After a period of substantial volatility, both spot prices and futures markets have settled down. There have been numerous days of light trading volume as traders did not have much to get excited about. Unfortunately, spot prices have not been trending higher. The substantial areas of weakness have been in dry whey and nonfat dry milk. This weakness has had a significant impact on milk prices.
The spot dry whey price has been under steady pressure. The price peaked on December 13, 2024, at 79.25 cents per pound. The close of spot trading on February 14th was 55.50 cents, a decline of 23.75 cents reaching the lowest price since August 28, 2024. That reduced the Class III price by $1.4250 per cwt. Every one-cent decline in dry whey correlates to a 6-cent decrease in Class III. That is one of the main reasons why Class III futures have not been able to increase even though cheese prices have risen.
Dry whey reached a level at which some end users have sought alternatives due to the high price. Buyers of dry whey are accustomed to contracting dry whey for months in advance. Once they look for and find alternatives, they will contract those supplies for months in advance. Dry whey demand slows, resulting in the price decline. The market tends to overcorrect to the downside as it takes longer to regain buyer interest. They are not quick to rebuy dry whey supplies due to the alternative products already on the books. Once prices fall back to lower levels, demand will eventually be stimulated.
Nonfat dry milk has moved similarly. The price peaked on November 14, 2024, at $1.4050 per pound, and closed at $1.28 per pound on February 14th, a decline of 12.50 cents. This is the lowest price since August 22, 2024. The decline is not quite as much but it does have a substantial impact. Each one-cent decline in the nonfat dry milk price correlates to a decrease of 8 cents in the Class IV price. Thus, the decline has reduced the Class IV price by $1.00 per cwt.
Class IV futures have fallen significantly over the past three weeks from the weakness of nonfat dry milk and the butter price. This has moved Class IV futures nearly in line with Class III futures where they have not been in a few years. Milk futures do not show much of a price fluctuation throughout the rest of the year. It is unlikely it will remain that way as the supply/demand balance may change. However, the uncertainty of tariffs and the impact they can have on international demand will keep uncertainty in the market.
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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