Market Reports

Cheese and butter prices both jumped once again this week. The sudden strength in the cheese market reflects a shortage of Cheddar that is fresh enough to trade at the spot market in Chicago, a phenomenon that can lead to dramatic but often short-lived spikes in the sultry summer months.

Like the mercury in Phoenix, the dairy markets just kept climbing this week, and the heat wave began in the most unlikely of places. CME spot Cheddar staged a torrid rally on Thursday and blazed higher on Friday as well.

The dairy markets bounced off the bottom this week, hinting that prices may have finally fallen far enough to stimulate demand. They are certainly low enough to begin reducing supplies. Every day, more dairy producers succumb to the tidal wave of red ink that is swamping the industry. In the week ending July 1, dairy producers sent 59,332 cows to slaughter, the highest late-June head count since 2009.

Dairy commodity prices continue to flounder under the pressure of plentiful supplies and, in turn, are weighing on milk prices.

Despite falling milk prices and tightening margins, milk supplies remain ample in most parts of the country. Elevated summer temperatures and humidity are starting to weigh on cow comfort and negatively impact output, but only in parts of the nation.

The Midwest region has been overwhelmed with excess milk since December, and producers are paying for it in the form of steep discounts on spot milk, bigger freight deductions, and – in the worst instances – dumped milk.