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Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Milk, Dairy & Grain Markets

Ink ran red on LaSalle Street this week. January Class III futures dipped below the $16 mark, a level signaling plenty of red ink on the farm as well. When the closing bell rang, first quarter Class III contracts were roughly a half-dollar lower than where they began the week, with January at $15.90 per cwt., February at $16.14, and March at $16.78. But after a bleak midwinter the futures promise better revenue, with April and May in the high $17s and late 2024 futures at $18 or better. Class IV futures also took a big step back, but they are holding in the $18s and $19s, prices that comport with much better profitability than the comparable Class III contracts.


Unfortunately, Class III prices will have a greater influence on most milk checks. Ever-expanding cheese production capacity, lower milk powder output, and depooling will water down the share of dairy producer revenue derived from the higher Class IV market. Feed costs are coming down, but milk revenues are falling even faster. Financial strain on the farm will likely reduce U.S. milk production prospects into the new year.


European milk output is similarly constrained. USDA’s Dairy Market News reports “tight milk supplies and healthy cheese demand,” which is boosting European dairy product prices. German Edam values stand at their highest level since January.


In China, milk output is expected to stall after five years of robust growth. USDA’s analysts in Beijing predict that Chinese milk output will total 41 million metric tons (~90.4 billion pounds) in both 2023 and 2024, 33% higher than it was in 2018. Global dairy exporters will cheer the shift toward stagnation, but China will still have enough milk to keep milk powder imports in check in 2024.

While Chinese stocks remain ample, milk powder inventories are shrinking in the U.S. and Europe. That’s helping to put a firm floor under global prices. Whole milk powder perked up at this week’s Global Dairy Trade (GDT) Pulse auction. Skim milk powder took a small step back compared to last week’s broader GDT auction, but it remains 3% higher than its last showing at the Pulse auction two weeks ago. In Chicago, milk powder prices remain relatively stable. CME spot nonfat dry milk slipped a half-cent to $1.165 per pound.


Grocers, restaurants, and commercial bakers clearly have all the butter they need to get through the holidays, and they’re now looking ahead to lighter demand in January, when consumers commit to flatter stomachs and tighter budgets. CME spot butter plummeted 18ȼ this week to $2.49.


The cheese markets also took a big step back. Spot Cheddar blocks dropped 6ȼ to $1.52, tied for the lowest price since July. Barrels finished a dime lower than last Friday at $1.45. The last time that cheese was this cheap, in mid-November, the invisible hand worked quickly. Low prices attracted new buyers and prices rebounded. Today, soft U.S. cheese prices, a weaker dollar, and rising cheese values in Europe should help to boost exports and, eventually, prices.


The whey market was characteristically stolid. It closed right where it began at 39.5ȼ. Domestic demand for high protein whey products remains robust, which is helping to keep whey away from the dryer. Dairy Market News reports that dry whey stocks “remain tight,” a stark turnaround from burdensome inventories this summer. But exports remain soft, and they will likely remain in the doldrums until China’s pork industry sees better profits.


Grain Markets

The corn market moved back and forth in its well-trod trading range. March corn futures settled at $4.83 per bushel, down 2.5ȼ from last Friday. The soybean market offered a little more excitement as the trade tried to determine the impact of dramatic changes to Argentine fiscal and agricultural policy.


Argentina’s new libertarian president lost no time implementing the big changes he’d promised on the campaign trail. President Javier Milie was inaugurated Sunday, and by Tuesday his economic minister had cut the exchange rate roughly in half. The new exchange rate – at about 800 pesos per dollar – brings the peso closer to the blue market rate, which previously reflected the peso’s real outside of government controls. The weaker official currency makes Argentina’s commodities much cheaper for foreign buyers, who have always paid the official rate, and it is likely to push soybean and soybean meal importers back to Buenos Aires. However, after last year’s severe drought, Argentina doesn’t have a lot of crops left to ship in the near term. The Milei government also raised the export tax on corn and wheat to 15%, modestly offsetting the currency effect. While the new regime in Argentina is likely bearish of crop prices in the long run, for now, the impact is limited.


Perhaps more importantly, heavy rains are falling in Argentina, bringing relief to parched soils and reviving yield prospects. But it’s hot and dry in central Brazil, and so the weather gave a little boost to soybean prices this week. The January contract closed at $13.1575, up 11.75ȼ. January soybean meal rallied 90ȼ to $405.60 per ton.


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