Milk Prices Have Bottomed
I think we can be confident the low for milk prices is behind us for now. August milk prices will be much better than July, but still far from where we would like them to be. It has been interesting to see the attitude of traders over the past month. There has been an element of bearishness or disbelief that underlying cash prices would see the strength they have or would continue to see strength. There has been a reluctance on the part of traders to put price premium into milk futures.
There seems to be the anticipation that slower export demand and strong milk production would be a limiting factor to upside price potential. That is a logical assessment based on the volume of milk that was available during the first half of the year. One must remember that the amount of milk available on the spot market at discounts of up to $11.00 per cwt for nearly seven months and milk being dumped during spring flush was not only the result of strong milk production, but maybe more of the impact that plants were unable to process the milk. Not because of plant capacity but more a result of what plants were able to process because of their workforce. Many plants were struggling to find and maintain a full workforce to keep plants running on full schedules. This prevented many from being able to operate at capacity even though spot milk was available at substantially reduced prices. The result was less output and less inventory growth.
This puts the market in an interesting position. Traders have been reluctant to turn bullish on the market which has resulted in little or no extra premium being added to milk futures even though spot prices have been increasing. Over the past nearly two months, block cheese price has increased 71.75 cents while barrels have increased 48.50 cents. September Class III milk futures have increased $2.83 with October futures up $1.31 over the same period. Generally, increases in cheese prices of that magnitude would have had a larger impact on milk futures. They certainly did in other years and most recently in 2021 and 2022 when strong cheese prices eventually propelled milk prices to record highs.
By ROBIN SCHMAHL
August 21, 2023