August Dairy Market Report

Low milk prices and high feed costs – a.k.a. depressed margins – are slowly bringing U.S. milk production back in line with demand. Daily average production was down almost 2 percent from the spring flush high in April, a larger-than-usual drop.

Futures markets have taken notice, ending the long slide in their collective estimate of calendar year 2021 average milk prices beginning in mid-May. Rising cheese prices have been a key driver of this recent recovery. Although milk production is being channeled disproportionately into American-type cheese, growth in commercial use of such cheese hit double-digit percentages during the second quarter, while use of other types of cheese grew by fully half this amount. Domestic use of milk in all products showed a 1 percent gain, while exports continued their march toward a new record as a percent of domestic milk solids production.

Still, the price recovery is fragile: The delta-variant-driven fourth wave of the coronavirus pandemic is casting growing uncertainty over future demand. Product prices realigned themselves in July for the second month to produce federal order class prices that again generated positive producer price differentials in the component pricing orders.

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