Market Reports

Mild winter conditions across most of the country have supported milk production though margins remain thin, especially for producers in the western U.S. Milk remains readily available for manufacturers.

There was a decided lack of Christmas cheer in the Class III markets this week. The January through April contracts scored life-of-contract lows. December Class III settled at $16.09 per cwt., promising Scrooge-like margins on the farm. January and February Class III looked even worse. This week January tumbled 47ȼ to $15.43 and February plummeted 54ȼ to $15.60.

January Class III futures dipped below the $16 mark, a level signaling plenty of red ink on the farm as well. Unfortunately, Class III prices will have a greater influence on most milk checks. Ever-expanding cheese production capacity, lower milk powder output, and depooling will water down the share of dairy producer revenue derived from the higher Class IV market.

Cheese vats remain full, despite lower milk output. U.S. cheese production reached 1.19 billion pounds in October, up 0.8% from the year before. Given the continued investment in U.S. cheese production capacity, cheese output is likely to grow for the foreseeable future, to the detriment of U.S. cheese and Class III prices. But the details of U.S. cheese production offered some fodder for the bulls. In October, cheesemakers shifted milk into fresh cheeses like cream cheese and Neufchatel (+6.8% year-over-year), cottage cheese (+13%), Hispanic cheeses (+5.7%), ricotta (+12.2%) and Mozzarella (+2.3%).

U.S. milk production slumped deeper into the red in October as poor margins and tight heifer supplies trimmed the dairy herd. Production grew at a healthy clip in the Mideast, and the Midwest and Northeast contributed moderate growth. But output was down hard in the Northwest, Southwest, and California.

The holiday season is upon us, but the dairy markets haven’t been feeling particularly festive. Nearly all products lost value over the course of the week as plentiful supply and understated demand collided to pull prices downward.