Market Reports

The inverted futures curve highlights that the fresh cheese shortage is likely temporary. But immediate demand must be formidable if we have managed to tighten up fresh cheese inventories so quickly after piling up cheese in immense volumes last month.

The dairy markets in general, and the cheese and butter markets in particular, have been buoyed by a perfect storm of purchases. This week’s vigorous rally suggests the dairy downturn may be over sooner than we had feared.

Most of the dairy complex gained ground last week, and this week prices moved higher across the board. Despite the recovery, the next several milk checks promise to be agonizingly inadequate.

Most dairy markets bounced back this week. There is still more milk than the market needs but for myriad reasons, the excess has become a little less burdensome. The markets are working.

These milk prices will not pay the bills, and dairy producers are likely cutting milk production accordingly. In some regions, co-op penalties will accelerate contraction. These incentives were largely absent in March when the spring flush arrived and explains why so much milk was dumped in late March and early April as the industry struggled to adjust to the impacts of Covid-19.

We are in the darkest days of this crisis. Consumers are hunkered down and demand has cratered. Processors are piling up product, milk is gushing, and the spring flush is likely to overwhelm the market for another two months.

The novel coronavirus has strangled foodservice and export channels, and the industry simply has more milk than it can handle. With so much lost demand, the dairy industry must cut production. The market is laboring ruthlessly to make that happen.

The retail surge has petered out. Consumers are still standing in the grocery checkout line with more dairy in their cart but the industry cannot make up for lost foodservice demand and throttled exports.

Those numbers clearly won’t pay the bills, and after four painful years (and a couple good months) dairy producers are in no shape to weather this storm.

Strong fluid milk consumption will benefit the whole industry by reducing dairy product output at a time when overall demand is likely taking a sizable hit.