Milk, Dairy and Grain Market Commentary

By Monica Ganley, Quarterra

Monica.Ganley@QuarterraGlobal.com


Milk & Dairy Markets

On the heels of persistent declines, most products at the CME managed to stop the slide this week. While some modest increases suggest that the tone may be shifting, the markets continue to feel unsettled as they digest various fundamentals. Economic anxiety is still threatening consumer purchasing power and though a robust international appetite has kept product moving offshore, the balance between supply and demand feels precarious.


Boiling temperatures and stifling humidity are pushing back on milk production in many areas of the country. With school openings around the corner, bottlers are increasing their raw milk demand. In most areas, supplies have been sufficient to meet Class I demand without depriving manufacturers of too much volume. However, if weather conditions continue to beat back output this may not be the case for long.


Milk futures bounced around over the course of the week but both Class III and Class IV saw contracts through the balance of the year settle higher on Friday than on Monday. Class IV prices continue to hold a premium to Class III, due to strength in the fat markets, which the futures markets anticipate will persist over the majority of next year.

After weeks of pushing upward, butter prices moved down this week. In particular, a 4¢ loss during today’s trade ushered the spot price down to $2.935/lb., a decrease of 7.5¢ compared to last Friday. The trade continues to be active with 34 loads of butter trading hands over the course of the week. Despite the decline, however, butter markets remain elevated relative to historical averages and continue to demonstrate surprising resilience.

Cream availability is tight as seasonal, hot weather is reducing both milk availability and component levels. In addition, cream demand from cream cheese manufacturers is strong and believed to be depriving churns of spot cream loads. With the fall baking season looming, butter manufacturers are optimistic that retail demand will improve. For the moment, however, most butter buyers seem to have their needs covered. Tepid demand and sufficient, if not overwhelming, inventories, are lending some doubt about how much longer butter may be able to persist at prevailing price levels.


On the other side of the Class IV complex, manufacturers of nonfat dry milk (NDM) indicate that stocks are plentiful. Export demand for NDM and skim milk powder has slowed, especially from Mexico. However, according to Dairy Market News, “some are hopeful that the recent decline in prices will entice purchasers.” At the CME, spot prices slid as low as $1.46/lb. on Tuesday before gaining some ground later in the week. Ultimately, the market closed at $1.5175/lb. on Friday, an increase of 1.5¢ compared to last week, with 25 loads moving.


The Cheddar markets also managed to make some gains during the week. In the block market, after beginning the week unchanged on Monday, gains on Tuesday, Thursday, and Friday lifted the price to $1.845/lb., 6¢ higher than last Friday. Barrels saw important gains on Tuesday and Thursday before giving up some ground during today’s trade. At the end of today’s session, barrels were at $1.8875/lb., up 9.5¢ versus last week. Barrels held as much as an 8.75¢ premium to blocks this week though the advantage was whittled down to 4¢ today.

According to market participants, cheese inventories are readily available. Production continues at a steady clip though competition for milk with other users threatens to reduce the quantity of milk headed to cheese vats. In addition, ongoing labor issues are preventing manufacturers from being as productive as they might like. The high prices seen in recent weeks have taken a bite out of cheese demand in both retail and foodservice channels, though lower prices could help to restore some of that interest.


Whey markets moved in a narrow band this week, ultimately gaining a penny compared to last Friday’s close. The spot dry whey price ended the week at 44.5¢/lb. with just two loads trading during the week. Demand has purportedly slowed from both domestic and international sources and inventories are accumulating as a result. Higher protein products continue to offer more attractive margins for manufacturers.

Grain Markets

USDA released its World Agricultural Supply and Demand Estimates report this afternoon, making some modest edits to both the corn and soybean balance sheets. In the case of corn, USDA trimmed its yield expectations for the 2022/23 corn crop to 175.4 bushels per acre, ultimately reducing their forecast for corn production by 1% to 14.539 billion bushels. Reduced production flowed through to lower exports along with lower feed and residual use. In the global balance sheet, lower exports from the U.S. were more than compensated by larger exports from Ukraine and Russia, as corn begins to move out of ports there.


Despite reducing the forecast for area harvested by 300,000 acres, a 0.8% increase in the yield projection lifted the soybean production forecast to 4.531 billion bushels. This represents an increase of 0.6%, or 26 million bushels compared to last month’s estimate. Exports were raised by 20 million bushels. Even so, USDA’s updated balance sheet suggests there should be marginally more soybeans available for domestic use.


Both corn and soybean futures markets found the report as sufficient motivation to move upward, though gains were more dramatic in the corn market. Every corn contract through JLY23 settled at least a dime higher today.