Milk, Dairy and Grain Market Commentary

By Monica Ganley, Quarterra

Monica.Ganley@QuarterraGlobal.com

Milk & Dairy Markets

Following last week’s dramatic downward movement, the dairy markets tried to regain some traction this week. Yet, despite a few flashes of stronger prices, the market tone remains overwhelmingly bearish as participants come to terms with the scope of the increase in global milk supplies.

Milk remains long the world over. Europe has reported better than expected volumes through the summer and while long term growth prospects remain challenged, the next few months appear poised to deliver gains. In addition, fresh data scheduled for release on Monday is forecast to show continued production expansion in the U.S. and New Zealand. Even South American suppliers have gotten in on the action with output up dramatically in both Argentina and Uruguay.

Taken together, the world is bracing itself to deal with these plentiful supplies. Global demand is not altogether poor, especially for cheese, and some data is beginning to show modest improvements. Nevertheless, demand remains far from robust and with economic uncertainty still rampant and volatile trade policy still casting a shadow over the outlook, it seems unlikely that it will improve meaningfully in the short term.

After taking stock of the balance between supply and demand this week, many market indices moved down in response. The Global Dairy Trade Index dipped by a modest 0.8% during Tuesday’s auction even as stronger prices for Cheddar helped to compensate for price declines across the other products. European prices also continued to their downward slide with lower prices posted across all products except cheese.

Similar trends have manifested in the U.S. in recent days. The cheese market managed to start off the week on a positive note, with blocks adding 7¢ during the first three days of the week. However, buyers evaporated on Thursday and Friday, wiping away half of these gains. On Friday, the CME Cheddar block price closed the spot session at $1.65/lb., down 3.5¢ versus the prior week with 22 loads of product changing hands.

Cheese production continues to be robust as milk remains readily available. While retail demand has reportedly been upbeat, foodservice demand is struggling as consumers tighten their belts and eschew eating out. Export demand is healthy, but hints of uncertainty are sneaking into the sector. U.S. cheese remains competitively priced on the global market but lower offers from competitors are causing buyers to think twice before committing to new cheese volumes from the U.S.

But while cheese seems to have found some reprieve, at least temporarily, the butter market continues to melt. Rising milk supplies and hefty fat levels have ensured that the country is awash in cream. Butter churns have been running hard in response, boosting product availability. Exports remain a key outlet for extra milkfat and while the U.S. remains a bargain, global buyers appear to have hit pause, waiting to see how low the price will go, and how competitive dynamics will play out, before stepping back into the market.

Overwhelming supply continued to weigh on the butter market this week. After notching a new multi-year low on Tuesday at $1.77/lb. prices bounced 4¢ the following day. But hopes of having found a bottom were dashed as the priced descended once more on Thursday and especially Friday. The CME spot butter price ended the week at $1.75/lb., 11¢ lower than the prior week’s close as 39 loads of product moved.

On the other side of the Class IV complex, nonfat dry milk (NDM) stepped down once more this week, losing 1.75¢ to end today’s spot session at $1.1475/lb. Global milk powder markets moved down this week, putting pressure on the NDM price, even as domestic supplies remain somewhat constricted. Condensed skim is readily available to dryers but with limited interest from both domestic and international buyers, production remains light.

In a sharp rejection of the overall market malaise, the whey markets continue to impress. Insatiable demand for protein and protein fortified products, continues to drive the whey stream into value added products like whey protein isolates and whey protein concentrates. This trend leaves less raw whey available for drying into whey powder, pushing prices up, even as demand is relatively uninspired. As a result of these dynamics the spot price for dry whey at the CME rose 4.75¢ this week, reaching 64¢ per pound, the highest price seen since January.

Grain Markets               

Even as dairy commodity prices, and in turn milk prices, come under pressure, feed prices remain modest by historical standards and should help to support dairy producer profitability. Both the corn and soybean crops remain in good shape and strong production outlooks are keeping pressure on futures markets. On Thursday, the DEC25 corn contract settled at $4.2375/bu., down just over 6¢ from last Friday. Meanwhile DEC25 soybean meal settled about $4 lower than the prior Friday at $284.7/ton.