Milk Futures Crash: US Production Overwhelms Market

US milk production has seen a noticeable surge in June, with the latest USDA report indicating a 3.3% year-over-year increase, the largest since 2021. This has resulted in a significant downturn in milk futures prices, challenging the $17 per hundredweight support level. The excess supply, due to this production jump, directly results in downward pressure on prices, noticeably impacting dairy farmer profitability. The market's immediate response was aggressive selling in both Class III milk futures and butter markets, reflecting heightened reactions to these developments.

This surge is largely attributed to rising dairy cow numbers and enhanced per-cow output. According to the USDA’s National Agriculture Statistics Service, this consistency in growth establishes the American dairy sector's robustness and indicates its positive impact on dairy economics. Elaborating further, the USDA revised its May report to reveal a 2.4% year-over-year increase in milk production, marking 19.3 billion pounds.

A major factor for this rise is efficiency improvements in dairy cows. Production per cow averaged 2,045 pounds in June across the major states, up by 33 pounds from the previous year. This improvement is credited to advances in farm management, genetics, and nutrition. The average number of dairy cows climbed to 9.46 million in the second quarter, showing an increase of 56,000 cows since the previous quarter and 127,000 from last year.

California, with 1.71 million milk cows, remains the leader, while Michigan excels in milk-per-cow production at 2,300 pounds. This trend of increasing production, powered by cow numbers and productivity, points to a plentiful milk supply, offering crucial insights for dairy producers, manufacturers, and analysts to forecast market dynamics.

Milk futures prices are experiencing a significant downturn due to the robust surge in U.S. milk production exceeding market expectations. The immediate market reaction to the bearish production report was aggressive selling, which has reshaped short-term price outlooks. While international demands for specific dairy products remain strong, they are not translating into higher domestic prices due to local overproduction. Market analysts emphasize the importance of export markets and domestic demand strategies to manage this increased supply effectively and sustain profitability.