US Dairy Markets Face Divergence Amid Midwest Heatwave and Weak Demand

The US dairy market experienced varied trends last week, influenced by extreme weather and shifting demand. A significant heatwave in the Midwest has led to a reduction in milk production, affecting dairy commodities differently. Cheese markets have remained stable due to decreased milk supply, while nonfat dry milk (NDM) prices have declined.

The decline in NDM prices is primarily due to lackluster demand from major importers. Mexican buyers, a key market for US NDM, showed interest only at low prices, contributing to decreased market activity. Domestic processing facility closures for holidays also paused spot market trading temporarily.

Conversely, the cheese sector has gained support from the heatwave's impact on milk production. The extreme temperatures have affected cow comfort, leading to lower milkfat levels and prompting cheese prices to rise in certain categories, like block cheese, even as barrel cheese prices saw a slight decline.

Temporary holiday closures have also affected the butter market, leading to a short-term increase in cream availability. Despite this, churn operators are preparing for a potential cream supply restriction due to ongoing hot weather conditions, as they build stocks for the fall baking season.

In other dairy sectors, markets for dry whey, lactose, and high-value whey protein concentrate (WPC) remained stable with tight inventory levels. Several manufacturers reported being sold out of lactose and WPC34 through the third quarter and end of the year, respectively, highlighting a shift towards higher-value products.

Beyond immediate weather impacts, the US dairy industry is also navigating potential geopolitical challenges. The USMCA is transitioning to an annual review process, which may introduce long-term uncertainty in trade relations with Mexico and Canada, significant markets for US dairy exports.