Market Reports

The bears went into hibernation a little early this year, and the bulls enjoyed raucous celebrations on LaSalle Street. Milk and dairy product futures soared to life-of-contract highs amid continued barriers to growth.

U.S. milk output has trailed prior-year volumes for 13 straight months. In Wednesday’s Milk Production report, USDA slashed its initial estimate of June milk output. The agency now reports a 1.7% drop in milk production during the tail end of the flush.

Like Katie Ledecky in a Paris pool, the dairy spot markets hit one milestone after another. CME spot Cheddar barrels gave a standout performance, blocks tied for their highest mark since January 2023, butter leapt to its loftiest value since last October, and spot nonfat dry milk (NDM) cleared the bar for the first time in 18 months.

Hot temperatures continue to challenge output in some areas, but the suffocating heat and humidity seen in recent weeks has largely subsided. Even so, spot milk remains tight, and manufacturers are paying a premium to get their hands on extra loads.

In its weekly summary of the milk and dairy product markets, USDA’s Dairy Market News specifically mentioned tight milk or seasonally lighter milk production in each of its sections covering fluid milk, butter, cheese, nonfat dry milk (NDM), whey, dry whole milk, casein, dry buttermilk, and lactose.

As befits the season, the dairy markets heated up this week. The trade is becoming increasingly concerned that milk will remain tight, as a hot summer, avian influenza, and the heifer shortage overpower market signals to make more milk. U.S. milk output totaled 18.8 billion pounds in June, down 1% from the year before. In the first half of the year, the U.S. dairy industry made 0.9% less milk than in the first six months of 2023 and marked its lowest first-half production since 2020. Of course, thanks to higher components, U.S. milk solids and butterfat output continues to outpace year-ago volumes, but not by enough to satisfy U.S. dairy processors.

Dairy producers have just cashed a very big milk check, and they’re looking forward to similarly lucrative payments for the rest of the summer and fall. Beef revenues – from the sale of cull cows and bull or crossbred beef calves – are further padding the bottom line. Meanwhile, feed costs are low and falling. In a normal year, this kind of boom would set the stage for a rapid uptick in milk production and an inevitable bust in milk prices. But the heifer shortage has stymied dairy producers’ efforts to quickly ramp up milk output. Elevated interest rates, sweltering summer temperatures, and the bird flu are also reining in growth in milk production.

Soaring temperatures and suffocating humidity are challenging milk production in many parts of the country. As the mercury rises, cow comfort has suffered, and milk production has declined. Spot milk availability has tightened up considerably and Dairy Market News notes that even during the holiday last week, milk handlers in the Midwest had few excess loads to place. Processors that hope to find spot loads of milk are paying an average of 50¢ over Class III – a sharp contrast to the five-year average of nearly a $2.70/cwt. discount.

Cheese stocks typically grow throughout the spring, as the flush pushes more cheap milk to cheese processors, and demand ebbs. But this year, spot milk wasn’t all that cheap, both export and domestic demand soared, and cheese stocks shrank.

Dairy producers did everything they could to keep their barns full last month after milk prices soared. Despite record-high beef prices – they lowered their standards on the milk yields required to keep a cow in her stall rather than sending her to the packer.