It would seem that the dairy industry is awash in milk based on the butter and cheese prices. That is not the case as milk production is running lower than a year ago. So why are prices as low as they are? Slow exports are the first item that comes to mind as they have been struggling for quite some time. The level of exports has an impact as it is a global market and global demand is important. The more dairy products that can be moved to the international market, the more demand there is to utilize production. Even if we see dairy exports increase over the previous year, it is still not great as exports a year ago were substantially below the level of 2021. But a gain in exports will be heading in the right direction.
Demand for dairy is not as good as hoped moving through the second half of the year which has resulted in supply being readily available. Demand has been steady, but it has not been good enough to tighten supply. The October Cold Storage report showed both American cheese and total cheese stocks one percent above October 2022. Sellers of cheese have been moving supply to the market as quickly as possible rather than allowing it to build up at the plant level. They have been unwilling to hold supply due to increased storage costs. Sellers have been lowering offers without hesitation resulting in buyers holding for lower prices. This pattern is not expected to change anytime soon in the current market environment.
The fall price rally in cheese took place in July and August and then turned lower rather than prices trending higher into the holidays. Buyers took advantage of the low prices in later June and stepped up more aggressively. There had been concern that farmers would cull cows due to the low milk prices and high beef prices. Buyers wanted to get ahead of a tighter market. This spurred strong buying interest until it was seen that culling was not increasing as much as anticipated and milk supplies remained sufficient. Without stronger prices moving up to the holidays, it is unlikely prices will trend higher anytime soon.
By ROBIN SCHMAHL
November 28, 2023
dairyherd.com
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