The dairy industry faces ongoing challenges as milk prices remain low and demand struggles to increase despite favorable pricing. The futures market outlook for milk prices is pessimistic, with traders displaying a bearish attitude due to short-lived price increases in the past. Sellers of cheese reducing their offerings on the daily CME spot market could potentially impact the current situation.
Although current low prices would typically stimulate buying interest, the availability of supply and good but not exceptional demand has contributed to unaggressive buying behavior. Various factors have hindered demand growth, including increasing interest rates affecting consumer spending and rising food prices at retail and food service establishments. The latter has resulted in a slowdown in restaurant traffic, impacting dairy product consumption in the food service industry. Additionally, higher employee wages, a shortage of trucks and drivers, and increased costs of transporting products to consumers have further impacted the prices consumers must pay.
Despite low dairy prices, demand has not been as stimulated as expected due to the contrasting retail average prices, which have remained higher compared to a year ago. Retail prices for whole milk, natural cheese, and processed cheese have seen increases, limiting the potential impact of low farm-level prices on demand.
While cheese inventory has not significantly increased, limited production capacity stemming from labor, wage, and transportation issues has influenced the market. Manufacturing plants are running at the capacity of their current workforce rather than the full capacity of the plant. Consequently, milk prices on the spot market have been available at a significant discount to the Class prices, leading to challenges within the dairy industry. The Northeast Federal Order Marketing Order 1 has even authorized the dumping of surplus milk to manage the situation.
The combination of higher retail prices, low milk prices, and increasing milk production during the spring flush creates a challenging environment for the dairy industry. It is unlikely that these circumstances will resolve themselves in the near term. Stabilizing prices, finding a bottom, or achieving some degree of price correction would be considered a victory for the industry.