Dairy Processing - July/Aug 2024 - 79

drag on milk production until the entire US herd builds better
immunity to it. Thus, milk production should improve a little
in the second half of the year, but it won't be strong. There is
a small chance that HPAI stays largely confined to the states
where it currently is and burns itself out in coming months,
which could help milk production growth in the second half of
the year.
PRODUCT OUTLOOK
The story on demand is really mixed depending on the product,
the particular month and whether you look at domestic
consumption or exports. Cheese exports have been fantastic,
while domestic demand for whey protein isolate (WPI) has been
incredible in the first half of 2024. Other than WPI, domestic
demand is somewhere between normal and a little weak for
most products.
Cheese: The big market driver for cheese this year has
been domestic demand. Domestic
disappearance was down more than
3.5% in January and February
but rebounded to +1.3%
growth March to May
compared to last year.
The long-run average
growth is 2.5%, so we're
still running weaker
than average; but the
stronger domestic
demand helped to push
CME spot prices from
around $1.50 in the first
quarter to the $1.80s in the
second.
Butter: Exports have been very
strong all year, hitting a new record high in March, driven
by cheap US prices and very strong demand from Mexico.
Domestic demand is expected to continue to grow, but remain
below average. Now that US prices have shifted higher, we
should see a slowdown in exports, but demand from Mexico
is a potential bullish wild card in the second half of the year.
CME spot butter averaged $2.88 for the first half of the
year, which is the highest it has ever been for that time of
year (the next highest was $2.75 in 2022). There was fear
that the weak milk production would limit butter production
and the market might run short in the second half of the
year. However, the weak cheese demand left more milk for
butter and the amount of fat in the milk has been better than
expected, so butter production has been pretty strong, up 4%
YTD, after adjusting for leap year.
Domestic demand was strong in January, then fell off in
The story on demand is
really mixed depending on the
product, the particular month and
whether you look at domestic
consumption or exports. "
February through April. Signs pointed to high price levels finally
killing off the demand growth, but the preliminary data for May
suggested domestic sales were up an amazing 18.1% from 2023,
which put YTD domestic sales up 2.9%. That added some bullish
uncertainty back into the market and we could stay above $3.00
until there is more certainty about how supply and demand are
shaping up for the second half of the year.
Nonfat dry milk (NFDM)/Skim milk powder (SMP):
Production was weak in the first half of the year (-16.2% YTD),
but demand also was weak, with domestic sales down 37.7%
YTD and exports down 11.7%. Protein is being directed into
milk protein concentrate, casein and condensed/ultra-filtered
milk instead of NFDM/SMP, so production is expected to
remain weak, even if milk production improves a bit. With US
production down, the market could rally if demand improves
in the second half of the year.
Whey products: The biggest drivers have been very
strong domestic demand for WPI and good exports, which
caused processors to pull liquid whey from plain dry whey
and low protein whey products and push it into high protein
whey protein concentrate (WPC) and WPI. Demand has
remained strong in the second half of 2024 and prices remain
high. The reduced production of dry whey also tightened the
low end of the market. However, dry whey prices globally
have been fla,t which is going to keep the export market
competitive and might limit upside for dry whey prices in the
second half of the year.
In general, US dairy prices in the second half of the year
are expected to be higher than the first half, supported by
seasonally tighter supply and continued weakness in milk
production due to HPAI and a lack of heifers to grow the herd.
The upside could be limited by weaker demand at the high
price levels and a potential mild improvement in production
due to the profitable margins.
Editor's note: The trading of derivatives such as
futures, options, and over-the-counter (OTC) products or
" swaps " may not be suitable for all investors. Derivatives
trading involves substantial risk of loss. Past results are not
necessarily indicative of future results.
Nate Donnay is the Director of Dairy Market Insight at
StoneX Financial Inc.
DAIRYPROCESSING.COM | JUL-AUG 2024 79
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Dairy Processing - July/Aug 2024

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