Milk, Dairy and Grain Market Commentary

By Monica Ganley, Quarterra

Monica.Ganley@QuarterraGlobal.com

Milk, Dairy & Grain Markets

Ailing domestic consumption and dimming export prospects have weighed on dairy commodity values, and in turn, milk prices. The April Class III price was announced this week at $17.48/cwt. while Class IV came in at $17.92/cwt., representing the first time since October 2021 that both prices were below $18. Modest relief may be on the way as futures markets currently predict that both Class III and Class IV values will improve slightly later in the year. 

Bowing to the pressure of lower milk prices, the milk margin over feed cost reported by the Dairy Margin Coverage (DMC) program slipped to $11.55/cwt. in March. This represented a decrease of $1.57/cwt. compared to prior month and more than a $4/cwt. decline versus the peak margin obtained in September of last year. Though margins are still soundly above the $9.50/cwt. threshold at which the DMC program begins to issue payments, the decline is nevertheless an indication that milk prices are getting worryingly close to the cost of production for many producers.

One factor that may help to mitigate the pain of low milk prices is the revenue that producers are collecting from cull cows and calves. Beef prices persist at record high levels and crossbred calves destined for feedlots are regularly fetching upwards of $1,100 per head. These towering values have become an important source of income and are likely to continue encouraging producers to employ a beef-on-dairy strategy in their operations, keeping heifer supplies relatively limited.

Despite the challenges, the national dairy herd and milk production continue to grow. In addition to rising year over year output, the spring flush is also driving ample milk availability in most parts of the country. Bottling demand is stable to softer and freeing up plenty of milk for processing. Spot milk for manufacturing could be obtained for about $5 under Class III prices in the Central region this week – significantly lower than the $1.50 discount available at the same time last year.

Inexpensive spot values and new capacity activation are likely to keep milk flowing into the cheese vat over the coming months. While production is upbeat, demand is more mixed. Deteriorating economic conditions are likely to put pressure on consumers. This will most likely manifest as lower demand through foodservice channels as consumers attempt to protect their household budgets by eating more frequently at home. Although this dynamic may be supportive of retail sales, it is likely to result in lower absolute cheese volumes, as consumers tend to eat less cheese per meal when eating at home compared to out at a restaurant. As domestic consumption falters, export sales are likely to continue with strength. Even as trade drama swirls, U.S. cheese remains very competitively priced compared to international competition which is likely to support additional export sales.

The spot market for cheese seemed to capture that optimism this week as values for both Cheddar blocks and barrels moved upward. After remaining unchanged on Monday, the block market spent the rest of the week moving upward, rising 6¢ to $1.76/lb. by the conclusion of Friday’s session with a total of 28 loads changing hands. Barrels also added a nickel though in a more fraught fashion as losses on Tuesday and Wednesday were undone by gains later in the week. Barrels ended the week at $1.755/lb., just a half cent shy of blocks.

Not to be left behind, the spot dry whey price also appreciated during the week, adding 1.5¢ to end Friday’s trade at 52¢ per pound. The strength in whey markets is a bit surprising considering the trade complications that loom on the horizon. In 2024, just over 45% of Chinese low protein whey imports under HS code 040410 were supplied by the U.S. With a resolution to the conflict between China and the U.S. still elusive, it seems probable that this trade flow will come under pressure in the coming months. Chinese import data shows that shipments of low protein whey were up 37.4% in the first quarter, suggesting that importers increased purchases of these products ahead of the potential conflict. But it remains unlikely that the spat will be resolved before these inventories are used up.

Class IV products also found some traction at the CME this week. Despite a continued abundance of cream, the spot butter price added a half a cent, ending the week at $2.33/lb. as 20 loads traded. U.S. butter remains at a stark discount to other global suppliers. Nonfat dry milk also eked out an increase, adding 0.75¢ to end the week at $1.195/lb., the highest price seen since early March.

Grain Markets

Feed costs considered as part of the DMC margin calculation remained virtually unchanged in March, falling just 3¢ compared to February and landing at $10.45/cwt. for the month. Corn farmers accelerated planting rapidly in late April as more agreeable weather aided their progress. For the week ending April 27, USDA reported that approximately 24% of corn had been planted, slightly ahead of the five-year average and a dramatic improvement from the 12% reported the week prior. For the same week, 18% of soybeans had been planted compared to the five-year average of 12%. Strong planting progress helped to keep pressure on prices. By Thursday, JLY25 corn futures settled at $4.7225/bu. while the DEC25 contract came in at $4.4725/bu. Meanwhile, JLY25 soybean meal settled at $294.30/ton.