Discover how surging whey prices are boosting Class III dairy values and shaking up the market. What’s driving this change and what does it mean for the industry?
After dropping to a low of 36 cents on April 12 and 15, the whey powder market has shown significant recovery. The CME spot dry whey price has surged to 48 cents per pound, marking the highest price since late February.
“Domestic demand for high-protein whey products has given a sizable boost to dairy protein values, and processors have directed much of the whey stream into high-protein concentrates,” said Sarina Sharp, analyst with the Daily Dairy Report.
According to USDA data, production of whey protein concentrate (WPC), which contains 50% to 89.9% protein, reached an all-time high in 2023. In the first four months of this year, output for both WPC with 50% to 89.9% protein and whey protein isolates (WPI), which contain at least 90% protein, increased by 9.7% and 9.6%, respectively, compared to the same period in 2022.
WPC and WPI are utilized as ingredients in:
Infant formula
Sports drinks
Nutrition shakes
These products are high in protein. In comparison, lower-protein whey powder is often used in animal feed or in human food products, such as baked goods, chocolate and other candies, fortified dairy products, ice cream, infant formula, and clinical nutrition products.
“Increasing output of WPC and WPI, however, has not been enough to push whey powder production below early-2023’s already depressed volumes,” Sharp said. “The combination of modestly higher output and slower exports pushed whey powder prices to six-month lows in mid-April.”
Whey powder production for the January through April period increased by 1.9% compared to the previous year. However, more recently, dry whey production has been slowing down.
“Plant downtime and the use of whey solids for higher protein concentrates has kept dry whey availability in check,” wrote USDA’s Dairy Market News in a recent report.
“Tighter whey powder inventories have propelled spot whey prices up an impressive 30%, or 11 cents, in less than two months,” Sharp noted. “While most of the drama in the Class III space has occurred in cheese markets, whey has played an important supporting role. Its two-month rally has boosted Class III values by 66 cents.”
Key Takeaways:
The whey powder market has rebounded, climbing to 48 cents per pound by late February from mid-April lows.
Domestic demand for high-protein whey products has substantially buoyed dairy protein values.
Whey protein concentrate (WPC) and whey protein isolates (WPI) production reached record highs in the first four months of 2023.
WPC and WPI are popular ingredients in high-protein products like infant formula and sports drinks, while lower-protein whey is used in animal feed and various food products.
Despite increased WPC and WPI output, overall whey powder production remains slightly higher than earlier 2023 levels due to slower exports.
Reduced dry whey production is due to plant downtime and diversion of whey solids to higher protein concentrates.
Tightened whey powder inventories have resulted in a 30% increase in spot whey prices over less than two months.
The rally in whey prices has contributed to a 66-cent boost in the Class III values.
Summary:
The whey powder market has seen a significant recovery after dropping to a low of 36 cents on April 12 and 15. The CME spot dry whey price has surged to 48 cents per pound, marking the highest price since late February. Domestic demand for high-protein whey products has given a significant boost to dairy protein values, and processors have directed much of the whey stream into high-protein concentrates. Production of whey protein concentrate (WPC) and whey protein isolates (WPI) reached an all-time high in 2023, with output increasing by 9.7% and 9.6% compared to the same period in 2022. WPC and WPI are used as ingredients in infant formula, sports drinks, and nutrition shakes. However, increasing output of WPC and WPI has not been enough to push whey powder production below early-2023’s already depressed volumes. Whey powder production for the January through April period increased by 1.9% compared to the previous year. Tighter whey powder inventories have propelled spot whey prices up an impressive 30%, or 11 cents, in less than two months.
Explore how robust Class III Milk prices and soaring whey and cheese demand influence dairy margins in June. What role will Mexico’s demand play in shaping future trends?
June experienced stable dairy margins, notably increasing during the spot period due to high Class III Milk prices. This rise provided much-needed support in an otherwise flat margin trend. The resilience in Class III Milk prices was crucial in maintaining market stability during the volatile spot period. While margins remained steady, the strong demand for Class III Milk underscores market forces and exciting potential growth areas for industry stakeholders.
Understanding the Forces Behind Rising Class III Milk Prices
Month
Class III Milk Price (per cwt)
Change from Previous Month
January
$18.50
+0.25
February
$19.00
+0.50
March
$19.75
+0.75
April
$20.00
+0.25
May
$20.25
+0.25
June
$20.30
+0.05
Dairy farmers and market analysts have noticed rising Class III milk prices. Strong cheese and whey demand are key drivers.
Cheese Demand: Mexico’s appetite for U.S. cheese has surged, reflected in record-setting exports. This strong demand directly impacts Class III milk prices since cheese production relies heavily on this milk.
Whey Demand: Whey is also seeing renewed interest. Tight whey powder inventories pushed prices to their highest since February, increasing Class III milk prices further. This 30% price spike underscores whey’s significant role in future milk contracts.
These factors and slower shipments to China and Southeast Asia have shifted focus to Mexico, bolstering demand and sustaining high-Class III milk prices. Understanding this helps you see the link between dairy product demand and milk pricing.
Navigating Recent Trends in the Whey Market
Month
Spot Whey Price (per lb)
Price Change (cents)
April 2023
$0.37
–
May 2023
$0.44
+7
June 2023 (first half)
$0.48
+4
Let’s examine the recent trends in the whey market. Over the past two months, whey prices have surged by about 30%, or 11 cents, significantly impacting the dairy sector.
This increase is primarily due to tighter whey powder inventories, highlighting how low stock levels push prices higher. On the demand side, renewed strength, especially from key markets, has also bolstered whey prices.
The ripple effects of this price surge are evident in the Class III futures market, contributing to a notable gain of about 66 cents. This showcases whey’s importance in shaping Class III Milk prices and influencing dairy margins.
Given the current scenario, it is imperative for those involved in the dairy industry, including producers and traders, to remain vigilant. A comprehensive understanding of these trends can significantly aid in navigating the market and making informed decisions.
The Unwavering Impact of Mexican Demand on U.S. Cheese Prices
Product
April 2022 (million pounds)
April 2023 (million pounds)
Change (%)
Total Dairy Exports to Mexico
124.6
142.9
14.7%
Cheese Exports to Mexico
32.6
38.0
16.6%
Butter Production
197.4
207.8
5.3%
Cheese Production
1,166.1
1,187.0
1.8%
Mozzarella Production
383.6
407.1
6.1%
Cheddar Production
332.4
303.8
-8.6%
Cheese demand plays a pivotal role in the dairy market, mainly thanks to Mexico’s strong appetite for U.S. cheese, which has led to record-high prices. In April, cheese exports to Mexico hit 38 million pounds, highlighting this continued trend.
This demand positively impacts not just cheese but the entire U.S. dairy sector. Higher cheese prices contribute to rising Class III Milk prices, offering stability to dairy margins even as shipments to markets like China and Southeast Asia slow down.
It’s essential to remain aware of potential changes, such as economic fluctuations in Mexico, that could affect future demand. For now, Mexico’s consistent cheese demand supports strong U.S. dairy margins.
U.S. dairy exports to Mexico surged in April, hitting 142.9 million pounds—up 18.3 million from last year. Cheese exports set a new record at 38 million pounds, surpassing the previous high in February. This highlights Mexico’s vital role in the U.S. dairy market, as exports to China and Southeast Asia slow.
With 30% of U.S. dairy exports going to Mexico, their market’s demand significantly supports American dairy prices.
In April, the U.S. shipped 142.9 million pounds of dairy products to Mexico, up 18.3 million from last year. This was the second-highest monthly export level on record. Cheese exports alone hit a record 38 million pounds, showing strong demand for U.S. dairy.
Since early 2023, demand from China and Southeast Asia has decreased, but Mexico has helped fill the gap. This demand has been crucial in stabilizing prices and preventing a potential downturn.
Mexican demand plays a vital role in U.S. dairy exports. As shipments to other regions slow, this strong market helps maintain prices despite external challenges.
Claudia Sheinbaum’s presidential win has raised questions about the Mexican Peso and future U.S. dairy exports. Analysts worry her socialist policies could weaken the Peso, which dropped 5% in two days, reaching its lowest since October 2023. This devaluation might make U.S. dairy products pricier for Mexican buyers, possibly reducing demand. With 30% of U.S. dairy exports going to Mexico, a prolonged weak Peso could impact the U.S. dairy market. Exporters may need to find new markets or tweak pricing to keep their foothold in Mexico.
April’s Dairy Production: Butter’s Rise and Cheese’s Mixed Signals
Month
Price (cents/lb)
January
250
February
255
March
260
April
265
May
270
June
275
In April, butter output reached 207.8 million pounds, marking a 5.3% increase from the previous year. On the other hand, cheese production showed a mixed pattern. Total cheese output was up by 1.8%, reaching 1.187 billion pounds. However, within this category, mozzarella production surged by an impressive 6.1%. Cheddar cheese output saw a decline of 8.6% compared to last year.
Strategic Moves: Leveraging Historical Margins for Future Gains
Intelligent investors are extending coverage in deferred marketing periods to leverage strong margins. By locking in positions at or above the 90th percentile of the past decade, they’re ensuring stability and profitability despite market fluctuations. This proactive strategy, backed by historical data, helps make informed strategic decisions.
The Bottom Line
June’s Dairy Margin Watch highlights critical market drivers. Class III Milk prices remain high due to solid cheese demand and tighter whey powder supplies. Increased U.S. dairy exports to Mexico also play a crucial role despite potential economic concerns following recent political changes. April’s dairy production data shows a rise in butter output but mixed cheese production signals.
Understanding these can help dairy producers make intelligent decisions to protect margins. Now is an excellent time to consider leveraging historically strong margins by extending coverage in deferred periods. Stay proactive and informed.
For tailored strategies, consider subscribing to the CIH Margin Watch report. Visit www.cihmarginwatch.com
Key Takeaways:
Welcome to this month’s Dairy Margin Watch. Here are the key takeaways from the latest trends and developments shaping the dairy market:
Class III Milk prices remain strong due to robust demand for cheese and whey.
CME spot whey prices have surged by 30% over the past two months, reaching their highest level since February.
U.S. dairy exports to Mexico saw a significant increase, with cheese exports setting new records.
Concerns arise over the potential impact of recent political changes in Mexico on the value of the Peso and subsequent dairy demand.
April’s dairy production statistics reveal a rise in butter output, but mixed signals for cheese production, particularly a decline in Cheddar output.
Strategic coverage in deferred marketing periods is crucial to leverage historically strong margins.
Summary:
June’s dairy margins increased significantly due to high Class III Milk prices, which were crucial for maintaining market stability during the volatile spot period. Key drivers of rising milk prices include cheese demand and whey demand, with Mexico’s appetite for U.S. cheese leading to record-setting exports. Whey demand is also seeing renewed interest, with tight whey powder inventories pushing prices to their highest since February. Mexican demand plays a pivotal role in the dairy market, mainly due to Mexico’s strong appetite for U.S. cheese, leading to record-high prices. In April, cheese exports to Mexico reached 38 million pounds, highlighting this continued trend. However, Claudia Sheinbaum’s presidential win has raised questions about the Mexican Peso and future U.S. dairy exports, as analysts worry that her socialist policies could weaken the Peso, making U.S. dairy products pricier for Mexican buyers and potentially reducing demand. Understanding these factors can help dairy producers make intelligent decisions to protect margins and leverage historically strong margins by extending coverage in deferred periods.
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