Milk production strong worldwide

The “Mielke” Market Weekly

It was week three of the government shutdown with both sides of the aisle showing no sign of cracking, outside of some wise cracks or attempts at them. Again, the markets received no input from the various reports provided by the U.S. Department of Agriculture. This week there was no fluid milk sales report, no crop progress report, no dairy supply and utilization report, no livestock, dairy, and poultry outlook, and no weekly update on dairy cow slaughter numbers. Next week could mean the loss of the September milk production and cold storage reports, as well as the monthly livestock slaughter report, to name a few.

Meanwhile, the Daily Dairy Report’s Monica Ganley Quarterra said in the Oct. 10 Milk Producer Council newsletter, “Dairy markets, both in the U.S. and around the world continue to lean bearish as they digest the status of supply and demand. Milk production remains hefty the world over. Volumes in the European Union and the U.K. were up 3.3% in August as strong milk prices and favorable weather supported production. While animal health issues remain present, they have so far not derailed growth. European gains come on top of upbeat production in the U.S., New Zealand, and South America, further contributing to a world awash in milk. The global appetite for dairy products is stable to slightly stronger, but current demand is no match for the onslaught of supply.” 

Rabobank analyst Lucas Fuess echoed those remarks in the Oct. 20 Dairy Radio Now broadcast, saying that output is growing significantly in all key dairy regions of the world, even South America, which is easily forgotten as a dairy exporter. 

He said that U.S. output is measured against a year ago when we were dealing with avian influenza, but milk components are also higher and contributing to plenty of product to convert into cheese, butter and powder. 

October is traditionally New Zealand’s peak month, he said, and they’ve been seeing record output so far this season so October may be a record as well. And, while Europe had a slow start this year, output is climbing now.

Rising milk output has pressured prices lower and Fuess warned that U.S. producers will be seeing that reflected in fourth quarter milk checks. Lower feed costs and strong bull calf prices will help offset lower milk prices somewhat.

Speaking of animal health, the National Milk Producers Federation held its second in-person foot-and-mouth disease biosecurity training in Seattle the second week of October. The meeting evaluated the potential use of a bulk tank milk test for FMD surveillance at the herd level during an outbreak. 

The meeting was part of a project backed by a USDA cooperative agreement through the National Animal Disease Preparedness and Response Program.  

A new case of New World screwworm has been confirmed in Mexico about 170 miles south of the last confirmed case. The good news is that Agriculture Secretary Brook Rollins reported that cases in Mexico have dropped 28% from their peak and more checkpoints have been authorized there.

Chicago Mercantile Exchange block Cheddar, after dropping 9 cents the previous week, closed mid-October at $1.7750 per pound, up 7.50 cents but still 15 cents below a year ago. The Cheddar barrels closed Friday at $1.77, 6 cents higher and 24 cents below a year ago. There were 18 sales of block on the week and only one of barrel.

Dairy Market News reports that cheese production was lighter in the Midwest this week as some manufacturers were down for maintenance. Contacts say they are primarily selling spot loads of milk to Class I manufacturers, though some noted sales to other nearby cheesemakers. Class III spot prices ranged from 25 cents under to $2-over class at mid-week. Demand for Class III milk was steady from previous weeks but remained light overall. Export cheese demand is strong, and contacts say they continue to move significant volumes to international markets. Demand for cheese is generally steady in domestic markets, but some contacts reported increased mozzarella sales this week, according to DMN.

Cheese manufacturers in the West are receiving sufficient milk and spot loads are available as output increases seasonally. Cheese production is steady and available for most varieties although mozzarella was on the tight end. Domestic cheese demand is steady while exports are steady to strong. But cheese prices are generally declining globally, enabling international suppliers to increase their competitiveness with the U.S. 

HighGround Dairy’s Monday Morning Huddle said, “In early July, European gouda and mozzarella were at a 50 cent per pound (or more) premium to CME blocks but in a plot twist, EU prices are now less than those in the U.S. In just over three months, the European Energy Exchange gouda price has plummeted 61 cents per pound or 27%, while EEX mozzarella is down 57 cents per pound or 26%. For U.S. manufacturers, the loss of this discount means that exports will likely decrease as international buyers look for deals. U.S. cheese exports to South Korea, Australia and Japan have been a big part of the record-high sailings in 2025, and these sales may fall starting in first quarter 2026, as Europe becomes the preferred vendor.”

Cash butter climbed to $1.67 per pound Wednesday, then fell back to $1.6275 Thursday, and closed Friday at $1.5950, down a penny on the week, lowest since Feb. 26, 2021, and $1.0650 below a year ago. There were 30 sales put on the board this week.

Cream is available in the Central region, said DMN, but contacts say lighter demand from butter makers and increasing interest from Class II purchasers is pushing multiples higher. Mid-week multiples ranged from 1.05 to 1.27 in the region. Butter production is strong, but some plants report scheduled downtime was contributing to lighter output compared to recent weeks. Domestic butter demand is light. Retail sales are trending higher, but food service remains limited. International interest in 82% butterfat butter is strong and inventories are tight while 80% butterfat butter remains available, according to DMN.

Milk production and fat components are strengthening in the West, resulting in sufficient cream and many butter producers were not bringing in any extra. Cream multiples mid-week were unchanged from the previous week. Butter output is steady for the most part, with manufacturers working to build supplies for holiday demand. Unsalted inventories are reportedly snug but loads of both salted and unsalted are available. Domestic demand is steady. Export demand is strong, said DMN.

Grade A nonfat dry milk saw its Friday finish at $1.11 per pound, down 1.75 cents on the week, matching the CME price April 29, 2024, and 27 cents below a year ago. There were five sales for the week.

Powder continued its slide in the Global Dairy Trade’s Pulse auction Tuesday where 5.6 million pounds were sold, up from 5.4 million the previous week. Prices were down on both.  

Dry whey closed Friday at 65.50 cents per pound, up 2 cents on the week, highest since Jan. 30, all on unfilled bids, and 5.25 cents above a year ago.

StoneX said in its Oct. 14 Early Morning Update, “The main theme of the day for the dairy complex at large, with the exception being dry whey, is that we have plenty of milk and thus both the will and capacity to make plenty of product. Likely more product than demand would require. And, thus, the theme or sentiment of the market is highly bearish today.” It added, “Holiday buying is already underway and so far has not tilted the supply/demand scales too aggressively in either direction.”

Thursday’s Class III futures settlements saw the October contract fall to $16.96; November, $16.56; December, $16.52; January, $16.26; and February at $16.36.

The Daily Dairy Report’s Monica Ganley Quarterra said, “Whey demand, particularly for high value products like whey protein isolates and whey protein concentrates with 80% protein remains insatiable. Even record high prices have done little to dampen this demand or encourage reformulation. With the whey stream largely prioritizing production of these value-added products, the amount of raw whey available for dry whey production remains limited, keeping prices supported.”

“Dairy margins weakened over the first half of October on lower milk prices while the feed markets remained steady,” said the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.

“Increased global milk output has led to a recent sharp decline in dairy product prices across Europe and the Global Dairy Trade auction, which has eroded U.S. competitiveness and threatens export prospects,” the MW said. “European August milk production was up 3% from last year and the largest year-over-year expansion since 2018. Europe is making significantly more cheese and butter than it did last year, and the large discount that U.S. cheddar prices enjoyed relative to both the EU and other markets has been rapidly eroding. European exporters are trying to regain international market share, and record U.S. cheese exports so far in 2025 are under threat heading into next year, particularly to Asian markets including South Korea and Japan.” 

“In addition to increased milk output in Europe and the southern hemisphere, U.S. milk production is on track to grow 2% from 2024, the largest year-over-year growth since 2014 if realized. Given the synchronized growth in global milk production, dairy product prices may need to fall further to slow down and eventually reverse this trend, which may lead to a painful adjustment in the market. In addition, the U.S. will lose share in the global export market if cheese prices do not return to a discount, which may cause domestic inventories to swell with new processing capacity that has come online over the past year.” 

“The government shutdown has resulted in the October WASDE (World Agricultural Supply and Demand Estimates) report being canceled, with traders anticipating lower yields in both corn and soybeans as harvest advances,” the MW said. 

The Oct. 7 Daily Dairy Report made an interesting correlation stating, “High prices may be hurting dairy sales and not necessarily from dairy’s higher prices.” 

The DDR said, “Coffee and beef prices stand near all-time highs, raising costs for two of dairy’s most common pairings. A steep tariff on U.S. imports from Brazil, the weaker dollar, and weather issues there and in Vietnam boosted coffee prices up 53% from the prior year, when prices were already lofty.” 

“Those same tariffs also stymied U.S. beef imports from Brazil, and the U.S. recently closed the border to imports of Mexican feeder cattle due to New World screwworm. The interruption in trade has exacerbated the U.S. cattle shortage and pushed the price of live cattle ready for slaughter to $232 per cwt. (hundredweight), up an astounding 35% from the high set in 2014, the last time U.S. cattle supplies were comparably tight.”

“These high prices are pushing consumers to bypass the coffee shop, while incentivizing restaurants to feature chicken rather than beef,” the DDR said. “That means fewer sales of cappuccinos, lattes, cheeseburgers and steaks basted in butter.”

But dairy’s future is bright, and brightest when the industry is united toward common goals, said the chairmen of the International Dairy Foods Association and the National Milk Producers Federation in a joint press release.

“$11 billion or so in projects are happening or about to happen that will significantly grow industry capacity throughout the country,” said Daragh Maccabee, CEO of Idaho Milk Products and Chairman of the IDFA in a Oct. 14 podcast. “That means the processor community is stepping up, and we all know that the dairy producer community will do its part as dairy farmers always, always do. Aligned with that investment also comes furthering innovation capabilities or further investment in innovation capabilities so the U.S. can continue to lead the way in delivering value for milk in increasingly sophisticated ways.” 

The discussion covers the unique qualities of the U.S. dairy industry, including its scale, efficiency and sustainability. Maccabee and Mooney, who serves as chairman of the NMPF and Dairy Farmers of America, also highlighted the keys to industry progress but said, “Dairy faces challenges around labor shortages and trade uncertainty.”

“We need new laws that help farmers continue to have the labor that we need on the farms to produce the milk,” Mooney said. He sees that as the biggest critical issue that could affect future dairy production in this country: making sure the cows get taken care of and get milked under the labor standards that we have today. “Still, the industry’s overall outlook remains something to cheer about,” he said.