The past week has not been good for Class III milk futures nor the outlook for milk prices. The underlying cheese prices have declined, putting pressure on milk futures. It seemed that the selling was due to the bearishness of the September Milk Production report which showed U.S. milk production up 0.1% from September 2023. The report also showed a significant revision in August milk production resulting in output up 0.4%. It is unclear if this caused cheese buyers to step back or if it was just a matter of supply and demand. After all, the milk produced in September had already been processed, consumed, or stored.
It will be interesting to see the reaction of the marketplace due to the decrease in cheese inventory compared to a year ago. American cheese inventory in September was 8% below a year ago with total cheese inventory down 7%. American cheese inventory was the lowest monthly inventory since November 2020 and the lowest September inventory since 2020. Butter was the opposite with inventory up 14% from a year ago. This may limit the upside price potential for butter for the foreseeable future.
In my last article, I mentioned how Livestock Risk Protection (LRP) insurance is an area of risk management the dairy operation should consider implementing. The utilization of beef on dairy to supplement farm income by boosting the value of calves has become an important aspect of the dairy operation. Beef prices are high and should remain that way for some time based on the tightness of the beef herd. However, there are always risks that can change the market quickly and high prices should be protected.
By Robin Schmahl
October 29, 2024
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