Learn how high cheese demand and limited supply are keeping dairy margins stable this July. Want to know how this affects milk prices and feed costs? Find out more.
Dairy margins remained stable in early July, with milk prices and feed costs holding steady. This stability reflects the broader market, as highlighted by the USDA’s July WASDE report, which projects new-crop corn production at 15.1 billion bushels—up 240 million due to increased planted and harvested areas. Adjustments in crop usage resulted in a slight drop in projected 2024-25 ending stocks to 2.097 billion bushels. Similarly, soybean ending stocks decreased by 20 million bushels to 435 million, staying within the expected ranges.
| Category | July 2023 Estimate | June 2023 Estimate | Change |
|---|---|---|---|
| Corn Production (billion bushels) | 15.1 | 14.86 | +0.24 |
| Ending Corn Stocks (billion bushels) | 2.097 | 2.102 | -0.005 |
| Soybean Ending Stocks (million bushels) | 435 | 455 | -20 |
| Cheese Production (billion lbs) | 1.2 | – | – |
| May Cheese Exports (million lbs) | 105.9 | 72.3 | +33.6 |
| Class III Milk Price ($/cwt) | 19.5 | – | – |
Strong Cheese Demand and Limited Spot Supply: Navigating the Current Dairy Market Challenges
Strong cheese demand has been pivotal in supporting milk prices, further boosted by limited spot supply. Market challenges, including heat stress, avian influenza, and a constrained heifer supply, have tightened milk output. USDA reports note that cheesemakers have seen zero spot milk offers, a rare situation even during holiday weeks. This scarcity highlights the significant impact of these stressors on milk production.
Analyzing Cheese Production Variables: Parsing the Impacts on Milk Prices
May cheese production saw a modest increase of 0.7% from the previous year, totaling just over 1.2 billion pounds. A closer look shows Mozzarella production surged by 7.1%, reflecting strong demand, while American cheese varieties, including Cheddar, declined by 5.7%. This reduction in Cheddar has driven up Class III milk prices, adding complexity to market dynamics for dairy producers.
Record-breaking Cheese Exports: A Pivotal Surge in the U.S. Dairy Landscape
The significant growth in cheese exports, especially the surge to Mexico, is pivotal for the U.S. dairy industry. Over the past seven months, U.S. cheese exports have set new records even after seasonal adjustments. This trend highlights strong international demand alongside record domestic consumption, driving historically strong profit margins. Our analysis shows this dual demand—the global market expansion and local appetite—could continue to support milk prices, giving U.S. dairy producers a unique opportunity to capitalize on these robust conditions.
The Bottom Line
As we review the intricacies of the current dairy market, it becomes clear that supply constraints and robust demand are pivotal in shaping milk prices. The first half of July saw marginal stability in dairy margins, reflecting a balance between feed costs and milk prices, influenced by USDA estimates and market activities. Reduced corn and soybean stocks and increased cheese production and exports to Mexico present a multifaceted scenario.
The USDA’s projection of higher new-crop corn production contrasts with a slight decrease in ending stocks, illustrating the complexities of balancing supply and demand. Meanwhile, the record-breaking surge in cheese exports underscores the U.S. dairy sector’s growing global influence. Strong cheese demand, limited spot milk supply, and factors like heat stress and avian influenza impact Class III milk prices, creating a favorable margin environment for forward contract planning.
These market movements suggest a need for strategic foresight and adaptive measures within the dairy sector. Producers are encouraged to capitalize on favorable margins by extending coverage in deferred marketing periods. The current landscape calls for vigilant market monitoring and proactive risk management strategies to sustain profitability. Leveraging historical margins can strengthen positions and help confidently navigate the complexities ahead.
Key Takeaways:
- Dairy margins remained largely unchanged in the first half of July.
- The USDA’s July WASDE report aligns with analyst expectations for new-crop corn production at 15.1 billion bushels.
- Projected 2024-25 ending stocks for corn are down by 5 million bushels to 2.097 billion bushels.
- Soybean ending stocks saw a decline of 20 million bushels from June, totaling 435 million bushels.
- Milk prices are buoyed by limited spot supply availability and robust cheese demand.
- USDA reports indicate a significant constraint in milk output due to factors like heat stress, avian influenza, and limited heifer supply.
- May cheese production witnessed a mild increase of 0.7% year-over-year.
- Mozzarella production surged by 7.1%, while American varieties dropped 5.7% from last year.
- Cheese exports reached a record high in May, up 46.6% from the previous year with substantial contributions from Mexico.
- U.S. cheese exports have set records for seven consecutive months.
- Domestic cheese demand has hit record levels in 10 of the past 17 months.
- Clients continue to secure coverage in deferred marketing to leverage historically strong margins.
Summary:
In early July, dairy margins remained stable, with milk prices and feed costs remaining steady. The USDA’s July WASDE report shows new-crop corn production at 15.1 billion bushels, up 240 million due to increased planted and harvested areas. Adjustments in crop usage resulted in a slight drop in projected 2024-25 ending stocks to 2.097 billion bushels, and soybean ending stocks decreased by 20 million bushels to 435 million. Strong cheese demand has been pivotal in supporting milk prices, further boosted by limited spot supply. Market challenges, including heat stress, avian influenza, and a constrained heifer supply, have tightened milk output. May cheese production saw a modest increase of 0.7% from the previous year, totaling just over 1.2 billion pounds. Mozzarella production surged by 7.1%, reflecting strong demand, while American cheese varieties, including Cheddar, declined by 5.7%. The significant growth in cheese exports, especially the surge to Mexico, is pivotal for the U.S. dairy industry, as it highlights strong international demand alongside record domestic consumption, driving historically strong profit margins. Producers are encouraged to capitalize on favorable margins by extending coverage in deferred marketing periods and calling for vigilant market monitoring and proactive risk management strategies to sustain profitability.
Learn more:
- Dairy Market Analysis: Milk Futures Hold Steady, Spot Cheese Gains, and Butter Slips
- Markets are not Bullish or Bearish, but Indecisive: Cheese Stocks Shrink Amid Soaring Milk Demand
- Rising Milk Prices and Lower Feed Costs Boost Profitability: May Dairy Margin Watch
