Dairy Market Performance September 3-6:
AgResource Market Comment: Dairy markets last week ended mixed. Spot class III and cheese ended firm following a counter-seasonal jump in US cheese export disappearance in July, while butter remains stuck between $3.05-3.25 per pound. Butter can’t break until Nov-Dec US inventories are known, but end users this year have been more active in preparing for late-year stocks tightness. Overall, our research maintains that lasting bearish trends in the US dairy require a steady increase in US milk production during winter and spring 2025. Expect volatility in Oct & Nov class III futures to be elevated, but the market’s uptrend is clear.
All milk cash prices in August and September are forecast to exist in a range of $22-24 per CWT.
The US corn market has very likely bottomed. But recoveries tend to be more ‘two steps forward, one step back’ until the US harvest reaches 30-40% complete in mid-October. USDA will update its US yield forecasts next Thursday, and while we expect corn and soy yields to be trimmed slightly amid late season heat/dryness and widespread disease pressure, record US row crop yields are still anticipated.
Use breaks over the next two weeks to add to feed supply coverage. Margins are rather fancy, and uncertainty over the timing of monsoonal rain in Brazil grabs feed market attention in October.
US Dairy Exports in July Better than Expected; Cheese Exports Record Large for Month: The US’s balance of dairy trade weakened slightly amid large – and expensive – imports of butter and miscellaneous products, but demand for US dairy improved.
The US’s balance of dairy trade in July was a positive $210 million, vs. $221 million in June and vs. $223 million in July 2023. The value of exports was a respectable $698 million, actually up 8% year-over-year, but the value of imports was an all-time record $489 million. This is partially explained simply by ongoing imports of Irish butter – the W European butter market has been perched above $3.20 per pound since early June. The value of butter imports into the US in July was $61 million, vs. $40 million in 2023.
The value of miscellaneous dairy imports in July was $109 million, vs. just $91 million a year ago.
The volume of all US dairy exports shipped in July totaled 228,200 tons, up 6,000 from June, up 17,000 from last year and the second highest for the month. Importantly, improvement in US dairy exports in mid-summer is unusual, and occurred despite sustained growth in Australian and European milk output. We note that US whey, powder, and to a lesser extent cheese, were priced competitively in the world market in June & July, and so NFD and whey in particular uncovered demand at deflated prices.
Exports in July meaningfully exceeded prior-year levels for the first time since February.
Whey exports in July were 45,000 tons and the seasonal drop after winter has been rather muted at $.35-.40 per pound. Cumulative whey exports Jan-Jul are now 20,000 tons (7%) better than last year. We note that the spot cash whey market last week reached a new seasonal high of $.50 per pound, which is a reflection of weak production growth and this summer’s rapid decline in inventories. Stable exports help.
Nonfat dry exports in July were a 14-month high 72,000 tons, up 7,000 tons year-over-year and the second highest for the month of July on record.
Additional NFD export demand expansion is desired, but that demand is being found is important. Shipments to Mexico and the Philippines were up sharply. Like whey, the NFD market is beginning to add premium. High NFD in the Central region last week traded at $1.38 per pound, the highest price since February 2023.
Fluid milk exports totaled 14.7 million liters, a record for the month and the highest for any month since June 2022. Exports to Taiwan in July were up 52% from June. Shipments to Canada were up 4%.
Growth in cheese exports also occurred despite higher US cash prices and larger supply availability in Europe – which implies real global demand growth.
Exports of all cheese varieties in July totaled 40,200 tons, also a record for the month. Demand growth in July was centered on Mexico.
Cumulative Jan-Jul cheese exports are up 22% year-over-year, and it’s this collision between low milk/cheese production and sustain export demand growth that keeps upside potential in class III futures intact.
Peak cheese exports have come and gone, but even monthly US cheese shipments of 35-40,000 tons mandates cheese production growth to prevent a rather tight market in the Oct-Dec period.
Last week’s Global Dairy Auction yielded near unchanged prices. However, this implies breaks in US product markets attract importer demand.
The Auction’s skim milk powder price last week was $2,750 per ton ($1.25 per pound), a two-month high. Notice that support has been found at a longer term uptrend line. It’s tough to be bearish of power at current prices.
The Auction’s cheddar price last week was $4,324 per ton ($1.96 per pound), up slightly from late August, and which implies strong fundamental support in cheese at $1.95-2.00 and nearby class III at $20.50-21.00. Cheese, too, has found support at a longer term uptrend line – which we project to be extended into 2025 on US and New Zealand milk production issues.
Recall USDA projects total world dairy trade in 2024 to rise 2.4% to 8.5 million tons. Exports stay an important part of total US dairy disappearance until/unless Oceania milk production surges in winter and spring.
ARC Milk/Cheese Commentary: Class III and cheese ended steady/higher last week on the unexpected increase in export disappearance and as whey stocks continue to tighten, and whey prices score new seasonal highs. Whey’s price trend turns supportive in Q4, and test of $.55-.60 per pound is forecast by Thanksgiving. It’s clear raw milk is valuable, and a bearish trend is unlikely until Dec/Jan.
US cheddar production in July totaled 314 million pounds, down 19 million pounds (6%) from last year. Cheddar production has contracted in each of the last 10 months. The change in cheese supply & demand has been swift, and as we mentioned last week cheese production is unlikely to expand into milk output does. Expect volatility, and we continue to recommend locking in margins at current prices, but modest upside risk remains present between now and late year. Use rallies to scale into Q1 2025 production hedges. 
ARC Butter Commentary: Butter futures ended weak amid a lack of fresh input and as the US cash butter market remains bound to a range of $3.10-3.17. Elevated prices are needed amid the coming surge in consumption and very tight butter supply & demand in Europe, but the spike in values seen in October 2022 and 2023 is not expected. Rather, butter stays above $3.00 until January. It’s the prolonged duration of elevated prices – unlike recent years – that’s kept supply and demand relatively balanced so far.
Butter production in July was 162 million pounds, up 3 million (2%) year-over-year. Recall butter stocks on July 31st were 353 million pounds, up 7% year-over-year. Inventories in Oct-Nov matter most, but so far it does appear the market has done enough to encourage production expansion.
All eyes will be on New Zealand milk production in September & October. Trade a range of $3.00-3.30 into December. The risk longer term is that cash butter drops to $2.60-2.80 in Q1.
ARC Feed Market Commentary: Feed markets ended firm for a second week, but we rallies are likely to struggle in the near term. The US corn very often bottoms at the end of August, but the market’s seasonal recovery is one of fits and starts in Sep & early Oct as old crop supplies and new crop harvest is sorted through. We advise against chasing rallies, but breaks are now buying opportunities.
USDA will update its US corn and soy yield forecasts on Thursday. USDA’s soybean yield will be changed only fractionally, but there’s a risk that corn yield will be trimmed by 1.0-1.5 bushels per acre. The graphic above plots the results of 14 crop tours in Illinois against USDA’s final Illinois yield forecast. It’s still a very large crop, but there’s evidence to support a downward revision in Illinois worth 8-15 bushels. This alone drops national corn yield to 181.5-182.5, vs. USDA’s currently projected 183.1. Disease pressure and regional dryness in August have been issues for maximizing US corn production. This is important as just 30 days ago the market had assumed a national US corn yield of 184-186 bushels per acre.
Supply will be adequate but not abundant as US corn export demand expands and ethanol production (and livestock feeding margins) stay profitable. A South American weather issue is needed to push Dec corn above $4.40 and meal above $340/ton. We advise trading a range of $3.95-4.40, basis Dec corn, and $305-325/ton, basis Dec meal.
South American weather will be watched more closely late Sep onward. Brazilian producers in key areas are allowed to plant beans after Sep 7th, but very little activity is expected. The graphic above displays May 1-Sep 15 percent of normal rainfall in South America. The short term forecast is assumed. Zero rain is forecast in Argentina and Brazil over the next 10 days, and wildfires are present in Central Brazil amid abnormal heat and a complete lack of humidity. It’s certain to rain in Brazil at some point, but Mother Nature determines seeding dates. 50% of the Brazilian soy crop must be planted by Oct 20-25 to facilitate the timely planting of winter corn there in February.
Medium-term risk leans to the upside. A USDA report-inspired break offers a buying opportunity.
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