Happy June Dairy Month! A lot of cheese surely made it onto burgers over Memorial Day weekend, and the warm summer weather will drive plenty of ice cream consumption at various celebrations in the coming months. Good news is likely to arrive in farmer milk checks soon with milk prices improving after the lows experienced through most of the year to date.

Looking at the CME futures market forward curve, the jump in Class III values into the coming months is notable versus the low values that had been seen throughout most of the year so far. Milk prices in excess of $20 per hundredweight (cwt.) are possible in June, July, and August, providing a much nicer revenue picture for farmers versus April’s $15.50 per cwt. settlement. Class IV looks even higher, firmly propelled by an elevated butter price, with values exceeding $22 per cwt. in some upcoming months.

A tighter milk supply has helped lift expected prices higher in recent weeks. April milk production fell 0.4% versus the prior year, marking the tenth consecutive month of weaker year-over-year output. March volume, initially reported as down 1%, was revised higher to show a 0.7% decline instead. Aligned with the recent trend, fewer cows versus the prior year again drove the weakness regardless of greater yield. Rabobank expects milk production to remain lower year-over-year in the near-term months because of the smaller herd before showing gains against easy-to-overcome prior year comparable data points into deferred months of this year.

Looking at the herd size, March cow numbers were revised up by 13,000 head versus the initial estimate, now totaling 9.348 million. The April herd size dropped by 8,000 head versus March; at 9.34 million, cow numbers are down 74,000 head compared to the prior year. Milk per cow rose 0.4% year-over-year to mark the second successive increase. It is the first time since May to June 2023 that milk per cow has posted two consecutive year-over-year gains, with yield struggling throughout the second half of 2023 and into the first quarter of 2024.

On the demand side, especially in the cheese market, exports have been notable. Total dairy exports improved in February to mark the first year-on-year gain since January 2023. Competitive U.S. pricing in the first quarter of the year supported higher cheese shipments, which were particularly impressive and achieved a record-high monthly volume on a daily average basis in February. Into March, cheese exports set a new all-time record high. This firm demand has helped as domestic disappearance has not been overwhelmingly strong so far in 2024.

Looking ahead, the cheese price recovery and subsequent improvement in Class III prices means desperately needed revenue bumps are on the horizon. With production costs still elevated, robust profitability is not yet guaranteed, but it is likely that the low milk prices of the past few months are finished for now.

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(c) Hoard's Dairyman Intel 2024
June 3, 2024
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