The seasonal buying has kicked in after a generally benign summer. The block cheese price has been in a sideways pattern for about 3 months and broke out to the upside last week moving to $2.10 and the highest level since March 27, 2023. Barrel cheese moved to the highest level since June 9, 2022. Buyers have become more aggressive as they have shifted their attention to potential Fall and holiday demand.
More milk is moving to satisfy the bottling needs of the school systems. This tightens the available milk supply for manufacturing. Spot milk prices remain at class to as much as $2.00 above class with plants having to look for available supply. Spot milk prices are expected to increase over the next few months. Milk production is not expected to improve anytime soon and may remain below year-ago levels for the rest of the year. The USDA reduced their estimates for milk production this year by 600 million pounds in the recent World Agricultural Supply and Demand report. They estimate milk production to total 226.3 billion pounds and 100 million pounds below 2023.
Butter has come to life after a similar period of sideways price movement. The price moved to the highest level since October 31, 2023, with a record volume of loads for the week ending August 16th. Surprisingly, the price did not increase further for the week due to strong buyer interest. However, sellers were ready and willing to move butter to meet the increased demand. The sellers held back to some extent but still wanted to take advantage of the higher prices rather than hold supply. The current spot butter price is just 8.25 cents below the highest price in 2022 and 32.75 cents below the record high of 2023.
The June butterfat exports jumped substantially over the previous year posting an increase of 80% totaling 4,671 metric tons. Two areas of butterfat exports showed large year-over-year gains. Anhydrous milk fat exports jumped 490% and butter exports jumped 32%.
You can see in the chart that despite butter exports being lackluster and significantly below the previous two years, the price moved to a record high. Domestic demand surged and supply tightened. An increase in exports during the second half of this year could reduce inventory rather quickly and push prices higher.
It certainly is good to see higher prices for dairy products. This supports the potential for higher milk prices as the year progresses. However, keep in mind that high prices cure high prices and steps should be taken to establish price floors in the market to ensure better prices can be protected. I recommend utilizing option strategies and/or Dairy Revenue Protection insurance. I do not recommend forward contracting with the milk plant as that locks in a price at that level. The goal is to protect prices and not try to pick the top. Flexibility needs to be maintained to allow for the opportunity to receive higher prices if they continue to unfold. If you need help with this, you can reach us at 877-256-3253.
*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.
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