There is no doubt there will be significant volatility this year. Politics, equity markets, weather, supply, and demand will all affect the markets.
Many commodity markets have been unpredictable lately due to the volatility of the equity markets and the uncertainty over the impact of tariffs. Trend traders do not like uncertainty, which leaves much of the activity being short-term trades as traders scalp the market in hopes of making a quick profit. However, that can become difficult as well.
The dairy markets had been under pressure for about a month before it seemed prices had reached the bottom and had more than factored in any impact that could come from tariffs. This resulted in a three-day rebound in cheese prices and milk futures. It was hoped the market would break the pattern that had been prevalent for a few months of short-lived price rallies. Those hopes were dashed as milk futures fell back nearly eliminating the gains.
The buyers of cheese and butter see no need to be aggressive with prices increasing as orders need to be filled. Once the immediate needs are met, buyers become less aggressive and step back. As the buyers step back, sellers continue to bring loads to the spot market to sell as manufacturers want to limit building inventory at the plant level.
Commercial disappearance of dairy products has been running about 0.5% below a year ago. A 0.5% decrease is huge and has a significant impact on prices. The same is true in reverse. If demand is 0.5% higher than the previous year, higher prices are usually experienced.
Fluid milk sales have been struggling for years, with the combination of conventional and organic milk running below the previous year most months. There have been reports of fluid milk consumption improving recently, but January fluid milk sales were 0.5% below January 2024. The positive aspect is that butter and cheese consumption continues to grow.
Not only has domestic consumption grown, but also international demand. Cheese exports in January totaled 46,680 metric tons, up 22 percent from January 2024. Butterfat exports jumped 145 percent from a year earlier totaling 7,101 metric tons.
There are aspects of the market that could result in higher prices as the year progresses, but the market now needs to prove that higher prices will be necessary.
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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