Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Sarina@DailyDairyReport.com

Milk & Dairy Markets

The dairy markets are showcasing the colorful – and somewhat morbid – Wall Street adage: “Even a dead cat will bounce if it falls from a great height.” This week milk futures managed a modest recovery, briefly interrupting the dramatic downtrend. Most Class III futures contracts added just a few cents, but the September contract rallied 21ȼ to $17.73 per cwt. Most Class IV futures climbed roughly a nickel. The September contract closed at $19.10.

Amid rapid growth in milk production and more than enough processing capacity to turn that milk into storable dairy products, American dairy product prices must stay low enough to attract international buyers. Domestic demand for cheese, butter, and milk powder is ho-hum. Exports are increasingly vital. The weak dollar and lack of retaliatory tariffs have helped to keep U.S. dairy front and center on the global stage. But competition may be heating up. 

European milk collections got off to a slow start this year, but they improved in the second quarter. Milk collections squeaked out a 0.1% year-over-year increase in May, as strong growth in Ireland (+6.8%) and France (+1.8%) overcame deficits in Germany (-1.6%), the Netherlands (-0.5%), and Poland (-0.4%). Preliminary and often-revised data from the European Commission and CLAL.it point to a more robust increase in June. Assuming steady production trends from the four minor players who have yet to report, June milk output in the EU-27 likely topped the prior year by 0.8%. Adding the United Kingdom into the mix pushes the year-over-year expansion to 1.4%.

But growth may be harder to achieve in the third quarter. European dairy producers are sweating through the continent’s hottest summer on record, and disease continues to plague some cattle. Bluetongue disease contributed to sustained declines in Dutch and German milk output in the first half of the year. More recently, Italy and France reported outbreaks of lumpy skin disease. Despite these challenges, the European Commission projects that 2025 milk output will be slightly higher than 2024, allowing for notable increases in cheese and butter production.

Production is also on the rise in New Zealand. The 2025-26 season got off to a very strong start with the highest June milk collections on record. Off-season milk collections can be misleading, and the weather is always a big factor in Oceania milk production. But strong margins are clearly incentivizing producers to do what they can to boost milk output. Kiwi imports of palm kernel cake are up 40% for the year to date. Dairy producers often use this to supplement their pasture-fed cows to lift milk yields, and they seem to be preparing for a big 2025-26 milking cycle. Across the Tasman Sea, production is roughly steady in Australia. 

Output is also sharply higher in Argentina, with milk collections up an astounding 12% in the first six months of the year. However, last year’s decline was so severe that first-half milk volumes were still lower than they were in 2021, 2022, and 2023. Fortunately, domestic demand for dairy has improved as the economy has stabilized, so Argentina is not expected to export the entire surplus.

With most of the major dairy exporters – and especially the United States – in growth mode, global dairy supplies are on the rise. In the first few months of the year, combined milk output among the top five dairy exporters fell short of 2023 volumes. But since April, when the U.S. shifted into a higher gear, milk production among these major players has set new highs.

In the long run, more milk will likely mean lower prices. But for now, inventories are relatively balanced after years of production deficits. And summer heat or a surge in exports can make supplies feel temporarily tight. And eventually, markets slump to levels that attract demand and allow for a rebound. That was likely the cause of the recovery in the spot markets this week. CME spot Cheddar blocks rallied 6.5ȼ to $1.705 per pound. Dry whey climbed a penny to 55ȼ. Nonfat dry milk held steady at $1.2875. And spot butter dropped 2ȼ to $2.445, toward the low end of its summer trading range.

Grain Markets

The Corn Belt feels like a greenhouse and crops continue to thrive. There are issues here and there, of course. A derecho devastated some farms in the Northern Plains and northwest Corn Belt. The high winds snapped or bent corn stalks in the storm’s path. And some agronomists are worried that tightly wrapped tassels will impinge on yields. But for the most part, row crops continue to impress. USDA now rates 73% of corn and 70% of soybeans in good or excellent condition. Consensus is growing that this year’s corn crop will be the largest ever, and prices are falling accordingly. December corn futures settled at $4.11 per bushel, down 8ȼ this week. December soybean meal inched down to $280.40 per ton.