The Latest: March - 2024
Dairy Markets Continue to Drop
Despite signs of continued contraction, the dairy markets just keep dropping and CME spot Cheddar blocks led the retreat. Cheddar output has fallen below year-ago volumes since October and overall cheese production was lower than prior-year output in December and January.
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Cheese output continues to outpace every other year on record, but, due to persistent supply chain issues, it is lower than it could be. For months, cheese makers and other dairy processors have struggled to find the materials, truck drivers, and staff they need to run at capacity, and there is no relief in sight.
View reportEven as milk production expands seasonally, volumes are tending to run at or below prior year levels. This supports the notion that even though milk prices remain historically strong, the increased pressure caused by rising operating costs gives producers continued margin concerns.
View reportLast week, Q2 Class III contracts summited briefly, but the air was too thin and they quickly pulled back from the highs. Class III futures tumbled early in the week, but on Wednesday they found their footing and began to plod upward once again.
View reportStrong cheese and butter prices propelled the futures to new highs. U.S. milk output dropped to just over 17.5 billion pounds in February, 1% less than the year before and the fourth straight year-over-year decline. The January and February milk production shortfalls represent the steepest U.S. deficits since 2009.
View reportDemand is robust from both manufacturers and bottlers though Class I demand is expected to wane in the coming weeks as schools begin to rotate through spring breaks. More universally, however, a persistent shortage of truck drivers and escalating fuel costs are exacerbating logistical challenges.
View reportDairy producers cannot afford to pay this much for feed unless milk prices remain high. The market is well aware that global dairy stocks are relatively low, and that output is shrinking. So, for now, milk prices are climbing nearly step for step with the feed market to deter further declines in milk production.
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