How are record-high spot milk prices and booming exports shaping dairy margins this September? Let’s find out!

Summary:

In mid-September 2024, dairy margins slightly improved as milk prices rose and feed costs remained stable. Spot milk prices hit their highest since 2010, with processors paying up to $4/cwt over Class prices due to limited availability. Dairy product prices, particularly butter and cheese, continue to bolster market strength, fueled by international demands and reduced production. The U.S. set records with cheese exports to Mexico and significant increases in whey and nonfat dry milk shipments to China and Mexico. This could signal a transformational period for the dairy industry, combining higher milk prices with robust export demand and ensuring a market for dairy products.

Key Takeaways:

• Dairy margins improved slightly in early September due to rising milk prices and stable feed costs.
• Spot milk availability is limited, pushing premiums up to $4/cwt. Over Class prices—the highest mid-September level since 2010.
• Butter prices have remained above $3.00/lb. Since late May, European prices have exceeded $4.00/lb. Due to bluetongue disease.
• Cheese prices are firm; spot barrels hit a 15-year mid-September high of $2.49/lb., and blocks trade at $2.30/lb.
• Year-to-date, cheddar production is down 8% compared to 2023, but international solid demand continues to boost exports.
• The U.S. exported over 100 million pounds of cheese per month in March, April, and May, with June and July exceeding 85 million pounds.
• Mexico imported nearly 250 million pounds of cheese in the first half of the year, a 39% increase from 2023, and set monthly records for 14 consecutive months.
• July whey exports increased by 22.4% year-over-year, driven by a 34% rise in shipments to China.
• U.S. nonfat dry milk (NDM) exports reached a 14-month high in July, exceeding July 2023 figures by 10%; shipments to Mexico also set a monthly record, up 20%.
• Producers are adopting new margin coverage strategies to capitalize on historically strong margins and future improvement potential.

Dairy producers and industry experts, it’s time to take notice. Spot milk prices have reached record highs this month, with premiums of up to $4/cwt—a level not seen since 2010. At the same time, dairy exports are increasing, with cheese shipments to Mexico breaking records for 14 months. Why should you care? Because these developments pave the way for a potentially transformational time in the dairy business. Higher milk prices imply higher margins and robust export demand, guaranteeing a market for your product and supporting long-term growth. So, what does all of this imply for you? More substantial milk prices may dramatically enhance your profit line, while healthy overseas demand is a buffer against local market swings. Are you prepared to make the most of this promising outlook?

September: A Mixed Bag for Dairy Farmers. 

Dairy margins were relatively consistent, with a little upward trend in the first half of the month. This tight balance emerges as milk prices rise while feed costs stay stable or slightly higher.

The restricted supply of spot milk should be continuously monitored. Processors are feeling the squeeze, with surcharges of much to $4 per hundredweight above Class pricing. This statistic represents the highest spot price for milk in mid-September since 2010. It’s a clear indication that demand is driving prices to new highs.

So, what exactly does this imply for you? If you are a dairy farmer, higher spot milk prices may help offset some of your increasing feed expenditures. However, higher premiums indicate a restricted milk supply, which may influence your operations.

Spot Milk Prices: What’s Driving the Unusual Surge?

You’ve surely noticed that spot milk prices are still a big subject. Currently, processors pay premiums of up to $4/cwt over Class pricing. This is more than just a little uptick; it’s a significant leap. We haven’t seen mid-September spot prices this high since 2010. Why is there such a spike? The scarcity of spot milk pushes up these prices significantly. This is a significant departure from previous data when premiums of this level were uncommon. This tendency must be closely monitored since it affects profitability and long-term planning.

Price Peaks: Butter and Cheese Take Center Stage 

Let’s examine dairy product pricing. Butter, for example, has been around $3.00 per pound in CME transactions since late May. Meanwhile, European butter costs have risen even higher, exceeding $4.00 a pound, partly due to the influence of bluetongue disease on cow health. Cheese prices have a similar story. Spot cheese barrels reached a 15-year high of $2.49/lb in mid-September, while cheese blocks remained solid at $2.30/lb.

What does this all mean to you? These higher costs are a two-edged sword. On the one hand, they increase your income potential, but the cost constraints on customers may reduce demand over time. The trick is balancing your plans to maximize current high profits while being prepared for market corrections.

Let’s Broaden Our Perspective: How Do U.S. Dairy Margins Stack Up Internationally? 

Now, let’s broaden our perspective. How do dairy margins in the U.S. stack up against those in other parts of the world? 

Europe: European dairy producers have experienced their issues across the Atlantic. At the same time, butter prices rose to more than $4.00 a pound. Due to the effects of bluetongue illness, typical milk costs have remained about €0.35/liter, or around $15.80/cwt [European Commission]. The sickness has limited output, supporting rising pricing and increasing production expenses, reducing profits.

New Zealand: Dairy margins in New Zealand tell a different tale. The Fonterra Cooperative Group, which accounts for a substantial portion of global dairy exports, revealed farmgate milk prices of NZD 8.20/kgMS for the 2023-2024 season, equivalent to around $15.40/cwt [Fonterra]. Despite the high prices, farmers face rising feed expenses, which influence total profits.

Australia: Drought conditions in Australia have had a tremendous impact. The average milk price increased to AUD 6.80/kgMS or around $18.00/cwt [Dairy Australia]. Severe weather has reduced feed supply and quality, raising costs and decreasing farmer profitability.

The comparison research finds that, although U.S. dairy margins are strong, mainly owing to more robust export demand and higher product prices, overseas rivals confront diverse but equally compelling market drivers. So, how does this affect your competitive positioning? Understanding these worldwide trends is critical for seizing opportunities and managing operating risks.

Strong U.S. Dairy Exports Fuel Growth

U.S. dairy exports have been on a solid upward trend. Take cheese exports as an example. In March, April, and May, the United States exported more than 100 million pounds of cheese monthly. Even in the traditionally quiet months of June and July, exports exceeded 85 million pounds. Mexico has been a particularly robust market, setting new monthly records for 14 months. Cheese shipments to Mexico increased by 39% in the first six months of the year, totaling roughly 250 million pounds.

Cheese isn’t the only thing making headlines. Whey exports increased by 22.4% year on year in July, mainly led by a 34% rise in shipments to China. Nonfat dry milk (NDM) exports from the United States also improved, hitting a 14-month high in July. This result marks a 10% rise over July 2023, with Mexico establishing a new record for NDM imports, up 20% yearly.

These numbers show the expanding worldwide demand for American dairy products and highlight the necessity of maximizing your export plans. Are you capitalizing on these trends?

You Might Be Wondering: How Do These Market Conditions Directly Impact Your Margins? 

You may wonder how market circumstances and export success affect your profitability as a dairy farmer. However, the sustained increase in milk prices and robust export demand are a mixed blessing. On the one hand, increasing milk prices are typically good news since they provide the opportunity for increased revenue. However, restricted spot milk supply and rising feed prices further strained your profit margins.

Many dairy producers proactively deal with these difficulties using new margin coverage and flexible marketing tactics. Have you explored these options? Use historically large margins to lock in favorable pricing and secure your revenue. At the same time, flexible solutions provide for possible margin increases. This dual strategy provides a safety blanket while yet allowing for expansion.

We encourage monitoring market movements and making educated choices to balance risk and reward. Don’t depend on projected price swings; actively manage your risk to ensure earnings. What measures do you presently use to manage your margins? Please share your ideas and observations in the comments section.

The Bottom Line

September has been a mixed bag for dairy producers. On the one hand, higher milk prices and strong demand for dairy products such as butter and cheese have fueled some optimism. Export markets, notably to Mexico and China, continue to function well, which benefits the sector.

However, the other side of the coin presents obstacles. Spot milk prices have risen sharply, raising processors’ operating expenses. Meanwhile, stable or slightly growing feed prices put pressure on profits. The market dynamics create a complicated picture, so farmers must be watchful.

So, what comes next for dairy margins? Can we anticipate additional progress, or will the market throw more curveballs? Stay educated, adjust quickly, and continually search for ways to improve your strategy as you navigate this changing terrain. Long-term success will depend on your ability to adapt quickly to market fluctuations.

Learn more:

• June 2024 Brings Unprecedented Milk Prices: European Dairy Farmers Reap the Benefits
• Is 2024 Shaping Up a Disappointing Year for Dairy Exports and Milk Yields?
• Rising Milk Prices and Lower Feed Costs Boost Profitability: May Dairy Margin Watch

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