Dairy Market Outlook: Potential for Lower Prices Ahead

Dairy markets are seeing an increase in supply, with cheese prices still going up as the fall is a big demand season for dairy. However, Mike North of Ever Ag says there’s a lot more at play.

“You’re right that this is a big demand season for us, you’ve just brought kids back into school, this is the time when we’re preparing for the big fourth quarter demand, big runs on cream cheese, butter demand at the retail level for all the cookies and the baked goods and all the things we enjoy around the holiday season, and we prep for that. So, this time of the year is when we generally are pushing that into the pipeline, pulling prices up, and it’s a nice seasonal push, but along with that, really outstanding export demand.” 

North says the market is trying to figure out currently is where the industry will be from a supply perspective.

“Very recently New Zealand announced their August milk production numbers, and they came in well below expectation. Europe put their numbers out for August, that was also lower. And then, oh yes, by the way, in the last milk production report we got rid of 19,000 cows here at home, we were still 1.1 percent over the year prior, but that was the smallest increase we’d seen all year. So, you’re seeing a compounding of strong domestic demand this time of the year, you’re seeing some concerns around a shrinking milk pool as we go into winter, and then on top of that, the U.S. is in a really good spot to be competitive in the export market.” 

He adds the outlook suggests lower milk prices heading into the next year.

“The first half of 2022 is at historically high levels. Now, as we consider the cost of feed, and we talk about those margins on the farm, the 17 near $18 price opportunities that are out there aren’t going to be super profitable. So, when we talk about near record prices, remember that milk price is a derivative of product price, so to maintain record prices through the first half of next year when dairy demand is less, reality is that those higher milk prices that you see today suggests that product prices have to remain elevated. Will the consumer be willing to pay that, probably not. So, if not, that suggests lower prices are around the corner.”