A Mixed Bag of Fundamentals Lead to an Uncertain Outlook for Dairy in 2024

At first glance, things appear shaky for dairy. U.S. milk production is contracting, dairy exports are sluggish, and demand remains at risk, as global economies struggle with high levels of inflation. While the spot butter market is near all-time highs and both powder and whey are coming off multi-year lows, the price for cheese remains unexceptional at this time. Not surprisingly, it feels like milk futures could suddenly turn bullish or bearish at the turn of a dime. With this in mind, let’s examine the cases for both a strong and weak 2024 market, and discuss how a few hedging strategies can help you manage risk regardless of which direction the market ends up leaning.



The Fundamentals Favoring a Bull Market in 2024


Let’s first take a look at reasons to be optimistic as dairy farmers head into 2024.


Potential Bull Market Driver 1: Contracting Milk Production


From 2011 to 2021, United States milk production grew an average 1.5 percent over the previous year’s same-month production. Additionally, over that 132-month period, milk production output contracted from the prior 12 months only 15 times – just 11% of those 132 months! In contrast, since January 2022 and over the last 21-month period, United States milk production has contracted nine times, or 43% of the time. This is a big shift.


Not surprisingly, this tight production window has coincided with the recent decline in total United States dairy cows on farm, which sharply fell by 137,000 head from the May 2021 peak through September 2023. Record-high cull cow prices coupled with low milk prices have led producers to cull additional cows, thus keeping the herd in check. It could take time for United States dairy farmers to rebuild the cow herd, which would keep milk production output tight for months to come. Should this trend continue, it should support higher prices.


Potential Bull Market Driver 2: A Record United States Butter Market


The spot butter market rose an impressive 34% from the August low of $2.6150/lb to the early October high of $3.5025/lb, led by steady retail and restaurant demand as well as a tightness in cream availability. For a number of weeks now, the regional butter reports have stated that cream availability is tight, and a lot of cream is already committed to contractual obligations. The upcoming holiday season should keep support under the market as well. This rally in butter is already being felt in the Class IV milk market. Contracts are approaching $22 per hundredweight and currently hold a $4 premium to the Class III trade. If record butter prices are here to stay, milk futures will need to stay strong for the foreseeable future.


Potential Bull Market Driver 3: the Cyclical Nature of the Dairy Markets.


Milk futures have tended to be a very trendy market. Because of the length of time it takes for production shortages to recover or production gluts to retreat, the market is generally slow to change direction. Currently, dairy appears to be starting a new uptrend on the heels of a lengthy downtrend from the April 2022 peak to the July 2023 low on the second month Class III contract. This potential uptrend aligns with the tightness in milk production output and the declining cow numbers.


The Fundamentals Favoring a Bear Market in 2024


In spite of some of the factors that look positive for dairy, there are still quite a few things working against it that could once again lead to lower prices in 2024. Let’s explore them before we get overly optimistic about the chances of a bull market.


Potential Bear Market Driver 1: U.S. Dairy Exports


For the past few months, U.S. dairy exports have taken a significant hit and are a concern moving forward. Struggling economies around the globe are impacting demand; at the same time, the global market prices for dairy products are at very competitive levels and in some cases are significantly lower than the U.S. market currently. This has contributed to a 7% contraction in total U.S. dairy exports from January through August 2023 versus the same period last year. With global dairy market prices near 5-year lows, it may take time for the export demand window to turn positive again, which means we could be looking at lower milk prices in 2024.


Potential Bear Market Driver 2: an Overly Sticky Cheese Market


Additional weakness could stem from a U.S. cheese market that just doesn’t seem to want to rally. As of the time of this writing (mid-October 2023), the U.S. block/barrel cheese average was at $1.6725/lb, which is almost right in the middle of the high of the year and the low of the year. There continues to be strong selling pressure in the cheese trade whenever the market approaches $2.00/lb or even $1.90/lb. Total U.S. cheese in storage for the month of August just hit a new record for that particular month and a weaker export picture could keep inventories high for this next year. It has been reported in recent Midwest cheese reports that cheese production schedules have been steady as well. A weaker or even just a middle-of-the-road cheese market could hold back milk futures this next year.


Managing Your Marketing in an Uncertain 2024



With so much uncertainty heading into 2024, marketing milk and utilizing the various hedging tools available are more important than ever. As a hedger,


• Avoid taking just one shot at the market and putting a lot of coverage on at once. Instead, use an incremental approach to spread out the risk and to build a potentially strong weighted average price over time.
• Consider using fixed-risk hedging tools (1) to leave the topside open for you to take advantage of good prices the market may offer and (2) to put a floor under the market to protect price in the event the market turns downward.
• Be careful to watch how much future production you sell early. There may be times on rallies to get more aggressive and use futures or contracting as a way to hedge; however, be sure to only use a small portion of your expected milk production in case the market stays bullish for an extended period of time.
• Finally, work with a professional at Total Farm Marketing who can help you build a strategy with research and data backed behind the decision-making. A mixed bag of fundamentals could lead to a volatile year ahead.


We’re here to help.



Do you have questions about dairy market fundamentals or strategies to help protect the price you receive for your production in any market environment? We’re here to help. Give Total Farm Marketing a call at 800.334.9779.


Evan Disher

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