August 2024 Dairy Producer Market Update

Key Takeaways:

Lower milk production and tight seasonal supply have lifted CME spot dairy product prices in recent weeks. With the swift rise in CME spot cheese, the forward curve for Class III futures has become very inverted, indicating that buyers have shifted strongly toward more cautious, just-in-time purchasing. As prices reach these elevated levels, CME futures are likely to see enhanced volatility, as market participants scramble to adjust their positions.
Margins for producers look fantastic. New crop corn and soybean meal futures have dropped to life-of-contract lows thanks to favorable crop conditions, with the market expecting solid yields. Feed costs are projected to be the lowest since 2020. Pair that with the recent rally in Class III and sustained high levels of Class IV, and the margin between milk and feed is looking very impressive, especially to finish out 2024. Farmers are likely feeling pretty optimistic right now.
Even with all this good news, bearish concerns persist. Additional Class III capacity is scheduled to come online later this year and into Q1 2025, likely leading to more cheese in the market. Further, the broader economic environment remains worrisome, potentially hindering consumer demand for dairy domestically and abroad. With favorable margins in the futures market, we encourage producers to take advantage to protect their bottom line.

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