U.S. whey prices have been rising, with dry whey on the CME spot market breaking above 70 cents per pound ($1,540 per metric ton) in early December and whey protein isolate (WPI) now at record high prices above $8.50 per pound ($18,700 per metric ton). The big questions are: what is driving this strength, how high could prices go, and when will prices come down?
First, it is important to recognize that the whey markets are international. Anywhere between 25% and 85% of U.S. whey products are exported depending on the product and period you look at. Ideally, we would want to look at production, imports, exports, domestic consumption, and stocks across the major countries in the market, but unfortunately, the U.S. is the only place that we have good monthly production and stocks data, so the focus here will be on the U.S. fundamentals. With that said, prices for whey products in the European Union (EU) have also been trending higher, so my guess is the fundamentals are similarly tight, although EU dry whey prices have not been trending higher at the same pace as the U.S.
Working through inventories
Whey broadly breaks down into two different components: protein and carbohydrate (lactose). While carbohydrate (lactose and dry permeate) prices have been trending higher, most of the strength has been on the protein side, so I am focusing the analysis there. When we are talking about protein, the main products are dry whey (sweet whey powder), whey protein concentrates at 34% protein and 80% protein (WPC34, WPC80), and whey protein isolate. To look at the long-run trends, I’ve converted the fundamentals for each individual product to the pounds of protein in each product and added them all together. What strikes me is that both exports and domestic use of whey protein have been relatively flat during 2024. What got these markets tight was a surge in domestic use during 2023, not some sudden demand surge or supply problem during 2024.
Whey protein stocks peaked in April 2023 at heavy levels, but by October 2024, they were down 43.1% from the peak and at their lowest level since October 2014. Some level of caution is needed with this data. USDA only surveys inventory data at the processor level, so we don’t know how much product end users and traders are holding. My guess is end users and traders stocked up on product in the second half of 2023, which means domestic consumption didn’t surge quite as much as it seems. They have been working through that inventory during 2024, which means domestic consumption has grown more than the hard data from the USDA would suggest this year. Given the recent surge in prices, I’m guessing inventories held by end users and traders are back down to normal or tight levels again.
It is hard to say exactly what is driving the demand for whey protein. As you might expect looking at the prices, demand for WPI during 2023 and 2024 has been growing much stronger than demand for the other whey products. According to the American Dairy Products Institute (ADPI), the largest domestic uses of WPI are sports powders (whey shake mixes), sports bars, and sports beverages. There is a long-term trend of higher consumption for these products, but there seems to be an extra demand boost in the past two years. We think high protein drinks and foods are getting a boost from consumers who are using GLP-1 medications like Ozempic, Wegovy, and Mounjaro. Consumers on these medications tend to lose weight, but they lose both fat and muscle, so they are encouraged to consume more protein to try and maintain muscle mass.
In addition to the new demand from GLP-1 users, there are some new innovations in whey processing that have created WPI that dissolves clear with a clean taste, allowing beverage makers to make clear, fruit flavored drinks that are high in protein and opening up new consumption opportunities compared to the standard thick, rich protein shake market. These demand drives will likely continue in 2025.
What are processors making?
So if inventories have been drawn down, driven by demand, could greater supply push prices back down? In the U.S. there is a record amount of new cheese processing capacity that is expected to come online between the end of 2024 and mid-2025. These plants will not start up working at capacity; it will take time to get there. On top of that, it often takes time to get the whey processing side of the plant up and running, and then it takes even more time to get the finished whey products through quality testing. Working through some estimates, we could see WPC80 and WPI availability grow by something around 4% by the second quarter and 8% in the third quarter of next year thanks to the new plants. One of the new plants is expected to produce dry whey, but that might not be available in significant quantities until the third quarter of 2025. One thing to note is that prior to getting quality approval, some of this whey, WPC, and WPI will probably find its way into the feed grade market, which could help to loosen up supplies even if it can’t be widely used in food processing yet.
There is some possibility that the supply side will improve and put some downward pressure on prices, but it wouldn’t be until mid to late next year. However, inventory is already at low levels, and with demand continuing to grow, it’s also possible that the increased supply will just flatten prices instead of pushing them significantly lower. Looking specifically at WPI, my stocks/use forecast for 2025 to 2026 remains record tight. We could continue to see high prices for some time.
One thing to keep in mind is the relative profitability of producing different whey products. There are a lot of estimates and assumptions in my calculations, but based on spot prices, I think processors are losing money on WPC34, making just a little bit of money on WPC80, and making a lot on WPI. In the Federal Milk Marketing Orders, plain dry whey is basically a break-even item, so I consider the margin there to be zero. If processors can, they should be shifting as much liquid whey toward WPI production as possible. But WPI has been the most profitable product for a year now, and WPI production growth has been outpacing any of the other products, so the ability to shift even more liquid whey toward WPI is probably close to capping out. We can see that in slowing growth for WPI production during the third quarter of this year. But if there is liquid whey available and WPI processing capacity available, and the two things are geographically close to each other, the economics strongly favor pushing liquid whey into WPI versus any of the other products.
What is to come?
In the past, what has eventually broken the whey market lower was typically the demand side. High prices reduce demand, but it often takes time. Demand drops, stocks start to build, and prices come down. Eventually, that will play out again. However, for WPI, it does look like we’ve had a structural shift higher in demand, which makes it hard to predict what price levels are needed to ration the available supply in 2025 and 2026.
How high will prices go? We try hard to connect the prices of dairy products back to the supply and demand fundamentals for those commodities, but that is really hard to do for whey products. You can find some statistical connection between things like stocks/use and the price for some of the whey products, but it is also hard to predict how use will shape up over the course of the year and how much product will be left in inventory at the end of the year.
Driven by the good demand, WPI prices will probably stay high for a while, maybe coming off a bit in the second or third quarter of 2025 due to the new processing capacity. Looking at the other products, WPC80 prices have climbed the least during 2024, so we might be able to argue that WPC80 demand is the weakest and processors might be willing to shift liquid whey out of WPC80 and toward lower protein products if the margin on WPC80 turns negative. If spot WPC80 is going for $4.75 per pound ($10,500 per metric ton), my calculations would suggest dry whey would need to move about 79 cents per pound ($1,740 per metric ton) before it makes sense to start moving liquid whey into dry whey. The market usually overshoots, so there is some risk we could push up into the 80-cent range, but we’ll see some pretty big hits to export sales and domestic demand at those price levels, and we could quickly see inventories of dry whey rebuilding by the second quarter.
U.S. whey protein stocks are at minimal levels, and demand has remained decent despite higher prices during the second half of 2024. A surge in whey prices during this last quarter will slow demand down. New production should be hitting the market in the first to third quarters. We should eventually see some downward pressure on the market during 2025, but the timing may depend on the product. I would expect to see dry whey prices break lower first, followed by WPC, while WPI prices may stay relatively firm through the first half of the year.
