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.
Feed Markets Show Resilience Amidst Fluctuations: Corn Gains Modestly, Soybean Meal Dips
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.
