June Dairy Month had a rousing start. The markets sprinted straight uphill June 1. With amazing stamina and speed they maintained their frantic pace for four days. But June 5 they finally tired. Despite the late-week retreat the total mileage is impressive, especially at that altitude. June Class III futures settled at $19.88 per hundredweight, an increase of $1.38 from May 29. July added 99 cents to reach $18.67. August through October Class III futures posted double-digit gains but the deferred contracts took a small step back. Class IV futures also increased, with the strongest advances in nearby months. June Class IV closed at $13.91, an increase of 52 cents this past week.

The remarkable run was fueled by the spot markets. Fresh Cheddar blocks remained difficult to find. Buyers kept increasing their bids in hopes of securing enough product to meet their commitments to grocers, restaurants or food banks. Spot blocks added another 15.25 cents this past week to reach an all-time record of $2.5525 per pound. Barrels gained even more, vaulting 26 cents to $2.36 per pound. That’s only a few cents away from the all-time record set this past November. Chicago Mercantile Exchange spot dry whey improved this past week. It climbed 4.25 cents to 34.5 cents.

The spot butter market was the most volatile. It increased early in the week and then soared 29 cents June 4 to $2.015, its first foray to more than $2 in 2020. But that was clearly an overreach. June 5 spot butter decreased 9 cents. Still at $1.925, it closed 26 cents better than the previous Friday.

In contrast to the other dairy markets, milk powder lost a little ground every day. That meant a 4.75 cents loss for CME spot nonfat-dry milk, which slumped to 97.75 cents. Skim-milk powder took at small step back June 2 at the Global Dairy Trade auction, decreasing 0.5 percent to about the equivalent of nonfat-dry milk at $1.22 per pound.

The relentless rally and the futures curve clearly argue that dairy products are tight. Anecdotal reports confirm buyers are looking for product for immediate delivery and they’re willing to pay up for it. At first glance it’s difficult to fathom how we can be caught short in the current environment. Milk output overwhelmed processing capacity in March and early April. Demand surely suffered when restaurants around the nation shut their doors for two months.

This past week the U.S. Department of Agriculture’s “Dairy Products” report highlights the impact of the disarray in April. Butter output exploded to a record of 216 million pounds, an increase of 25.1 percent from April 2019. Combined production of nonfat-dry- and skim-milk powder tallied 223.7 million pounds, an increase of 4.5 percent from a year ago and the biggest total ever for April. Milk powder piled up with manufacturer inventories increasing to 392.6 million pounds, the biggest privately held stockpile on record. Cheese output lagged because manufacturers who make cheese for restaurants slowed production or stopped altogether. But Cheddar production increased 7.8 percent year-over-year.

But much has changed since April. Milk production and components have slowed noticeably. Balancing plants are drying considerably less milk. Demand has improved. Cheese and butter makers are fielding simultaneous orders from regular grocery customers, returning restauranteurs, and new buyers armed with USDA funding and empty food boxes. Driers are selling large volumes of nonfat-dry milk to cheesemakers looking to fortify their vats. It’s likely those orders overstate consumption. Food-box recipients and those who are returning to their favorite restaurants will inevitably need fewer groceries. But at the moment grocers find it understandably difficult to forecast how quickly shoppers will return to their old ways; they don’t want to risk empty shelves.

In time the market will sort out the disconnect between manufacturer sales and actual consumption. But if demand is truly overstated, then the current inflated Class III values could be sending the wrong signals. The industry probably needs dairy producers to keep a lid on production – but it’s difficult to resist the urge to fill the tank with June Class III at almost $20.

Grain Markets

The corn market shook off the doldrums to climb 5.5 cents this past week to $3.3125 per bushel. The funds are short a lot of corn; they likely tried to trim their position as the market climbed, adding further fuel to the rally. The crop is safely in the ground and off to a good start. It was mostly hot and dry this past week but there are big rains forecast this week.

Soybean futures increased sharply. The July contract increased 27 cents to $8.6775. Brazil has sent massive volumes of soybeans abroad in recent months. Its storehouses are likely almost empty, so China is shopping at U.S. ports. The Chinese government reportedly asked two major state-owned firms to pause on U.S. pork and soybean imports as diplomatic tensions increased. But U.S. soybeans are a bargain in China and private buyers are making purchases.

Sarina Sharp is with the Milk Producers Council. Visit www.milkproducerscouncil.org for more information.