US: The window of opportunity for a upswing in milk prices may be closing
While dry whey prices experienced an upward trajectory, the primary focus of traders remained on the downward trend in cheese prices. Nonfat dry milk exhibited an ascending trend but appears to have potentially reached a plateau.
The current scenario suggests that the traditional seasonal peak in prices, typically observed in September or October, may be jeopardized. Although there have been instances of peak prices in November in previous years, the failure of cheese prices to ascend during this period does not augur well for the latter part of the year and early next year, when demand typically subsides and inventory increases.
Despite the weakened position, butter prices remain higher than anticipated. Even though the peak has been reached and prices have softened, Class IV milk prices are projected to remain robust for October and November, with the October price at $21.60 compared to the Class III price of $16.85. These prices are expected to undergo minimal changes when the October class prices are announced on Wednesday, November 1st. Although butter prices may fluctuate in the approaching holiday season, they are likely to maintain a relatively stable trajectory.
A key factor contributing to the lack of significant upside potential in cheese prices is the ample supply, as indicated by the September Cold Storage report, which reported American cheese inventory one percent higher than the previous year. The marginal decrease in inventory from August suggests a need for more substantial reductions to support the market. Sellers are actively offering cheese on the daily spot market to prevent the accumulation of inventory at the plant level. This oversupply is unlikely to be a cause for concern among buyers, especially after holiday demand is fulfilled.
Surprisingly, despite lower milk prices this summer, consistent heavy culling has not been observed. The national dairy herd totaled 9.37 million head in September, down by 36,000 head from September 2022. While this represents the lowest national dairy herd since January 2022, an increase in milk production per cow by 4 pounds resulted in only a marginal decrease of 0.2% in overall milk production.
The September Livestock Slaughter report revealed a significant reduction in dairy cattle slaughter compared to August, with 240,500 dairy cattle slaughtered—34,700 fewer than in August and 20,000 less than in September 2022. Farmers may have culled most of their low-producing cows but are retaining high-producing ones despite elevated cull cow prices. The absorption of cattle from exiting dairy farms by other operations has further reduced the number of cows being slaughtered. The current situation contrasts with late 2021, when aggressive culling raised concerns about tight milk supply. Presently, the milk supply is deemed sufficient for processing needs.
Robin Schmahl, a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA), based in St. Joseph, MO, provided these insights. For further inquiries, Robin can be reached at 877-256-3253 or through the website www.agdairy.com. The opinions expressed and the data presented are believed to be reliable but are not guaranteed, and any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have inherent limitations and do not represent actual trading. There is a risk of loss in trading commodity futures and options on futures, and it may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not relying solely on this communication for making trading decisions.
