Ag Marketing IQ: USDA’s higher milk production estimates tip dairy prices down, but cheese helps the market find support. Will the agency’s Dec. 19 report bring out the bears or the bulls?
Dynamic price activity was the norm this year for Class III milk futures. The year began with lower price values, with the front month contracts trading near $16 per cwt. However, price sentiment improved during summer and fall with futures prices rallying near $23 per cwt due to a pattern of lower trending monthly milk production numbers.
What’s happened
The price rally for Class III milk futures has now eased as we finish 2024, with prices trading near $18.50 as of this writing.
Fundamental sentiment shifted in recent weeks as milk production increased, which weighed on prices.
From a marketing perspective
The most recent October Milk Production report had a bearish stance to it. The report revealed that both October’s milk production and cow numbers increased year-over-year.
October 2024 milk production totaled 18.7 billion pounds, up 0.2% from October 2023.
Production per cow came in at 1,993 pounds, which was 3 pounds above October 2023.
Total milk cows on farms in the United States was at 9.37 million head, 10,000 head more than October 2023, and 19,000 more head than September 2024.
Additionally, the USDA revised September’s production figures from up 0.1% to up 0.4%.
The dairy markets reacted negatively to this news. More milk production weighed on futures prices. This updated bearish news negated the friendlier fundamental story from earlier in 2024, when lower cow numbers and lower milk production were supportive to prices. Now, it seems the fundamental tone for milk production has changed.
On the dairy product demand side, the fundamental tone for cheese remains positive. Supporting prices earlier in 2024 was news that cheese stocks for most of 2024 had been trending lower year-over-year with two of those months at 5-year lows.
The most recent Cold Storage report was still friendly toward cheese fundamentals, as cheese stocks were down 8% year over year.
Monthly U.S. Cheese in Cold Storage at the end of October 2024 totaled 1.342 billion pounds. This is down 8% year over year, and 2% lower than the prior month. In fact, cheese inventory levels remain well below year-ago levels. This is keeping support beneath the cheese market prices and adds a supportive tone to Class III milk futures prices as well.
Prepare yourself
The remaining weeks of December may bring some volatility to Class III milk futures prices as a flurry of dairy data will hit the marketplace.
There will be an updated Global Dairy Trade Auction, the release of the USDA Dairy Products report, an update on dairy exports for October, and another USDA milk production report on Dec. 19.
Each of these reports could have surprise elements of bullish or bearish surprises. Make sure you’re thinking about ways to manage both risks and opportunities in the dairy complex as 2024 comes to a close.
Reach Naomi Blohm at 800-334-9779, on X: @naomiblohm, and at naomi@totalfarmmarketing.com.
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