Heatwaves, avian influenza, and skyrocketing heifer costs are wreaking havoc on milk production and driving up prices. Are you ready for the mounting challenges in the dairy industry?

Summary:  The dairy markets surged this week, fueled by an unprecedented heatwave, avian influenza, and a heifer shortage, tightening milk supplies. U.S. milk production hit 18.8 billion pounds in June, down 1% from the previous year, continuing a trend of lower output. While higher components like milk solids and butterfat offer some relief, they fall short of meeting demand. Key states saw sharp production declines due to heat and avian flu, amplifying scarcity. This has driven up prices for whey powder, cheese, and butter, presenting mixed outcomes for the industry. Producers are retaining older, less productive cows to sidestep high heifer costs, deteriorating herd productivity and long-term viability. Despite these hurdles, increased milk solids and butterfat output somewhat offset reduced milk production.

Key Takeaways:

• The dairy markets are heating up as summer sets in, exacerbated by factors like the hot weather, avian influenza, and a shortage of heifers.
• Milk output in the U.S. was 18.8 billion pounds in June, down 1% from the previous year, marking the lowest first-half production since 2020.
• High temperatures, particularly in Arizona, California, and New Mexico, have significantly impacted milk production.
• Avian influenza has further strained production, especially in states like Colorado, Idaho, and Michigan.
• The trend of keeping older, less productive cows to avoid buying expensive heifers is resulting in reduced milk yields.
• Increased demand for bottled milk has contributed to tighter supplies, even with higher component levels in milk.
• Commodity prices, especially for whey powder and cheese, are on the rise due to stronger domestic demand and limited supply.
• Class III and Class IV milk futures have seen significant gains, reflecting the market’s response to these supply challenges.
• Political uncertainties, particularly regarding trade relations with China, have temporarily affected feed markets, causing a rally in soybean and corn futures.

As the summer heats up, so do dairy markets. However, the rising concerns, driven by intense heatwaves in critical areas, avian influenza outbreaks, and a persistent heifer shortage, are leading to a significant drop in milk output and profoundly impacting the dairy industry. Arizona and New Mexico experienced the highest temperatures in June, while Colorado and California’s Central Valley saw record-breaking nighttime lows. U.S. milk output in June was 18.8 billion pounds, down 1% from the previous year and the lowest first-half production since 2020. While higher components have kept U.S. milk solids and butterfat production slightly ahead of last year, more is needed to meet the needs of dairy processors. Despite these challenges, the adaptability and resilience of farm managers and industry experts are evident as they manage operations under adverse conditions, necessitating essential modifications effectively.

Heatwaves Hammer U.S. Dairy Industry

Despite Record Temperatures and Aging Herds, the Dairy Industry Remains ResilientThe recent heatwaves’ severity and persistence have set new temperature records in crucial dairy-producing regions like Arizona, New Mexico, Colorado, and California’s Central Valley. This extreme heat has significantly impacted milk output and the health of dairy herds, underlining the severity of the situation.

Arizona and New Mexico experienced the highest temperatures in June, while Colorado and the Central Valley endured record nightly lows. These extreme heat conditions have stressed dairy cows significantly, leading to declining milk production. For instance, Arizona saw a staggering 3.9% reduction in milk output, while New Mexico experienced an even more drastic 12.5% drop. The heatwaves have affected milk production and the dairy herd’s health and productivity, exacerbating the milk supply shortage.

The heatwaves have also changed the mix of dairy cows. Producers are likelier to keep older, less productive cows than invest in more expensive heifers, decreasing the total herd size. This choice, prompted by severe weather, has resulted in an older and less productive dairy herd, worsening the milk supply shortage. Even if the weather fades, the long-term consequences on milk output may linger, putting production levels below the previous year’s standards.

Bird Flu Blunders: Avian Influenza Intensifies the Dairy Dilemma in Key States

Avian influenza has complicated the difficulties confronting the dairy business, notably in Colorado, Idaho, and Michigan. In Colorado, dairy farmers have been hit by harsh heat and avian influenza outbreaks. This twofold danger has compounded the problem, reducing milk supply and affecting overall herd health.

Idaho and Michigan have also seen the effects of avian flu. Milk output in Idaho fell by 1%, while Michigan had a 0.9% decline. The avian influenza outbreaks have increased biosecurity measures and operating expenditures, increasing demand for available resources. Producers in these states are attempting to preserve herd output while limiting the danger of the virus spreading.

Compounding these difficulties, the illness has distracted attention and resources that might have been directed toward other vital concerns, including heifer scarcity and market demands to improve milk supply. Consequently, dairy farmers in these areas face a challenging environment in which every action influences their enterprises’ short—and long-term survival.

Heifer Havoc: Skyrocketing Costs and Aging Cows Threaten Dairy Industry’s Future

One of the major issues currently plaguing the dairy sector is the significant scarcity of heifers. This shortage is primarily driven by the high expenses of purchasing young heifers, which makes dairy farmers more unwilling to renew their herds. The heifer market has seen an inflationary spiral driven by extraordinary feed expenses, veterinary care, and general maintenance, all contributing to increased financial pressures on farm management.

Consequently, many producers choose to keep older cows, which, although cost-effective in the near term, has its own set of issues. These older cows are often less productive than their younger counterparts, decreasing milk output. Keeping these older cows in production results in a less efficient herd, which is bad news for future milk production.

The ramifications of an aging herd are numerous. Reduced milk yields restrict current production capacities and jeopardize the long-term viability of dairy farms. Lower productivity implies that the dairy business may need help to satisfy market demands, especially during peak consumption or export periods. Furthermore, older cows have longer calving intervals and more significant health risks, which may increase veterinary expenditures and a shorter productive lifetime.

The ongoing heifer shortfall may limit the industry’s capacity to recover from recent output slumps. However, with a consistent supply of young, productive heifers, the chances of reversing the downward trend in milk output are high. This situation underscores the need for deliberate investment in herd management and breeding programs to maintain a balanced and profitable dairy herd.

Sweltering Heat and Avian Attacks: U.S. Dairy Industry Faces Production Dip, But High Components Offer Hope

This summer’s heat has certainly impacted U.S. milk production, which reached 18.8 billion pounds in June, a 1% decrease from the previous year—the first half of this year had a 0.9% decrease in output, the lowest since 2020. While some areas saw record-high temperatures, others were hit by avian influenza, which exacerbated the slump. Compared to previous years, these numbers highlight a disturbing trend compounded by the persistent heifer scarcity and aged herds. Despite these obstacles, there is a bright line: more excellent components imply that U.S. milk solids and butterfat production has continued to exceed prior year levels. This increase is crucial for dairy processors looking to fulfill market demand and sustain production levels despite decreased fluid milk yields. The increased butterfat and solid content mitigate the impact of reduced milk output, ensuring that dairy products remain rich in essential nutritious components.

Scorching Heat and Bird Flu: Regional Milk Production Tanks with Double-Digit Declines

Milk production has fallen significantly in states dealing with heatwaves and avian influenza. Arizona’s output fell by a stunning 3.9%, while California saw a 1.8% drop. Colorado was not spared, with a 1.1% decline in production. However, New Mexico had the most severe consequences, dropping milk output by 12.5%. These significant decreases emphasize the negative impact of harsh weather and illness on regional dairy operations, emphasizing the critical need for adaptable measures.

Tight Supply Chain Strains: High Component Levels Can’t Offset Milk Scarcity in Dairy Production 

Tighter milk supplies are having a noticeable impact on dairy product production. The shortage limits production capacity despite greater component levels, such as increased milk solids and butterfat. This bottleneck is visible across many dairy products, resulting in limited supply and price increases.

Notably, fluid milk sales have shown an unusual increase. Sales increased by 0.6% from January to May, adjusted for leap day, compared to the same period in 2023. This is a tiny but meaningful triumph for a sector experiencing falling revenues for decades. Increased bottling demand has put further pressure on milk supply, making it even more difficult for dairy processors to satisfy the industry’s requirements. As a result, although the increase in fluid milk sales is a welcome development, it also exacerbates the scarcity of other dairy products.

Milk Market Madness: Prices Skyrocket as Whey, Cheese, and Butter React to Tight Supplies

The confirmation of decreasing milk output and the likelihood of more decreases has shaken the market. Prices rose, especially in the CME spot market. Whey powder prices skyrocketed from 5.25 to 57 cents per pound, reaching a two-year peak. Strong domestic demand for high-protein whey products and limited milk supply in cheese-producing areas drive significant growth.

Cheese prices have followed suit, rising considerably. CME spot Cheddar barrels increased by 5.75 percent to $1.93, while blocks increased by 6.5 percent at the same price. U.S. cheese production has been defined as “steady to lighter,” cheese stocks have declined, notably with a 5.8% reduction in cold storage warehouses as of June 30, compared to mid-year 2023. This reduced stockpile and record-breaking exports have resulted in tighter U.S. cheese supply and higher pricing. However, potential supply shortages will have a more significant impact in the future.

Butter had a modest gain, inching ahead by 1.5 percent to settle at $3.09. Although there is still a significant supply of butter in storage (6.8% more than in June 2023), concerns about availability as the year develops have affected the price.

During these price increases, the futures market responded strongly. Class III futures increased by 84 percent to $21.42 in September. Class IV futures increased by almost 20% and settled above $21, demonstrating strong market confidence amid tighter supplies and rising demand.

Whey Powder Bonanza: Prices Hit Two-Year High, Boost Class III Values, and Drive Market Dynamics

The whey powder industry has experienced a startling jump, with prices increasing from 5.25 to 57 cents per pound—a more than 10% increase. This is the highest price in two years, indicating a positive trend supported by strong local demand for high-protein whey products. Furthermore, tighter milk supply in cheese-producing areas has contributed to the rising trend. The whey market’s strength is a big boost for Class III values, as each penny gains in the whey price adds around 6˼ to neighboring Class III futures. Spot whey prices increased by about 7% in June and July compared to the first half of the year, resulting in a 40% increase in Class III pricing. Dairy experts should actively follow these changes since they substantially impact profitability and market dynamics.

Cheese Market Surge: Soaring Prices and Shrinking Inventories Signal Major Shifts

The cheese market is undergoing a significant transition, with prices constantly rising. CME spot Cheddar barrels surged considerably, reaching $1.93 per barrel, while blocks followed suit, reaching $1.93 per pound. Several variables contribute to these price changes, as does the present position of low cheese supplies.

For starters, cheese production in the United States has been defined as “steady to lighter,” which necessarily reduces the available supply. Cheese stocks fell in June as yearly, but this year’s drop was magnified by counter-seasonal falls from March to May. This condition resulted in 5.8% less cheese in cold storage on June 30 compared to mid-year 2023.

The dairy sector has also profited from record-breaking exports, which have helped to constrain the U.S. cheese supply. However, this phenomenon has a double edge. Although export demand has boosted prices and decreased local stockpiles, its long-term viability is still being determined. Export sales have begun to decline, and although local demand remains solid, it is unlikely that it will be strong enough to propel cheese prices beyond $2.

Butter Market Alert: Holiday Shortages Loom Despite Stock Increases and Rising Prices

The butter market saw a slight stock drop in June, indicating more considerable supply restrictions in the dairy industry. Despite a 6.8% increase in storage since June 2023, butter merchants are concerned about probable shortages in supermarket stores as we approach the holiday season in November. Butter prices have increased by 1.5 percent this week to $3.09, indicating a cautious outlook. The sector is prepared for a challenging quarter owing to strong demand and tight supply constraints.

Milk Powder Market Movement: Prices Surge to Five-Month High Amid Tight Supplies and Global Competition 

After months of sluggish pricing, the spot milk powder market has finally stirred, rising into the mid-$1.20s and finishing at a five-month high of $1.2325. This considerable increase is attributable to a combination of causes, the most prominent of which is dramatically reduced U.S. milk powder stocks due to continuous decreased production levels. Dairy managers and industry experts should be aware that competition for export markets is becoming more severe, a situation aggravated by China’s lack of considerable purchase activity. While New Zealand’s milk production season has started slowly, Europe’s milk output has progressively increased, topping year-ago levels by 0.4% in April and 0.6% in May. This increase in European manufacturing may soon lead to more robust milk powder offers, possibly weakening U.S. export competitiveness. Farm managers must be diligent about market signals and inventory management to negotiate a tighter supply chain.

Future Shock: Spot Market Gains Propel Class III & IV Milk Contracts to New Heights

The recent increase in spot markets has caused significant volatility in the futures market, notably for Class III and IV milk products. Futures prices have risen dramatically due to increasing spot prices for dairy commodities such as whey powder and cheese. The September Class III futures contract increased by 84 percent to $21.42, while Class IV futures climbed roughly 20 percent to remain over $21.

These price increases are primarily due to U.S. milk production growth limits. Record-breaking heatwaves have drastically reduced milk output in dairy cattle. The avian influenza has further exacerbated these losses by lowering herd size in important dairy states. An aged herd, compounded by the high expense of procuring replacement heifers, further impedes production advances. Despite greater component levels contributing to production, total milk supply remains constrained, driving up market prices.

Finally, more robust spot markets and the twin hurdles of heat-induced production losses and avian flu effects have resulted in an optimistic forecast for the futures market. Dairy farmers and market analysts should pay careful attention to these trends as they negotiate the complexity of a business experiencing unprecedented pressure.

Political Jitters Jolt Feed Markets: Potential Trade War with China Spurs Soybean and Corn Futures Rally

This week, political uncertainty has placed a pall over the feed markets. The main issue is the possibility of a fresh trade war with China, fueled by the changing political situation in the United States. As talk grows about a potential second term for Trump, battling against Vice President Harris rather than an aged President Biden, financial experts are concerned that trade dynamics may alter substantially. Tightening ties between the U.S. and China might significantly affect U.S. soybean exports, the world’s largest market.

In reaction to this uncertainty, the market saw a brief respite in feed price reductions early in the week. November soybean futures increased by more than 40%, while December corn futures increased by 16%. Traders assessed political concerns against crop quantities yet to be harvested and stored. However, by the end of the week, emphasis had returned to the immediate plenty of grain, resulting in price stability.

Today, December corn ended at $4.10 a bushel, up a cent from last Friday. November soybeans finished at $10.46, while December soybean meal was $324 a ton, up $19 from the previous week’s multi-year low. Despite short-term political uncertainty, the overall prognosis indicates that grain will remain plentiful and reasonably affordable shortly.

The Bottom Line

As we confront an extraordinary summer challenge, excessive heat, avian influenza, and heifer shortages have significantly reduced milk supply, dramatically dropping U.S. milk output. These gains have scarcely compensated for the shortages despite increased product components such as milk solids and butterfat. Extreme heatwaves in important dairy states such as Arizona, California, Colorado, and New Mexico and avian influenza outbreaks in Colorado, Idaho, and Michigan have substantially reduced production. Furthermore, the unwillingness to invest in pricey heifers has resulted in an aged, less productive dairy herd, impeding future expansion. These factors and a minor increase in fluid milk demand have pushed prices up, particularly for whey powder, cheese, and butter, severely hurting consumer costs and industry profits. The present status of the dairy business in the United States highlights the critical need for adaptive methods, such as improved herd management and investments in younger cows, to mitigate the consequences of climate change and disease outbreaks. How will your business adjust to strengthen resilience and ensure future output in these challenging times?

Learn more: 

• Navigating the Waves: Dairy Producers Defy Challenges to Keep Barns Full Amid Soaring Milk Prices and Adverse Conditions
• Can Hot Weather Boost Milk Prices? Exploring Dairy Market Trends
• Big Milk Checks and Low Feed Costs: A Profitable Summer for Dairy Producers