The author is the director of dairy market insight with StoneX Group Inc.
Let’s cut to the chase — I think the Class III average price for 2024 is going to be around $17.30, which is similar to 2023 and not good news for farmers. However, the Class IV milk price could be closer to $21, which would be almost $2 higher than 2023.
It’s also important to look at the other side of the ledger at feed costs. On-farm feed costs are expected to come down by about 15% for 2024. When you combine the higher Class IV price (which will drive Class II and help Class I also) and the lower feed costs, margins for 2024 might be decent, especially in the second half of the year despite a disappointing Class III price.
Heifers and cheese
The most bullish part of the outlook is the supply side. Milk production during the second half of 2023 was down 0.6% from last year, and we ended the year with a milking herd that was down 0.4% or 39,000 head from the previous year.
There is a lot of talk about a lack of heifers, with USDA estimating the number of heifers expected to calve in 2024 is down another 1.1% from 2023. However, in the last four weeks, dairy cow slaughter is down more than 20% from last year. With the lack of replacements, we’re going to see farmers holding onto cows for an additional lactation. As a result, we could see the herd expand a bit in 2024 despite the lack of heifers. However, we’re starting the year in a hole, and it will take some time to dig out (if we do), so the supply side looks relatively weak.
The bearish problem is demand and, eventually, new cheese plant capacity coming online. As of this writing, we don’t have the final December dairy disappearance (consumption) numbers yet, but it looks like domestic cheese disappearance was likely up just 0.8% while fluid milk was down 1.4% and nonfat dry milk (NFDM) was down 9.7%. Cheese disappearance growing 0.8% doesn’t sound terrible, but the 10-year average growth is 2.4%, so it is about one-third of the average growth rate.
Between the fourth quarter of 2024 and the middle of 2025, we have at least five new cheese plants or plant expansions scheduled to come online. At full capacity, those plants could produce about 800 million pounds of additional cheese, which would be about a 5.5% jump in cheese production. The plants will not start at full capacity, and we could see other less efficient plants reduce production or close altogether, so we probably won’t experience a 5% increase in cheese production just yet.
With cheese consumption growing slowly and a massive expansion in cheese processing capacity slated to come online, it is hard to get bullish on cheese prices. That holds back the Class III price forecast.
Positive demand
Still, there are bright spots. While cheese disappearance hasn’t been great, dry whey, whey protein concentrate (WPC), and whey protein isolate (WPI) disappearance have been strong, and we’ve seen prices for those products rally over the past six months. While we could see some downward pressure develop on the whey complex when those new cheese plants open, inventories are expected to be light until then, and we should see a relatively good dry whey price that will help the Class III price a little.
Currently, the most bullish corner of the market is butter. Domestic disappearance in 2023 was up about 8.8%, while production was only up 2.2%. The net result is that inventories were pulled lower during 2023 with stocks at the end of December down 7.8% from the previous year. With milk production weak, and new cheese plants eventually absorbing more milk, butter production in 2024 is expected to stay weak, which will make it difficult to rebuild butter stocks and could leave the market tight.
Mitigate your risk
The milk price outlook for 2024 depends a little on how your milk is used. If you’re in a region with a lot of cheese production, the price might be a little disappointing. If you’re in a region with more Class IV and/or Class II production, things look brighter. Also, if you buy a significant portion of your feed, there should be some relief on the cost side that should result in decent margins.
Nothing goes exactly as expected, though, and anything can happen. It’s worth looking at price risk management tools like futures, options, and Dairy Revenue Protection (DRP) to see what opportunities are out there.
