Spring has firmly arrived, with fieldwork well underway in a new season and milk production at its seasonal peak. However, farmers are likely hoping that the coming arrival of June Dairy Month – complete with plenty of ice cream to kick off summer – will bring with it higher milk prices driven by stronger demand. Especially in the cheese market, prices have struggled in recent months, keeping the Class III value weak and delaying any substantial margin recovery. Into the remainder of this year, signs are emerging that milk revenues will improve, but it will likely be a slow recovery taking place over months, not weeks.
Globally, milk supply growth continues to struggle, with the first quarter of this year similar to the trend that emerged in the second half of 2023 with weaker year-over-year production from the key exporting regions. Rabobank forecasts less supply will persist throughout this summer before volume turns positive into the second half of 2024.
After two consecutive quarters of weaker supply, typically, a firmly bullish price response would have materialized, similar to the output pullback in 2021 that was followed by, in some measures, record high prices into 2022. However, the supply and demand balance is different this time, with lower milk production relatively neutralized by sluggish global demand in recent months. Less milk has been shrugged off by global buyers sitting on adequate inventories and macroeconomic worries that persist. Looking ahead, there is increasing evidence that demand is on the upswing, but it will take time before prices are driven higher.
Cheese has been the key drag on the U.S. market so far this year. Starting the year in the $1.40s, both block and barrel Cheddar climbed to the upper $1.60s at the CME spot market into February but retreated to calendar year lows by mid-March. Into mid-April, prices were on the climb again, but adequate supply coupled with weaker demand have simultaneously prevented any substantial cheese price growth from materializing. Dry whey also encountered weakness into March and April after signs of strength earlier this year, providing an additional drag on the Class III price. Nonfat dry milk has seen largely rangebound prices of late, but Class IV is helped though by an especially firm butter price. Overall, dairy farm profitability likely remains elusive, a frustrating extension of the difficulties that prevailed throughout much of 2023.
On an optimistic note, Rabobank believes slow but steady dairy commodity price gains will materialize in the second half of this year. Coupled with lower expected feed costs, an improved margin outlook will eventually drive milk production growth in both the U.S. and other key exporting regions. It will likely not be a record price year by any measure, but farmers will surely welcome the eventual return to profitability.
