Market Reports

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.

Strong domestic cheese demand propelled Class III futures to fresh life-of-contract highs this week. On Thursday, third-quarter contracts settled at an average of $21.28 per cwt., an astoundingly lofty value considering U.S. cheese production capacity and fierce competition for exports.

July through December Class III and a smattering of Class IV futures notched life-of-contract highs this week. While most Class III contracts ultimately settled a little lower than they did last Friday, Class IV futures added roughly 30ȼ.

After notching a new spring high last Friday, butter values plunged early this week. The Tuesday morning selloff was steep but ultimately short-lived. By Thursday, butter buyers were once again bidding with enthusiasm.

The markets are screaming at dairy producers to make more milk, but there are formidable barriers to expansion. Producers who have relied on extra heifers from their neighbors or the latest dispersal auction find they are increasingly scarce and expensive.

The bulls ran wild in Chicago this week. For both Class III and Class IV milk, June through December futures notched life-of-contract highs. Dairy producers are cashing a pitiful April milk check but looking forward to much more prosperous times ahead.

Milk should be plentiful and cheap, but this is not a typical year for the dairy industry. USDA reports processors bought spot milk in the Midwest at prices ranging from $1.50 under to 50ȼ over Class III. Spring premiums are atypical, and the midpoint of the range is unusually high for this time of year.