Market Reports

Drought in the Plains withered the U.S. wheat crop to its smallest harvest since 1970. The drought has also reduced forage supplies and raised hay prices throughout the West. Similarly scorching weather reduced Europe’s grain harvest by 8% compared to last year’s bumper harvest. Meanwhile, Russia and Ukraine continue to bomb one another’s ports and cargo ships, throttling grain exports from the breadbasket on the Black Sea. Smaller, less accessible global wheat supplies suggest that U.S. corn exports could speed up from an already breakneck pace.

USDA raised its estimate of June milk production as well, from an already strong 2.3% increase to an impressive 3% advance. Dairy producers did not add any cows in July, according to USDA’s best guess, but they didn’t get rid of any either. The dairy herd held steady at 9.71 million cows, up 199,000 from the year before. The U.S. dairy industry is milking more cows than it has in 33 years, and those cows are making 59% more milk than they did in 1993, the last time the herd was this large, before adjusting for today’s super-charged components.

The dairy markets remained unsettled this week as prices shifted under the weight of evolving supply and demand dynamics. Different commodities exhibited markedly divergent trajectories with milk powder and cheese finding traction while, butter and dry whey slid lower.

There’s an unusual convergence in the dairy markets, with spot cheese, butter, and milk powder trading neck and neck in the $1.50s. All three products seemed pretty comfortable at these prices, and week-to-week changes were modest. CME spot butter slipped 0.25ȼ to $1.5125 per pound. Cheddar blocks fell 1.75ȼ to $1.555. Meanwhile, CME spot nonfat dry milk (NDM) climbed 1.75ȼ to $1.5775. The epitome of stability, CME spot whey powder inched up 0.25ȼ to 69.5ȼ.

Milk is starting to feel tight. Summer temperatures have reduced milk yields, and USDA reports that “some plants are noting lighter production, with insufficient supply to run full loads.” Fairlife is once again taking as much milk as possible, alleviating the temporary surge in spot milk sales. This week, spot milk changed hands at $1 to $5 premiums in the Central region, the loftiest late-July markups in at least a decade.

On Tuesday, USDA’s latest Milk Production report confirmed that American dairy producers just keep adding cows. They crowded in another 19,000 cows in June, according to USDA’s best guess, and the dairy herd reached 9.677 million head. That’s 192,000 more cows than there were a year ago, nearly equivalent to adding the entire dairy industry of Arizona or Indiana to the U.S. herd in a 12-month span. The U.S. dairy herd is larger than it’s been since 1993.

U.S. consumers felt a bit of relief in June as prices eased somewhat. The Consumer Price Index, published by the Bureau of Labor Statistics (BLS) eased to 3.5% during the month, down 0.7 percentage points from May due especially to softer energy prices. Lower gasoline prices were also the key driver that boosted the Consumer Sentiment Index (CSI), which rose to 54.4 points in the preliminary July reading published by the University of Michigan.

The mercury is rising and hot summer conditions are taking a toll on cows across the country. High temperatures are causing milk output and component levels to fall with important implications for the milk market. Spot milk availability has tightened up in most areas and manufacturers that want to get their hands on extra volumes find themselves paying a premium. As component levels dip in the heat, cream has tightened up as well.

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.