Market Reports

For months, the dairy markets have focused on shrinking global milk output and barriers to rapid expansion. Tight supplies pushed dairy prices to record highs. Now, concerns about demand have come to the fore.

Dairy markets moved this way and that without much conviction this week. Prices are historically lofty, but not high enough to bring on a lot of new milk in a world of $8 corn and $2,000 springers. At what point do high prices hinder demand?

Milk powder was especially weak and whole milk powder (WMP) prices fell 4.4%, logging their third straight decline. Skim milk powder (SMP) suffered its first setback at the GDT since July. U.S. milk output has fallen short of the prior year for six of the past seven months, its longest such streak since 2009.

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.

Even 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.

Last 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.