Key Takeaways:
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With US milk production up 3.2% year-over-year in August, domestic demand has not been strong enough to absorb the increasing supply of milk, butterfat, and dairy products. Global milk supplies also remain abundant, adding further pressure to both domestic and international markets. Notably, EU cheese prices have fallen below those in the US, limiting near-term export opportunities and likely weighing further on the US cheese market. While all of this is happening, the government remains shut down, delaying key USDA reports and making it harder to assess the current supply and demand situation.
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Key crop reports, such as Crop Progress and WASDE, are also unavailable during the government shutdown, causing traders to operate on limited data. Even so, the market continues to anticipate lower corn and soybean yields, while still predicting record-large crops. Geopolitical tensions are adding further headwinds, as a US–China trade agreement that could bring Chinese soybean demand back to the US appears increasingly unlikely. For now, South America continues to capture that business, leaving US exporters largely on the sidelines.
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Beef values reached another record high this week, helping support producer margins even as milk prices continue to decline. Strong milk output has pressured prices lower, but added beef revenue and multi-year low feed costs are keeping margins favorable for now. While there is increasing chatter about base programs and market adjustments being implemented to curb production, milk prices may need to fall further before a meaningful contraction in the milk supply occurs.
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