Milk futures reacted negatively to the slightly bearish July Milk Production report and then positively to the bullish July Cold Storage report with contracts swinging violently in response.
The milk production report showed milk output showing the lowest year-over-year decline so far this year. That was less than expected as it was anticipated the hot weather experienced during the month would have had a greater impact. Milk production has been lower than the previous year for 13 consecutive months. Another surprise was that cow numbers increased by 5,000 head from June. Both of these areas triggered a bearish reaction in the market. Even though cow numbers increased from the previous month, cow numbers were 21,000 head less than in March and 43,000 head less than a year ago.
The cold storage report painted a bullish picture as cheese inventory remained below a year ago. Lower cow numbers and reduced milk output may tighten supplies further. American cheese, other cheese, and total cheese inventory had been below the previous year since March. Generally, cheese inventory increases during the first half of the year.
The bullishness has won with milk futures trending higher. The past few weeks have shown us that the markets are becoming increasingly volatile. The months of September and October will see that volatility continue. Buyers generally step up more aggressively to purchase during this time of year as they increase ownership to fill contracts and to have a supply on hand for ongoing demand.
Some categories have moved to multi-year highs. The block cheese price reached the highest level it has been since November 18, 2022. The Grade A nonfat dry milk price reached the highest level since December 29, 2022. This certainly is something to celebrate, but it does not mean that farms are in an extremely profitable position. The cost of goods and services remains high and replacement heifers are high. Feed prices are lower than they had been, but the costs associated with processing the feed and delivery remain high depending on your location and what type of feed you require. However, sufficient feed supplies should be available at substantially lower prices than a year ago.
Historically, there has been a strong correlation between milk and corn prices. When corn prices declined it was only a matter of time before milk prices followed, this did not happen immediately but would follow over time. It may be too early to tell whether this pattern is changing as many other patterns have changed. The average price for a bushel of corn in July was $4.24 which compares to $6.22 in July 2023. This would indicate the pattern may be intact but possibly a year cycle. Grain prices are expected to decline further into harvest and remain lower for much of next year barring any adverse event. Based on this correlation alone, it could result in lower milk prices during the second half of 2025. There are many other factors involved that impact milk production and prices. We must not solely base a price outlook on only one pattern, but it is something to keep in mind as marketing plans are developed.
Your Next Read: ‘Cheap’ Corn: Economists Encourage Producers to Pack the Bunkers and Plan Ahead
I will be presenting at a Knowledge Nook session at the World Dairy Expo about protecting the value of the crops you plant for feeding your cows. Your crop is worth as much to you as it is to the grain farmer. Why not protect that value? The session will show you how that can improve farm income.
*I will be at the World Dairy Expo from October 1st through 4th. Please visit the AgMarket.Net booth 664 in the Trade Center. I will also be part of the panel for the live taping of the US. Farm Report in the Tanbark on Wednesday, October 2nd from 12:00 – 1:00 pm. On Thursday, October 3rd, I will be presenting at the 3:30 Knowledge Nook session on the topic, “Making the Most of Your Farm Income Potential”. I hope to see you there!
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. 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, and will not rely solely on this communication for making trading decisions.
