MRV BLOG: MRV Market Commentary May 4, 2023

Check in here to see the MRV commentary on what we have seen and are seeing in the dairy market.  These insights have been developed from MRV’s proprietary data, industry experience, and industry reports referenced below. Here’s our latest:

Domestic

Over the last month, we have seen some minor fluctuations in commodities like butter and some other larger changes in cheese. Domestically we are seeing commodities move their way back down with butter and dry whey seeing about a 2 cent decrease. While cheese, both block and barrel, and NDM saw a more significant decline in their price; barrel cheese had a decrease of 27 cents (MoM). Volumes for most commodities are relatively stable with little variation versus a month ago, the only exception is NDM which has increased about 36% (MoM).

Culling

The attitude of milk futures is completely flipped from a year ago. The dairy industry was concerned about supply due to heavy culling and now the number of head has hit its highest number since 2021. However, these lower milk prices have increased culling, and with cull cow prices being much higher than they were over a year ago when culling surged, this has resulted in estimates of more than 300,000 dairy cows that went to slaughter this past March (estimates from USDA). This is up nearly 40,000 from February this year and 8,900 versus last year. This is its highest total since the year of the whole-herd buyout program back in 1986.

The high number of culling may also be partially due to the Dairy Margin Coverage (DMC) program, as this program has supplemental income benefits that will keep some farmers in a better financial position than these lower prices suggest. There have been significant payouts to farmers this year, even with only three months recorded.

Trading and Storage

The recent cold storage report from USDA showed total inventories for cheese have stayed nearly the same as they were a year ago. Even though trading is still quite active on the spot market, the total inventories have not been increasing. Sellers have been providing more for the market so they could move supply, indicating either they intend to hold less product in inventory or that supplies are plentiful. Demand could be absorbing it, however, there are no indications that this is the case. This creates an environment of bewilderment in the industry which leaves the market bearish.

While cheese inventories remain relatively neutral, the shock of butter’s slight decrease caught many by surprise as butter stocks have grown from February to March the past two years.

Summary

Due to lower overall commodity prices and the high payouts from the DMC program, MRV Dairy Solutions forecasts class 1 items to be decreasing in June before steadily rising once again, albeit slowly. However, given the market and recent reports, the duration of lower pricing and future predictions further out are difficult to forese­­e.

Statistical data referenced here gleaned from reports by MRV Proprietary Data, Daily Dairy Report, Dairy Herd Management, and USDA.

This information cited by MRV Marketing, LLC is for informational and reference purposes only. It is not intended to be a conclusive statement of future market conditions. It is not legal advice or legal documents. The data used in these documents contains references to information created and maintained by other organizations or agencies. Please note that MRV Marketing, LLC does not control and cannot guarantee the accuracy of these outside materials.