meta Unraveling the Dairy Dilemma: Milk Supply Falls Yet Profitability Continues to Evade | The Bullvine

Unraveling the Dairy Dilemma: Milk Supply Falls Yet Profitability Continues to Evade

Explore the paradox of the dairy industry: why does profitability remain elusive despite a dwindling milk supply? Unravel the dairy dilemma with us.

Spring has firmly arrived, and with it, a flurry of fieldwork commences a fresh season, with milk production at its seasonal peak. You, like many farmers, may be looking forward to June — dairy month — and the arrival of summer with a surge of ice cream demand associated with it. It’s the season that often promises higher milk prices fueled by a stronger demand. Yet, especially in the cheese market, prices have been stubborn, causing the Class III value to remain low and delaying any significant margin recovery. The rest of the year does show signs of milk revenues improving, but brace yourself for a slow recovery that will likely span months, not weeks. 

Globally, milk supply growth appears to continue its struggle, with the first quarter of this year reflecting trends seen in the second half of 2023 marked by weaker year-over-year production from the key exporting regions. As per forecasts by Rabobank, this low supply is expected to persist throughout the summer before volume starts ticking positive through the second half of 2024. 

“After two consecutive quarters of weaker supply, typically, a firmly bullish price response would have materialized. It’s what we saw during the output pullback in 2021 which was followed by record high prices in 2022 in some instances. This time, although milk production is lower, it’s counteracted by sluggish global demand, leaving the supply and demand balance relatively neutral.”

This reduced milk supply is shrugged off by global buyers due to their adequate inventories and ongoing macroeconomic concerns. Although demand signs are promising, it will still take time before prices rise. 

Cheese has primarily been dragging the U.S. market down this year. Starting the year in the $1.40s, both block and barrel cheddar ascended to the upper $1.60s at the CME spot market in February, only to retreat to calendar year lows by mid-March. Mid-April saw prices climbing again, but the supply-demand dynamics prevented any significant cheese price growth. Dry whey also hit a low in March and April, further pulling the Class III price down after showing signs of strength earlier this year. Nonfat dry milk has been maintaining rangebound prices, but Class IV has benefited from a notably firm butter price. 

Despite these factors, achieving dairy farm profitability remains misleading— a frustrating continuation of 2023’s challenges. But there’s reason for optimism too. Rabobank projects slow but steady dairy commodity price gains will materialize in the latter half of this year. Paired with lower expected feed costs, an improved margin outlook will eventually stimulate milk production growth in both the U.S. and other key exporting regions. This year might not set any record price highs, but farmers like you would surely welcome the much-awaited return to profitability.

Summary: Milk production is at its peak, with summer and ice cream demand expected to boost prices. However, cheese prices have been stubborn, causing low Class III values and delaying significant margin recovery. Milk revenues are improving, but a slow recovery is expected. Global milk supply growth is struggling, with weaker year-over-year production from key exporting regions in the first quarter of this year. Rabobank forecasts that this low supply will persist throughout the summer before positive volumes start in the second half of 2024. Global buyers shrug off reduced milk supply due to adequate inventories and ongoing macroeconomic concerns. Demand signs are promising, but it will take time for prices to rise. Rabobank projects slow but steady dairy commodity price gains will materialize in the latter half of this year. Milk production growth in the U.S. and other key exporting regions is expected to stimulate growth.

(T1, D1)

Send this to a friend