Key Takeaways:
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Supply side dynamics are the main storyline behind recent market movements in the major dairy commodities. In July, U.S. milk production was down from prior-year levels for the thirteenth straight month, and lower production of Cheddar cheese, dry whey, and nonfat dry milk has led to tighter inventories. While demand for these products lags prior-year levels, supply constraints have been the main force pushing prices higher. With stronger prices across all dairy commodities, producers are presented with greater potential revenues in the coming months.
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The feed cost outlook is fueling further optimism for producers. Corn and soybean meal futures for the upcoming crop season hit contract lows last month, reflecting expectations of a bumper harvest with record yields. After three years of soaring feed prices, this should provide some much-needed relief to farmers.
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Milk prices are historically high while feed costs are at multi-year lows. The margins currently being presented in the futures market are exceptionally strong, pushing to some of the highest levels seen in the last ten years and providing excellent opportunities for producers to secure a margin ahead. As challenges to expansion persist, including pricey replacements, these favorable margins should enable producers to pay down debt, improve yields, and invest in their operations.
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