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Navigating the Waves: Dairy Producers Defy Challenges to Keep Barns Full Amid Soaring Milk Prices and Adverse Conditions

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

MonthSpringer 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. 

MonthCull Rate (2024)Cull Rate (2023)
January4.5%5.2%
February4.3%5.0%
March4.1%4.8%
April3.9%4.6%
May2.8%4.3%
June2.7%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. 

MonthMilk Production (Billion Pounds)Year-over-Year Change (%)
December19.75-0.2%
January19.80+0.3%
February17.68-0.9%
March19.60-0.4%
April19.55-0.6%
May19.68-0.9%

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. 

MonthNDM Price ($/lb)SMP Price ($/lb)
December 20221.101.12
January 20231.151.14
February 20231.181.17
March 20231.201.19
April 20231.221.21
May 20231.2051.23

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

YearMilk Production (billion pounds)
201974
202078
202182
202290
202397

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

MonthCheddar BlocksCheddar 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

MonthCorn Futures ($ per bushel)Soybean Meal Futures ($ per ton)Key Influences
January$4.75$370.00Winter conditions, pre-planting speculation
February$4.65$365.00More favorable weather outlooks
March$4.50$360.00Spring planting preparations
April$4.60$355.00Initial planting progress reports
May$4.40$350.00Heavy rains, mixed planting progress
June$4.35$362.50Flood 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.

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Flying Through Uncertainty: Domestic Cheese Demand Spurs Record Highs in Class III Futures Amid Global Market Shifts

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.

CommodityAvg PriceQty Traded4 wk Trend
Cheese Blocks$1.944517Stable
Cheese Barrels$2.006013Increase
Butter$3.094010Increase
Non-Fat Dry Milk$1.194026Stable
Whey$0.47503Increase

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 

RegionProjected Increase (%)Key Factors
Europe3.5%Decrease in fluid milk demand, better margins in cheese production
New Zealand4.0%Higher profitability in cheese, decline in milk powder prices
Australia2.8%Shift from milk powder to cheese due to higher margins
United States2.3%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

ContractMilk ClassPriceChange
July 2024Class III$20.67+0.75
August 2024Class III$21.13+0.75
July 2024Class IV$21.00-0.30
August 2024Class 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.

Steady Crops Amidst Market Calm: Limited USDA Updates Leave Commodity Prices Mostly Unchanged

Commodity6/10/20246/11/20246/12/20246/13/20246/14/2024Weekly Change
Corn (per bushel)$4.485$4.485$4.485$4.485$4.485
Soybean Meal (per ton)$352.90$353.50$355.20$358.60$360.60+$7.70
Wheat (per bushel)$6.060$6.050$6.045$6.040$6.035-$0.025

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.

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