Continued lower milk production could significantly change the fundamental outlook of the market. However, the current milk supply is sufficient, leaving buyers comfortable with the current supplies. Dairy cattle slaughter continues to decline.
Class III milk futures fell substantially from mid-October through November. It was hoped that holiday demand would support the market as demand is seasonally higher. However, underlying cheese prices continued to decline as buyers had already purchased sufficient supplies and demand was not improving as expected. The level of milk production was higher than expected leaving buyers comfortable with no concern over supply. Milk production had been expected to decline due to the impact of bird flu and tight heifer supplies. That was not the case as milk production in August, September, and October was higher than the same months in 2023. Farmers were doing an exceptional job producing milk.
The surprising element throughout this year was the decrease in dairy cattle slaughter. Slaughter was significantly below a year ago throughout the year. In fact, dairy cattle slaughter was below the previous year over the past 15 months. Slaughter for the month of November was the lowest since 2009. This is why the tight heifer supply has not had the impact that had been anticipated.
Cow numbers began slowly increasing and finally moving above the previous year in October.
The USDA indicated that cow numbers in October increased by 19,000 head above September, a surprising one-month increase. The November Milk Production report showed a decrease of 5,000 head from October.However, the November decline in cow numbers was offset by the USDA revising the October numbers 5,000 head higher, indicating the increase for the month was 24,000 head more than September.
Class III milk futures recently jumped with February, March, and April, making new contract highs but have slipped back from those levels over the past week. The 1.0% decline in milk production in November did not trigger buying interest in the spot market as the milk for the month had already been utilized, limiting the surprise of lower production. Buyers of physical products are not speculating on what the market could do and are focused on supply and demand. However, continued lower milk production could significantly change the fundamental outlook of the market.
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.
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