Archive for restricted milk supply

Record High Spot Milk Prices and Strong Exports Propel Margins

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?

MonthSpot Milk Price (USD/cwt)Cheese Exports to Mexico (Million lbs)Butter Price (USD/lb)
January$16.5036$2.98
February$17.2038$3.00
March$18.0040$3.02
April$18.8042$3.04
May$19.5045$3.05
June$20.0047$3.07
July$21.0049$3.09
August$21.5050$3.10
September$22.0053$3.12

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.

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European Milk Output Surges

Learn how the recent spike in European milk output affects dairy farmers. What can you do to stay ahead in this changing market? Find out more.

Summary: European milk production surged in June, marking the fifth straight month of growth. Despite strong performances in France, Poland, and Italy, declines in the Netherlands and Ireland balanced these gains. Globally, major dairy exporters saw an overall drop for the 11th consecutive month due to setbacks in Argentina, the U.S., and New Zealand.  June’s output hit 12.7 million metric tons or 28 billion pounds, the highest year-on-year growth since May 2023. Germany maintained steady production, while France saw a 2.9% rise. Poland and Italy grew, but the Netherlands and Ireland faltered.  High temperatures and an outbreak of blue tongue disease have recently stifled Western European production. These issues and a tight U.S. milk supply have driven dairy product prices up.  For businesses, this means adjusting to potentially lower global milk prices, which could reduce feed costs and milk prices. Higher output could open up new collaborations and markets, with increased demand in Asia and the Middle East.  

  • Europe’s milk output rose for the fifth month, hitting 12.7 million metric tons in June.
  • France, Poland, and Italy saw significant gains, while Germany’s production remained steady.
  • Declines in the Netherlands and Ireland tempered these gains.
  • Global dairy exporters faced an 11th consecutive month of overall production drop despite European growth.
  • High temperatures and blue tongue disease have recently impacted Western Europe’s milk production.
  • U.S. dairy markets experienced increased prices due to tight milk supply and European solid performance.
  • Dairy farmers must adjust strategies for future price fluctuations and global supply issues.
milk production, Europe, seasonal trends, European milk collections, year-on-year growth, EU-27 dairy industry, Germany, France, Poland, Italy, Netherlands, Ireland, global milk prices, feed and input costs, collaborations, international markets, high-quality dairy products, Asia, Middle East, Argentina, United States, New Zealand, dairy exporters, weather patterns, disease outbreaks, Atlantic, hot weather, France, Germany, Netherlands, milk output, component levels, blue tongue disease, Western Europe, dairy product inventories, prices, restricted milk supply, American dairy producers, pricing, options, demand, market dynamics

Milk production is surprisingly increasing throughout Europe, breaking traditional seasonal tendencies. But what does this imply for your farm and the more significant dairy industry? Despite a wet spring, the EU saw a substantial rise in milk production in June. Changing weather, disease outbreaks, and evolving market dynamics all impact milk production. The USDA’s Dairy Market News notes that “hot weather in France, Germany, and the Netherlands has stifled milk production and component levels.”
Additionally, blue tongue illness influences the Western European milk supply. Despite a constrained milk supply, the US dairy market is growing, and there is a balance between European growth and setbacks in other key dairy exporters, such as Argentina and the United States. Understanding these trends is critical for any dairy farmer who wants to remain ahead of the curve. Ready to delve further into this developing story? Let’s get started.

June’s Record-Breaking Numbers 

In June, European milk collections totaled approximately 12.7 million metric tons or roughly 28 billion pounds. That is a 0.9% gain over the previous year, the most substantial year-on-year growth since May 2023. This spike comes after a slow spring, marking a significant milestone for the EU-27 dairy industry.

CountryJune 2023 (Metric Tons)June 2024 (Metric Tons)Change (%)
Germany3,100,0003,100,0000.0%
France2,650,0002,725,8502.9%
Poland1,100,0001,115,0001.4%
Italy950,000980,0003.2%
Netherlands1,670,0001,655,300-0.9%
Ireland1,230,0001,215,000-1.2%
Others2,900,0002,910,0000.3%

Country-Specific Insights 

Germany, the world’s largest milk producer, kept production consistent with the previous year. Meanwhile, France, the second-largest manufacturer, had a significant 2.9% rise. Poland and Italy also recorded substantial growth, offsetting falls in the Netherlands and Ireland. These country-specific patterns are critical to understanding the overall market dynamics.

Strategic Insights for Adapting to European Milk Output Changes

Have you considered how the increase in European milk production may affect your day-to-day operations? The rise presents possibilities and problems you cannot afford to ignore.

An increase in European output may put downward pressure on global milk prices. While this may imply reduced feed and input costs for your business, it may also lower milk prices. Keeping an eye on market developments will be essential.

The increase in output may open the path for new collaborations and international markets. Look beyond your boundaries; high-quality dairy products are becoming more popular in Asia and the Middle East. So, what will be your strategy? Adapt, innovate, and grasp opportunities while facing difficulties front-on.

While Europe saw growth, other major dairy exporters encountered difficulty. Argentina and the United States had considerable setbacks, while New Zealand saw a modest year-over-year decline. The five top dairy exporters fell 0.1% from last year’s output, marking the 11th straight monthly fall. This global perspective is vital for understanding the larger picture.

Weather and Disease: The Double Whammy

Since June, increasing temperatures have caused a decline in milk production on both sides of the Atlantic. According to the USDA’s Dairy Market News, hot weather in France, Germany, and the Netherlands has reduced milk output and component levels. An epidemic of blue tongue disease has also affected productivity in Western Europe. These causes are reducing dairy product inventories and raising prices.

The Bottom Line

So, what are the takeaways from all of this? The increase in European milk output and worldwide production constraints have resulted in a dynamic and potentially profitable market. Monitor weather patterns and disease outbreaks, which may immediately influence supply and pricing. Be aware and agile to capitalize on market trends. What tactics will you use to navigate these changes? It might be critical to your dairy farm’s survival.

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