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Lots to Digest for Dairy Markets in the Past Two Weeks

Dairy markets headed into the Thanksgiving weekend with a double portion of USDA reports and finished with a mountain of data to swallow from today’s Dairy Products report. News of lower milk output in Australia and New Zealand made for appetizing side dishes together with news that the Federal Reserve might increase interest rates at a trot rather than a gallop.

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CME spot butter managed to keep climbing through Wednesday before it finally turned back. Butter’s resilience has taken the market by surprise. Retailers bought butter aggressively in September and October to stock up for the holidays.

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Class III milk futures leapt to their highest values in a month or more, and Class IV contracts staged a decisive comeback. CME spot Cheddar blocks vaulted 19ȼ to $2.20 per pound, their highest price since June. Barrels rallied 8.75ȼ to $2.0625.

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The meltdown in the butter market dragged November Class IV down. Pricey cream discouraged churns from running hard in early September, and butter output is down 1.4% from a year ago. Butter makers have stepped up the pace but the market makes clear that butter supplies remain tight

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U.S. milk output is now growing at a historically normal rate, but there are many barriers to more rapid expansion, including onerous feed costs and self-imposed supply management restrictions.

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Despite challenging weather and margin complications, each of the major dairy states saw volumes rise. Production growth was driven by both stronger yields and a modestly larger herd.

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Some of these dynamics were foreshadowed by declines at last week’s Global Dairy Trade auction. Every product lost ground at the auction, though the biggest declines were seen by butter, buttermilk powder, and whole milk powder.

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Grocers are still worried about empty shelves and willing to pay whatever it takes to get their hands on more butter. But in just a few weeks they will be done stocking up for the holiday baking season, and prices are expected to plummet.

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Barrels eligible for delivery to Chicago are in short supply. Fresh Cheddar may be tight, but there is plenty of cheese in storage. Cheese production may fall short of potential, but output will still be ample.

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U.S. milk output grew decisively last month in comparison to the very low production reported in August 2021. It’s likely that today’s milk-cow herd is already slightly larger than it was in September 2021. Milk production climbed in every region of the country except the Great Lakes states.

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On Tuesday CME spot butter jumped 7ȼ to $3.24 per pound, a lofty price for a market that was $1.79 a year ago. After a brief stay at the peak, butter journeyed back downhill, but not before it logged the four highest trading sessions in history.

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