the recent stabilization of cheese prices after a significant rally. CME spot cheese prices surged from mid-March and peaked in mid-May but have since returned to sustainable levels. According to the esteemed analyst, Betty Berning, with her deep understanding of the market dynamics, this correction will likely hold through the summer, with a seasonal increase expected in the fall.
Category
March 2024
May 2024
Change
CME Block Cheese Prices
$1.3925/lb
$1.98/lb
+60¢/lb
CME Barrel Cheese Prices
$1.3125/lb
$2.125/lb
+80¢/lb
U.S. Cheese Exports
121.3 million lbs
–
Record High
Year-to-Date Cheese Production
–
3.53 billion lbs
-1% compared to 2023
“The recent price run-up can be attributed to strong export demand,” Berning explained. “In early 2024, U.S. cheese prices were significantly lower than those in Oceania and Europe, prompting international buyers to purchase substantial quantities of U.S. cheese.”
In March, U.S. cheese exports hit an unprecedented record of 121.3 million pounds, with fresh and grated cheeses, particularly mozzarella, seeing strong demand. After hitting a low of $1.3925 per pound in mid-March, CME block cheese prices rose to $1.98 per pound by May 17, while barrel prices increased to $2.125 per pound.
Cheese production also declined due to tighter milk supplies, with 3.53 billion pounds produced year to date, down 1% from the same period in 2023. This decline has helped prevent inventory build-ups.
Export demand: As prices rose, export demand diminished. Berning noted that U.S. prices are now similar to those in Oceania and the EU, excluding freight costs. With shipping costs factored in, U.S. products become less competitive, reducing exports.
Inventory management: Reduced production has prevented significant inventory increases. Limited milk supplies due to fewer U.S. milk cows and heifer replacements add to the complex supply situation, potentially supporting prices in the short term.
Key Takeaways:
Cheese prices witnessed a significant increase from mid-March to mid-May 2024, driven by robust export demand.
U.S. cheese exports reached a record high of 121.3 million pounds in March, especially for fresh and grated cheese like mozzarella.
Production decreased by 1% year-to-date, compared to the same period in 2023, due to tighter milk supplies.
Cheese prices have cooled since mid-May, with barrel prices dropping 18.5 cents and blocks falling 17 cents by May 31.
Future price trends may depend on factors like milk supply, export competitiveness, and potential new cheese production capacity.
Summary: Cheese prices have stabilized after a significant rally, with CME spot cheese prices returning to sustainable levels. Analyst Betty Berning predicts this correction will continue through the summer, with a seasonal increase expected in the fall. The recent price increase is attributed to strong export demand, with U.S. cheese prices being significantly lower than those in Oceania and Europe. In March, U.S. cheese exports reached an unprecedented record of 121.3 million pounds, with fresh and grated cheeses, particularly mozzarella, seeing strong demand. CME block cheese prices rose to $1.98 per pound by May 17, while barrel prices increased to $2.125 per pound. Cheese production also declined due to tighter milk supplies, with 3.53 billion pounds produced year to date, down 1% from 2023. Export demand diminished as prices rose, and limited milk supplies due to fewer U.S. milk cows and heifer replacements contributed to the complex supply situation, potentially supporting short-term prices.
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USDA Proposes Return to ‘Higher-Of’ Method for Fluid Milk Pricing: What It Means for Dairy Farmers
Learn how USDA’s plan to bring back the ‘higher-of’ method for milk pricing might affect farmers. Will this change help dairy producers? Find out more.
The USDA plans to bring back the ‘higher-of’ pricing method for fluid milk, a move intended to modernize federal dairy policy based on a comprehensive 49-day hearing that evaluated numerous industry proposals. This method picks the higher price between Class III (cheese) and Class IV (butter and powder) milk, which could signify a notable shift for the dairy industry. Previously, the 2018 Farm Bill had replaced the ‘higher-of’ system with an ‘average-of’ pricing formula, averaging Class III and IV prices with an additional 74 cents. While switching back might benefit farmers, it also introduces risks like negative producer price differentials in 2020 and 2021. The USDA’s proposal seeks to mitigate these challenges and provide farmers financial gains amidst modern dairy economics’ complexities.
Understanding the Federal Milk Marketing Order (FMMO) System
The Federal Milk Marketing Order (FMMO) system, established in 1937, plays a crucial role in ensuring fair and competitive dairy pricing. It mandates minimum milk prices based on end use, providing price stability for dairy farmers and processors across the U.S. Each FMMO represents a distinct marketing area, coordinating pricing and sales practices.
The ‘higher-of’ pricing method for Class I (fluid) milk has long been integral to this system. It sets the Class I price using the higher Class III (cheese) or Class IV (butter and powder) price, offering a financial safeguard against market volatility. This method ensures dairy producers receive a fair price despite market fluctuations.
However, the 2018 Farm Bill introduced an ‘average-of’ formula, using the average of Class III and IV prices plus 74 cents. While aimed at modernizing milk pricing, this change exposed farmers to greater risk and reduced earnings in volatile periods like 2020 and 2021.
A Marathon Analysis: Unraveling Modern Dairy Policy over 49 Days in Indiana
The marathon hearing in Indiana highlighted the complexities of modern dairy policy. Spanning 49 days, from Aug. 23, 2023, to Jan. 30, it reviewed nearly two dozen industry proposals. This intensive process reflected the sophisticated and multifaceted Federal Milk Marketing Order system as stakeholders debated diverse views and intricate data to influence future milk pricing.
Decoding Dairy Dilemmas: The “Higher-Of” vs. “Average-Of” Pricing Methods
The “higher-of” and “average-of” pricing methods are central to understanding their impact on farmers’ incomes. The “higher-of” process, which uses the greater of the Class III (cheese) price or Class IV (butter and powder) price, has historically provided a safety net against dairy market fluctuations. This method ensured farmers got a better price, potentially safeguarding their income during volatile times. Yet, it increased the risk of negative producer price differentials, which reduced earnings in 2020 and 2021.
On the other hand, the “average-of” method, introduced by the 2018 Farm Bill, calculates the price as the average of Class III and IV prices plus 74 cents. While this seems balanced and predictable, it often fails to deliver the highest financial return when either Class III or IV prices exceed expectations. Farmers have noted that this method might not reflect their costs and economic challenges in volatile markets.
The “higher-of” method often offers better financial outcomes during favorable market conditions but brings increased uncertainty during unstable periods. Conversely, the “average-of” method offers stability but may miss optimal pricing opportunities. This debate within the dairy industry over the best formula to support farmers’ livelihoods continues. Thus, the USDA’s proposal to revert to the “higher-of” method invites mixed feelings among farmers, whose earnings and economic stability are closely tied to these pricing mechanisms.
Examining the Potential Implications of the USDA’s Return to the ‘Higher-Of’ Pricing Method
The USDA’s return to the ‘higher-of’ pricing method, while potentially beneficial, also presents some challenges that the industry needs to be aware of. This approach, favoring the higher Class III (cheese) or Class IV (butter and powder) prices, seems more beneficial than the ‘average-of’ formula. However, deeper insights indicate potential challenges that need to be carefully considered.
The ‘higher-of’ method usually leads to higher fluid milk prices but poses the risk of negative producer price differentials (PPDs). When the Class I price far exceeds the average of the underlying class prices, PPDs can become negative, as seen during the harsh economic times of 2020 and 2021, exacerbated by the COVID-19 pandemic.
Negative PPDs can hit farmers’ financial stability, making it harder to predict income and manage cash flows. This reflects the delicate balance between gaining higher milk prices now and ensuring long-term financial reliability.
The 24-month rolling adjuster for extended-shelf-life milk introduces further uncertainty. Its effect on milk pricing needs to be clarified, potentially causing fluctuating incomes for farmers in this segment.
In conclusion, while the ‘higher-of’ pricing method may offer immediate benefits, risks like negative PPDs and uncertain impacts on extended-shelf-life milk pricing demand careful consideration. Farmers must balance these factors with their financial strategies and long-term sustainability plans.
New Horizons for ESL Milk: Navigating the 24-Month Rolling Adjuster Amidst Market Uncertainties
Under the USDA’s new proposal, regular fluid milk will revert to the ‘higher-of’ pricing. In contrast, extended-shelf-life (ESL) milk will follow a different path. The plan introduces a 24-month rolling adjuster for ESL milk to stabilize prices for these longer-lasting products.
Yet, this change brings uncertainties. Laurie Fischer, CEO of the American Dairy Coalition, questions the impact on farmers. The 24-month adjuster is untested, making it difficult to foresee its effects amid fluctuating market conditions. ESL milk’s unique production and logistics further complicate predictions.
Critics warn that the lack of historical data makes it hard to judge whether this method will help or hurt farmers. There’s concern that it could create more price disparity between regular and ESL milk, potentially straining producers reliant on ESL products. While USDA aims to tailor pricing better, its success will hinge on adapting to real-world market dynamics.
Make Allowance Controversy: Balancing Processor Profitability and Farmer Finances
The USDA also plans to increase the make allowance, a credit to dairy processors to cover rising manufacturing costs. This adjustment aims to ensure processors are adequately compensated to sustain profitability and operational efficiency, which is expected to benefit the entire dairy supply chain.
However, this proposal has drawn substantial criticism. Laurie Fischer, CEO of the American Dairy Coalition, argues that the increased make allowance effectively reduces farmers’ milk checks, disadvantaging them financially.
Pivotal Adjustments and Economic Realignment in Dairy Pricing Formulas
The USDA’s proposal adjusts pricing formulas to match advancements in milk component production since 2000. This update ensures that farmers receive fair compensation for their contributions.
The proposal also revises Class I differential values for all counties to reflect current economic realities. This is essential for maintaining fair compensation for the higher costs of serving the fluid milk market. By reevaluating these differentials, the USDA aims to align the Federal Milk Marketing Order system with today’s economic landscape.
Recalibrating Cheese Pricing: Transition to 40-pound Cheddar Blocks Only
Another critical change in USDA’s proposal is the shift in the cheese pricing system. Monthly average cheese prices will now be based solely on 40-pound cheddar blocks instead of including 500-pound cheddar barrels. This aims to streamline the process and more accurately reflect market values, impacting various stakeholders in the dairy industry.
Initial Reactions from Industry Leaders: Balancing Optimism with Key Concerns
Initial reactions from crucial industry organizations reveal a mix of cautious optimism and significant concerns. The National Milk Producers Federation (NMPF) showed preliminary approval, noting that USDA’s proposal incorporates many of their requested changes. On the other hand, Laurie Fischer, CEO of the American Dairy Coalition, raised concerns about the make allowance updates and the impact of extended-shelf-life milk pricing, fearing it might hurt farmers’ earnings.
Structured Engagement: Navigating the 60-Day Comment Period and Ensuing Voting Procedure
To advance its proposal, USDA will open a 60-day public comment period, allowing stakeholders and the public to share insights, concerns, and support. This process ensures that diverse voices within the dairy industry are heard and considered. Once the comment period ends, USDA will review the feedback to gain a comprehensive understanding of industry perspectives, informing the finalization of the proposal.
Afterward, the USDA will decide based on the collected data and input. However, the process continues with a voting procedure where farmers pooled under each Federal Milk Marketing Order (FMMO) cast votes to approve or reject the proposed amendments. Each Federal Order, representing different regions, will vote individually.
This voting process is crucial, as it directly determines the outcome of the proposed changes. For adoption, a two-thirds majority approval within each Federal Order is required. Suppose a Federal Order fails to meet this threshold. In that case, USDA may terminate the order, leading to significant changes in how milk pricing is managed in that region. This democratic approach ensures that the final policies reflect majority support within the dairy farming community, aiming for fair and sustainable outcomes.
Regional Impacts: Navigating the Complex Landscape of FMMO System Changes
The proposed changes to the Federal Milk Marketing Order (FMMO) system are bound to impact various regions differently, given each Federal Order’s unique economic landscape. Federal Order 1, covering most New England, eastern New York, New Jersey, Delaware, southeastern Pennsylvania, and most of Maryland, may benefit from more favorable fluid milk pricing due to the higher-of method. With significant urban markets, this region could see advantages from updated Class I differential values addressing the increased costs of serving these areas.
On the other hand, Federal Order 33—encompassing western Pennsylvania, Ohio, Michigan, and Indiana—might witness mixed outcomes. This area has substantial dairy manufacturing, especially in cheese and butter production, which could gain from the new cheese pricing method focusing on 40-pound cheddar blocks. However, the higher make allowance might stir controversy, potentially cutting farmers’ earnings despite adjustments for rising manufacturing costs.
The future remains uncertain for western New York and most of Pennsylvania’s mountain counties, which any Federal Order does not cover. These areas could feel indirect effects from the new proposals, particularly the revised pricing formulas and allowances, which could impact local milk processing and producer price differentials.
While the higher-of-pricing method may benefit farmers by securing better fluid milk prices, the regional impacts will hinge on each Federal Order’s specific economic activities and market structures. Stakeholders must examine the proposed changes closely to gauge their potential benefits and drawbacks.
The Bottom Line
The USDA’s push to reinstate the ‘higher-of’ pricing method for fluid milk marks a decisive moment for the dairy industry. The 49-day hearing in Indiana underscored the complexity of the Federal Milk Marketing Order (FMMO) System. Key aspects include reverting to the ‘higher-of’ pricing from the 2018 ‘average-of’ formula, new pricing for extended-shelf-life milk, and the debate over increased make allowances. Significant updates to pricing formulas and cheese pricing methodologies were also discussed.
The forthcoming vote on these changes is critical. With the power to reshape financial outcomes for dairy farmers and processors, each Federal Order needs two-thirds approval to implement these changes. Balancing modern dairy policy advancements with fair profits for all stakeholders is at the heart of this discourse.
Ultimately, these decisions will affect dairy practices’ economic landscape and sustainability nationwide. This vote is a pivotal moment in the evolution of the American dairy industry, demanding informed participation from all involved.
Key Takeaways:
Summary:
The USDA plans to reintroduce the ‘higher-of’ pricing method for fluid milk, a move aimed at modernizing federal dairy policy. This method, which selects the higher price between Class III and Class IV milk, could be a significant shift for the dairy industry. The 2018 Farm Bill replaced the ‘higher-of’ system with an ‘average-of’ formula, averaging Class III and IV prices plus an additional 74 cents. This change could benefit farmers but also introduce risks like negative producer price differentials (PPDs). The Federal Milk Marketing Order (FMMO) system ensures fair and competitive dairy pricing, and the ‘higher-of’ method usually leads to higher fluid milk prices but also poses the risk of negative producer price differentials (PPDs). Negative PPDs can impact farmers’ financial stability, making it harder to predict income and manage cash flows. The 24-month rolling adjuster for extended-shelf-life milk introduces further uncertainty, potentially causing fluctuating incomes for farmers. The USDA’s proposal to increase the make allowance, a credit to dairy processors, has been met with criticism from industry leaders. The USDA will open a 60-day public comment period to advance its proposal. The proposed changes to the FMMO system will impact various regions differently due to each Federal Order’s unique economic landscape.
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