Dairy markets are known for their unpredictability, but we still rely on dairy economists to give their best forecasts as to what will come in the year ahead. Now that we are more than a third of the way through 2024, we can evaluate some of the price trends experienced so far this year.

In a recent episode of the International Dairy Foods Association’s “Dairy Download” podcast, economists Sara Dorland and Mike McCully shared what they found to be most surprising in the world of dairy prices so far this year.

For McCulley, the president and owner of McCully Consulting, the current trend in milk production is unexpected.

“It’s hard to go back in time and find a period of nine months of declines in milk production,” he said. That was coupled with Cheddar block prices sitting at $1.40 to a $1.50 a pound earlier this year. In the past, McCully noted that lower milk production would trigger milk prices over $20 per hundredweight and Cheddar prices over $2 per pound, but that is not happening in 2024. “How long is that going to last?” he asked rhetorically.

Dorland, a managing partner at Ceres Dairy Risk Management, considers the gap between Class III and Class IV prices to be a big surprise of early 2024.

“Historically, you want to see those prices coming together,” said Dorland, “but even with the recent price run in cheese, it is still a tough road for the Class III market.”

With new cheese processing capacity coming online and the potential for $4 per pound butter later this year, this situation may not remedy itself any time soon, Dorland noted.

“Most of our milk goes into cheese and whey,” she explained. That’s why milk checks in regions where more milk goes into Class I, II, or IV production look very different than states such as Idaho, Texas, and Wisconsin, where more cheese is made.

When the gap widens, it creates winners and losers regionally, she said. Typically, the two classes come back together, but we seem to be entrenched in this trend for now, and that ties back to McCully’s comments about reduced milk output.

“The difference between Class III and Class IV is certainly having a tremendous impact and is likely leading to why we are not making headway in milk production,” she said.

High beef prices are also putting pressure on milk output. “The beef price does not seem to be slowing down,” Dorland said. “That has a profound impact on how farms are making production decisions.”

McCully noted that not many months ago, a $2.50 spread between Class III and Class IV was considered wide. Now we are looking at a spread of $4 or more, with no clear end in sight.

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(c) Hoard's Dairyman Intel 2024
May 13, 2024
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