Market Reports

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.

The butter market melted down. CME spot butter plummeted 19ȼ this week to $2.045 per pound, its lowest price in nearly four years. Last week’s Cold Storage report showed that inventories were not burdensome as of July 31.

Dairy producers continued to hold onto as many cows as possible, allowing for expansion despite the heifer shortage. The dairy herd reached 9.485 million head last month, up 159,000 from July 2024 and the highest head count since May 2021. The year-over-year increase is large enough for producers to send an additional 900 head to slaughter each week and maintain an annual cull rate below 30%, on par with the 2024 rate that fostered rapid expansion.

USDA’s Dairy Market News says milk is tight in the East. In the Central and West regions, output is declining seasonally, but there is more milk than there was a year ago. Cream production is slipping across the nation, but, as ice cream manufacturers wind down, there is plenty of milkfat left for butter churns. Cream multiples remain well below the historic average, incentivizing butter makers to crank out more product than they typically would at this time of year.

Cheese exports have soared to record high levels. After crossing the 50,000 metric ton (MT) threshold for the first time in May, U.S. cheese exports notched another record in June with shipments reaching 52,191 MT, or an equivalent of 115.1 million pounds. Stronger exports to key destinations like Mexico, South Korea, and Japan all supported the record high figure.

With most of the major dairy exporters – and especially the United States – in growth mode, global dairy supplies are on the rise. In the first few months of the year, combined milk output among the top five dairy exporters fell short of 2023 volumes. But since April, when the U.S. shifted into a higher gear, milk production among these major players has set new highs.

U.S. dairy producers are keeping cows in their barns rather than sending them to the slaughterhouse. Through mid-July, dairy producers culled 1.38 million milk cows. That’s 310,000 fewer than the 2020 through 2023 average, and it marks the lowest mid-July slaughter since 2008, when depressed cull rates fostered rapid – and ultimately unsustainable – expansion. Heifers are still in short supply.

The dairy markets have lost that summer sizzle. It’s still hot in the Northeast and in states along the West Coast. Milk production is much lower than it was during the spring flush, just as it always is in mid-July. Components have dropped. But in the center of the country, cows are enjoying cool nights and recovering from the sweltering conditions that prevailed a couple weeks ago. Milk yields are bouncing back in the Midwest.