Mid-August CME dairy prices surged, especially in cheese, driven by production challenges and market dynamics affecting key companies and locations.
The mid-August CME dairy product prices witnessed a significant upward trend, particularly in the cheese market, raising the age-old question—whether supply or demand is driving the market.
The Chicago Mercantile Exchange (CME), one of the world’s largest and most diverse derivatives marketplaces, plays a critical role in this dynamic. As a benchmark for dairy prices in the United States, CME sets daily prices for commodities like cheese, butter, and other dairy products. These prices are pivotal in determining the value of milk and dairy products across the country, influencing both producers and buyers. This article delves into the recent price movements, production challenges, and market dynamics affecting dairy products, with a focus on key companies and locations involved.
Cheese Prices Hit New Highs
In mid-August, CME dairy prices were led by a notable increase in cheese prices. Cheddar block prices surged by 14.25 cents to $2.10 per pound, a level not seen since March 2023. This increase was accompanied by a 25-cent rise in barrel cheese prices, which reached $2.2550 per pound—the highest since June 2022. This price rise can be attributed to tight milk supplies in the Midwest, with cheesemakers like Schreiber Foods in Green Bay, Wisconsin, and Dairy Farmers of America (DFA) in Kansas City, Missouri, reporting difficulty in securing sufficient milk for production.
Despite these challenges, cheese demand remained steady, especially with the reopening of schools, which increased the allocation of milk to Class I products. Barrel producers, such as those at Agropur in Appleton, Wisconsin, focusing on other varieties, also contributed to the price surge, while block markets maintained a bullish stance, although not to the same extent.
Butter Market Gains Momentum
The butter market also saw a significant increase, with prices climbing to $3.18 per pound, up 8.25 cents for the week. This marks the highest price since October 2023. The surge was supported by robust sales, particularly a record 51 sales on a single day, the highest since November 2004. Companies like Land O’Lakes in Arden Hills, Minnesota, and Hilmar Cheese Company in Hilmar, California, are key players in this market.
In the Central region, butter demand is beginning to pick up as seasonal trends take hold. However, production is starting to decline, influenced by a noticeable decrease in cream availability. In the Western region, where Darigold operates in Seattle, Washington, retail butter production remains strong, but bulk butter production has slowed. Despite this, manufacturers are comfortable with their inventory levels and production plans.
Nonfat Dry Milk and Dry Whey Prices
Nonfat dry milk (NDM) prices also experienced an upward trend, closing at $1.2550 per pound, the highest since February 2023. This increase was partly driven by a large Algerian tender and rising global dairy prices. Glanbia Nutritionals in Twin Falls, Idaho, and Leprino Foods in Denver, Colorado, are key contributors to the NDM market. Meanwhile, dry whey prices saw a slight decline to 55 cents per pound but remained 28 cents higher than the previous year. Saputo Dairy USA in Lincolnshire, Illinois, plays a significant role in this segment.
Supply and Demand Challenges
The ongoing debate about whether supply or demand is driving the market continues as both factors play crucial roles. On the supply side, milk production remains tight, particularly in the Midwest and parts of the West, where companies like Dean Foods in Dallas, Texas, and Borden Dairy in Dallas, Texas, operate. The U.S. Agriculture Department recently lowered its milk production forecasts for 2024 and 2025 due to lower cow inventories and reduced output per cow.
On the demand side, cheese exports have been strong throughout 2024, particularly for mozzarella and gouda, driven by Lactalis American Group in Buffalo, New York, and Tillamook County Creamery Association in Tillamook, Oregon. However, higher cheese prices could hurt exports as U.S. products become less competitive globally. Butter utilization, on the other hand, saw a decline in domestic use, while exports increased by 33.3%, supported by companies like Organic Valley in La Farge, Wisconsin.
Impact on Class III and IV Milk Prices
The rising cheese and whey prices have led to an increase in the Class III milk price forecast, which is projected to average $18.40 per cwt in 2024. The Class IV price was also raised slightly due to higher NDM prices, despite a reduction in butter prices. First Milk in Haverfordwest, Wales, and Saputo Dairy UK in Weybridge, Surrey, have noted similar trends in their markets.
As the market grapples with tight milk supplies, fluctuating demand, and rising prices, the question of whether supply or demand is driving the market remains complex. With new cheese capacity expected to come online later in the year, the balance between supply and demand may shift, potentially impacting prices. For now, dairy producers and consumers alike will need to navigate these turbulent market dynamics carefully, with companies like Kraft Heinz in Chicago, Illinois, and Meadow Foods in Chester, England, playing key roles in the evolving landscape.
