Market Reports

The dairy markets are still concerned about demand. Global milk output is growing slowly and dairy product inventories are not burdensome. But tight supplies are not enough to lift the market when prices are already quite lofty. Consumption must be healthy too.

For months, the dairy markets have focused on shrinking global milk output and barriers to rapid expansion. Tight supplies pushed dairy prices to record highs. Now, concerns about demand have come to the fore.

Dairy markets moved this way and that without much conviction this week. Prices are historically lofty, but not high enough to bring on a lot of new milk in a world of $8 corn and $2,000 springers. At what point do high prices hinder demand?

Milk powder was especially weak and whole milk powder (WMP) prices fell 4.4%, logging their third straight decline. Skim milk powder (SMP) suffered its first setback at the GDT since July. U.S. milk output has fallen short of the prior year for six of the past seven months, its longest such streak since 2009.

Cheese output continues to outpace every other year on record, but, due to persistent supply chain issues, it is lower than it could be. For months, cheese makers and other dairy processors have struggled to find the materials, truck drivers, and staff they need to run at capacity, and there is no relief in sight.

Even as milk production expands seasonally, volumes are tending to run at or below prior year levels. This supports the notion that even though milk prices remain historically strong, the increased pressure caused by rising operating costs gives producers continued margin concerns.