Whey Weighing Heavily on Class III Prices
On the cost side, dairy producers have been battling high prices that have squeezed margins to lows not seen since the height of the pandemic and Great Recession or lower. The May Dairy Margin Coverage margin dipped to $4.83 per hundredweight, the lowest on record and the first time either it or its predecessor the Margin Protection Program have ever been below $5 per hundredweight. Soon declining milk prices will negatively impact margins from the income side to unbearable levels, said Betty Berning, analyst with the Daily Dairy Report. While declining cheese prices have pressured Class III prices substantially lower, depressed whey prices have added to the impact.
“CME spot whey prices have been trading at historical lows,” Berning said. “On July 6, CME dry whey made a new all-time low of 23cents per pound.”
Looking at the market historically, she said, CME spot whey began trading on March 12, 2018. That day the market closed at 26 cents per pound. From there, prices never traded lower than opening day until May 22, 2023, when the market settled at 25.5 cents. Since May 22, markets have leveled off, trading as high as 28 cents on June 12 and 13.
“But then, prices began to give up ground, with the May 22 low matched on June 27. The price fell the next two days and into the following week,” she said. “Class III futures for July, August, and September have hit contract lows in recent days in response to poor whey prices and falling cheese prices.”
Many buyers’ contracts are based on USDA’s Agricultural Marketing Service’s average of the mostly Central prices, and those prices have been trending lower since the week of April 21, when they were 44 cents per pound. By the end of June, the Central average of the mostly whey price had fallen to 27.38 cents.
“The mostly average prices dropped 38% in just over two months, and were in line with CME spot prices,” Berning said. “The National Dairy Products Sales Report prices for whey, which are also used to set contract prices, also tanked over the same period, which fundamentally suggests either big supplies, weak demand, or both.”
According to USDA data, domestic disappearance of dry whey in April fell 11%, compared to April 2022. May exports were down, driven largely by declining shipments to China, Berning said. Dry whey stocks for human use in May were 3.8 million pounds higher than the prior year, while production of human dry whey at 77.3 million pounds was up just 1.3 million pounds, relative to May 2022.
“Stocks rising more than production indicate poor demand. It appears dry whey markets are not poised to make a comeback anytime soon, and their depressed values will not prop up Class III prices in a declining cheese market,” Berning said. “Class III prices below $15 per hundredweight are already in the books for June, and July and August prices look like they will be worse. That means producers are burning through cash and equity to maintain operations.”
