Market Reports

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.

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.