Dairy Market Report: Component Growth Rebounds in May

More milk means more dairy products, and healthy domestic demand combined with exceptional export volumes have prevented cheese and butter volumes from becoming burdensome at the CME even as prices are towards the lower end of their historic range. Conversely, exceptional domestic demand for proteins, both in the form of nonfat dry milk and whey protein concentrates, has reduced export availability for those products. Beyond the United States, global milk supply may be slowing for the first time in months as heatwaves impact milk production, particularly in the European Union, potentially setting the stage for improved global prices.

Turning toward the farm, the Dairy Margin Coverage margin edged up to $10.62/cwt, up $0.08/cwt from the month before. However, feed costs are expected to increase as heat waves and renewed purchases from China elevate CBOT Corn and Soybean Meal futures, potentially setting the stage for DMC payouts in July and August.

While not as direct as changes to the cheese and butter price, the boom in whey protein is helping support dairy farmer milk checks. As shown on the chart below, whey solids are increasingly being pulled into higher concentrations as prices soar. In fact, WPC80 and WPI now account for 77% of all whey protein processed domestically. While some of the increase has come from additional cheese capacity, the United States has also been reducing dry whey production, which has helped keep dry whey prices – which feed directly into Class III – supported.