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Markets roiling for dairy products

Markets roiling for dairy products

The Class III markets ended the past week not far from where they began, but the calm on the surface belied the roiling waters below. Chicago Mercantile Exchange spot whey powder, which has long had the wind in its sails, was buffeted by the waves this past week. It decreased 5.5 cents to 62 cents per pound. Orders remain aggressive for high-protein whey products, but some buyers are starting to balk at lofty whey-powder values. Whey futures reached 14-year-greatest prices early in the week but then retreated.

After much back and forth, CME spot Cheddar blocks closed April 23 at $1.7925, an increase of 1.25 cents from the previous Friday. Blocks are plentiful but barrels are tighter, and the imbalance is reflected in the price. Barrels jumped 11.5 cents this past week to $1.805, their greatest value since November. Barrels are now worth more than blocks for the first time since July.

Barrel supplies may be a little snug, but there’s more than enough cheese to go around. The U.S. Department of Agriculture reported 1.47 billion pounds of cheese in cold storage at the end of March, the second-biggest total ever and the biggest March volume on record. Stocks increased 30 million pounds from February to March, nearly twice the normal rate.

Butter inventories are also extremely heavy. There were 354.6 million pounds of butter in cold storage March 31, the biggest March total since 1993. Stocks are 14.5 percent greater than they were a year ago. But as more milk heads to cheese vats, the year-over-year butter surplus is shrinking. Butter stocks grew at about half the typical pace from February to March and they didn’t grow at all this past month. A plateau is rare at this time of year; it confirms reports of strong demand from food service. But the USDA’s “Dairy Market News” notes that retailers are starting to slow their orders. At the spot market butter continued to fade this past week. CME spot butter decreased 8 cents from the previous Friday to close at $1.77.

Spring is here. Tankers are waiting at milk-powder plants around the nation, although the queue is a little shorter in the Midwest than it was the previous year thanks to expanded cheese capacity. A shortage of trucks and drivers is complicating the annual rush to move milk from regions with surplus to regions with spare. That’s exacerbating discounts for milk in the Southwest.

Milk-powder demand remains strong. Exporters continue to move big volumes to Asia, and Mexican orders are increasing even as prices increase. CME spot nonfat-dry milk rallied 3.75 cents this past week to a 14-month best price at $1.2525. That helped to lift Class IV values. Nearby contracts added a nickel, while most deferred contracts climbed at least 20 cents. Second-half Class IV values are now comfortably at more than $17 per hundredweight.

China’s appetite for foreign dairy continues to astound. China imported record-breaking volumes of cheese and whey in March, with arrivals increasing by 74 percent and 77 percent, respectively, from a year ago. Chinese first-quarter skim-milk-powder imports were record-large, increasing 35.5 percent from the first three months of 2020. Chinese imports of whole-milk powder in the first quarter were 22 percent more than the prior year and were just shy of the breakneck pace set in 2014.

China’s aggressive purchases have largely emptied New Zealand’s dairy-product stockpile. In Europe slower milk output has tightened its exportable inventories, particularly for milk powders. In January and February, European skim-milk-powder production was 7 percent less than the prior year, adjusted for leap day. As long as we can secure the containers and ships needed to send product abroad, the United States is well-positioned to capture a greater share of China’s burgeoning dairy market. That’s welcome news because we have a lot of milk to move.

U.S. milk production totaled 19.75 billion pounds in March, up 1.8 percent from a year ago. That’s a slight slowdown in year-over-year growth, which has been 2 percent or higher since July 2020. However, the headline figure is misleading in its modesty because this represents a respectable increase on top of the strong 3 percent growth reported in March 2020. Milk output was 4.8 percent greater than March 2019, the strongest two-year increase since September 2015. Production was particularly formidable in the Plains states and the Midwest.

Dairy producers added another 8,000 cows in March, which will fuel further growth in the months to come. There are now 9.468 million cows in U.S. milk parlors, 77,000 more than there were a year ago. The U.S. dairy herd hasn’t been this large since 1995. We’re going to need to sustain big exports, or we’ll be drowning in milk.

Grain Markets

Someone tied a rocket to the corn market and lit the fuse. July corn futures closed today at $6.325 per bushel, up nearly 60 cents since last Friday. Corn futures jumped more than 10 percent this week and are up 32 percent for the year to date. Corn prices have not been this high since 2013, on the heels of a paltry harvest after the 2012 drought. These prices suggest that last year’s corn crop may be smaller than previously thought. And demand is daunting. USDA’s analyst in Beijing raised his estimate of 2020-21 corn imports to a record-shattering 28 million metric tons, which is 4 million metric tons higher than USDA’s official projection. That’s a difference of 157 million bushels. If correct, this would significantly tighten U.S. corn stocks, putting more pressure on farmers to deliver a bumper crop this season. Light rainfall in Brazil suggests their second corn crop will disappoint, pushing even more demand to the United States.

With corn prices at such heights, soybeans are losing acreage they desperately need to meet global protein demand. Struggling to keep pace with the grains, the soy complex shot higher this week. July soybeans settled at $15.16, up 93.5 cents from last Friday. July soybean meal rallied nearly $20, to $425.80 per ton. Even these sky-high values understate the cost to many dairy producers, who must pay unusually high premiums for freight to keep their cows fed.

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

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