Market Reports

Milk continues to gush across the U.S., though the pace of growth has slowed somewhat. USDA’s most recent Milk Production report, released earlier this week, showed that volumes across the U.S. ticked up by 2.3% year over year in May. Once adjusted for component growth the increase is likely to be even larger.

The ink ran red on LaSalle Street once again this week. The milk powder market led the retreat, with dramatic declines in CME spot nonfat dry milk (NDM) Monday, Tuesday, and Wednesday. But the bulls evinced some cautious optimism on Thursday, the last trading day of this holiday-shortened week, when spot NDM found a toehold and inched up slightly. Spot NDM finished the week at $1.64 per pound, down 14.5ȼ from last Friday.

What goes up must come down, and the milk powder market is no exception to the laws of gravity. This week, CME spot nonfat dry milk (NDM) demonstrated Isaac Newton’s third law of motion, the one that describes equal and opposite reactions. Spot NDM dropped just as quickly and dramatically as it soared. It fell 26ȼ in five trading sessions to $1.785 per pound, a three-month low.

The dairy markets are falling under the weight of heavy milk production. CME spot nonfat dry milk (NDM) dropped 4.5ȼ this week to $2.045 per pound. Every NDM futures contract settled south of $2, far below the spot market’s spring peak at nearly $2.30. Spot whey powder fell 3ȼ this week to 67ȼ, its lowest price since late March. CME spot Cheddar blocks slipped 0.25ȼ to $1.4725, a fresh three-month low. But butter bucked the trend. It climbed 2.5ȼ to $1.6925.

After a heart-stopping plunge off the cliff, the milk powder markets found a ledge and clambered upward. CME spot nonfat dry milk (NDM) regained 1.75ȼ this week and closed at $2.09 per pound. That’s well below the recent peak, but it’s a historically lofty perch from which the market can pause, catch its breath, and determine if it has the strength to keep climbing, or if it should continue the descent toward historically normal levels that are far below today’s prices.

When Wile E. Coyote plummets off a cliff, Warner Brothers inevitably plays a “descending slide whistle.” That heart-dropping sound echoed across LaSalle Street this week as the bottom fell out of the milk powder market. The short squeeze is over. The two milk powder manufacturers who were desperately bidding for product to meet the commitments they could not fill with their own supplies due to food safety recalls have likely caught up and are back to using their own powder. And sky-high prices have killed demand from other buyers.

The dairy markets retreated this week, led by a 6.75ȼ drop in Cheddar blocks. CME spot Cheddar closed at $1.555 per pound, within a tic of its lowest price in two months. Cheesemakers continue to crank out product. Domestic demand is climbing, but not as quickly as production. In the first quarter, U.S. cheese output was 3.1% greater than the year before, while domestic consumption climbed 2.3%. Exports absorbed the surplus and then some. But the industry can’t count on exports to use up our excess cheese unless we’re the world’s least expensive source.

Nonfat dry milk (NDM) rose to fresh record highs this week. On Thursday, the spot price hit an all-time peak of $2.295/lb. though the price dipped a half cent on the final day of trading. By the conclusion of Friday’s spot session, NDM was up 2.75¢ from last week. While elevated NDM price levels have provided an encouraging lift to Class IV milk prices, they have also made U.S. milk powder uncompetitive compared to other international suppliers and have severely limited the opportunity for U.S. manufacturers and traders to mint new export deals.

A tiny bit of air leaked out of the spot milk powder market, and the entire dairy complex deflated. CME spot nonfat dry milk (NDM) notched an all-time high on Tuesday at $2.265 per pound. Prices slipped Wednesday and Thursday and then bounced back on Friday. Spot NDM closed the week at $2.2625, just a hairsbreadth off the high and up 0.25ȼ for the week. But when spot NDM took a breather, dairy futures collapsed. Milk, cheese, whey, butter, and milk powder futures lost ground nearly every day this week. July and August NDM futures plummeted 4ȼ on Friday, their maximum daily loss, despite the late-week rebound in the spot market.

The short squeeze continues. Someone – or several someones – desperately need milk powder and they need it now. USDA’s Dairy Market News reports that prices are high enough that most milk powder users “are only buying loads to meet their immediate needs.” But for those that can’t do without, “it is difficult to find loads.” They bid the spot nonfat dry milk (NDM) market all the way up to $2.26 per pound this week, up 6ȼ from last Friday to a fresh all-time high.