Market Reports

As the government shutdown stretches into its second week, the dairy industry continues to operate without access to key data. To this point, the main information gaps for the dairy sector include numbers for trade and dairy product output. However, if the shutdown persists, upcoming reports on milk production and inventories will also be missed, further obfuscating stakeholders’ understanding of market drivers.

The dairy markets continue to lean bearish, as milk output grows around the world. But that doesn’t mean that prices must move downward constantly. After several weeks of steep declines, the dairy markets regained a little ground this week. On LaSalle Street, traders describe this as a healthy correction in a bear market.

Milk is absolutely gushing out of the U.S. dairy industry. Milk production reached 19.52 billion pounds in August, up 3.2% from a year ago. USDA revised its estimate of July milk output and cow numbers, upward significantly. The agency now reports that dairy producers added 35,000 cows in July and another 10,000 head in August. That put the August milk-cow herd at 9.52 million head, larger than at any time since late 1993 and up 176,000 head from a year ago.

Taken together, the world is bracing itself to deal with these plentiful supplies. Global demand is not altogether poor, especially for cheese, and some data is beginning to show modest improvements. Nevertheless, demand remains far from robust and with economic uncertainty still rampant and volatile trade policy still casting a shadow over the outlook, it seems unlikely that it will improve meaningfully in the short term.

There were no bulls to be found on LaSalle Street this week. The bears roamed freely, showing no fear of an overcorrection even as parts of the dairy complex scored multi-year lows. Red ink poured into the cheese and milk powder trade and deluged the butter market. CME spot butter plummeted to $1.86 per pound, down 16.25ȼ in just five trading sessions. Spot butter is down more than 40% from the mid-summer high, languishing at its lowest level since October 2021, nearly four years ago. The weakness carried across the futures board, with May through October 2026 contracts dropping 10ȼ or more on Friday.

Whey remains the shining star in the dairy universe. Production of high-protein concentrates and isolates is record high, restraining output of lower-value whey powder. So far this year, whey powder output stands at the lowest January to July tally since 1984. But while May, June, and July output were light by historic standards, they still outpaced 2024 volumes. The industry is nearing its capacity for high-protein whey products. As cheese output climbs, so will whey powder production.