Trepidation has begun to grip milk futures

Corey Geiger

July 18, 2022

Rapidly rising interest rates, fears of a recession, and some signs of backed off spending by consumers due to high inflation are among the concerns that have dulled many commodity markets this July.

Dairy products and milk futures have not been immune.

During the course of just 15 calendar days from July 1 to July 15, Class III futures contracts dropped nearly $2.30 per hundredweight (cwt.) for the August to December 2022 bundle. The closing average on Friday, July 15, was $20.45. November topped the quintet at $20.83, while August was the low at $20.16. On Friday, July 1, those same contracts had averaged $22.73, with October topping the group at $23.01.

The futures slide for Class IV contracts wasn’t as steep as those contracts fell $1.53 per cwt. when looking at the final five months. Class IV continues to be buoyed by strong export demand. On July 1, the August to December Class IV bundle averaged $24.10, and that group dropped to $22.57 by July 15.

One only has to go back to June 1 to see even better prices. At the close of trading at the CME at the start of June, Class III averaged $23.52 and Class IV netted $24.52 for the August through December group.

What will the remainder of the year hold?

That’s anyone’s guess as markets remain highly volatile.

Consider this . . . in January 2022, USDA economists projected the following based on data in the World Agricultural Supply and Demand Estimates (WASDE):

• Class III: $19.65

• Class IV: $20.90

• All-Milk price: $22.60

Then inflation came roaring upon the scene.

In the July WASDE report, published on July 12, 2022, these projections prevailed for 2022:

• Class III: $22.80 (up $3.15 from January 2022)

• Class IV: $24.70 (up $3.80 from January 2022)

• All-Milk price: $26.15 (up $5.25 from January 2022)

Given the continued volatility and fluctuations in agricultural commodity markets, risk mitigation strategies for both milk sales and inputs will be as important as ever.