More milk, more product—and maybe more volatility? This month on Forecast Update Live, the Ever.Ag Insights team digs into surging milk production, rising dairy product output, and surprising strength in both domestic and export demand. Plus, a deep dive into how beef income is reshaping dairy farm profitability.
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Hello and welcome to Forecast Update Live, a video series from ever again sites where each month we gather to discuss our dairy market forecast. I’m your host, John Spain. Our. We’re joined today by Erica McKee and Philip Plaut to get us started. Erica, please run us through the highlights of this month’s forecast. Compared to last months.
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We took the bold stance of not changing much. So as we look at the forecast going forward, we did take a little bit of the peak off of butter later this year. It seems like there’s a lot of it around and also took up the way numbers a bit, just as a continued strength in the both high protein complexes spilling over into a sweet way.
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Okay, every month we asked our panelists to take either the Bulls side of the story or the bear side of the story. Erica, you taking the bear side of the story this month? Take it away and let us know what you’re seeing out there.
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Well, John, there’s two important pieces all related to supply. That to me are the real bearish signals in this market. The first is we have more milk and the second we have more products. So just thinking about the globe in general here in the United States, very very strong numbers in June USDA coming out with plus 3.3% in terms of U.S. milk production growth compared to last year.
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And as we look ahead for the rest of the year, I still see three reasons for milk production growth. One is margins are good on the farm. So we are going to continue to see organic growth off the farm. We have new capacity. That’s number two. People want milk. There are places to go with new milk. We’re going to see more milk.
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And then number three is just a numerical calculation that we had avian influenza sweeping through the country last year. And we will be comparing against lower numbers. So you’ll see some year over year comparisons that are a little easier looking around the world. Europe has actually surprised us. They are slightly positive on a year over year basis. If the diseases can stay at bay.
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They may come out with more milk than folks were expecting. Margins there are good as well. And then as you look to New Zealand, they are just wrapping up the 2425 season with a bang. Now, I don’t put a lot of stock into the last numbers of the season as it is their smallest month, but it was very, very strong in terms of milk supply.
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Expect to see that continue into the new season. So that’s the milk supply. We think we’re going to have milk. And then number two from a product perspective amazing dairy products report today. Very strong cheese production was up 4.2% on a year over year basis. And if you look at for the month of June, normally it’s a negative.
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And so we actually swung in the opposite direction almost 76 million pounds. And when you look at butter it’s a similar story. Butter production in June was up 10.4%, a swing from the five year average by 45 million pounds. So clearly we have the milk, we have the product. And that’s up against demand. That is stable at best.
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All right Erica, thank you very much. So this month you’re our bull.
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Yeah. It seems possible that Matt was out of town today because no one wants to argue the bull case, right? That’s going to be my theory. But I will say this. And this is only half joking. I think the biggest reason to be bullish is that everybody’s bearish. And the milk production report that came out a couple of weeks ago, we were mildly surprised.
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We’ve been kind of on the I think we’ve been on the more milk side of the ledger, more so than others, but 3.3% surprised to the upside even for us. And so I think seeing 146,000 extra cows seeing milk production up by more than 3% and seeing the market’s faltering a little bit when historically, sometimes they go up in the month of July.
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I think some people are getting really bearish and I know we’ve kind of been bearish. Net net net. And so I’m always thinking that when everybody else comes into the room, maybe it’s time to look for another room to be in. Mind you I’m I’m leaning toward the doorway. I, I’m having a hard time crossing the threshold. But it’s always interesting when everybody’s bearish to see what happens in the marketplace.
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It’s often bullish. If you wanna look for something more concrete, it would be that, you know, cheap stocks aren’t overwhelming. They were up year over year. Butter stocks down year over year. In the last report butter demand has been okay. Powder doesn’t really seem to be too long anywhere in the world. And so I think that we’re not as long of some products as you might guess in the current environment.
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And we do have seasonal demand coming around the corner. We’re already starting to hear about a pretty good draw of milk into the southeast as schools get going. It’s been hot in the northeast, I think, though production there’s been a little bit less exciting. And so I think the draw of milk away from the Midwest into the South will be bigger this year.
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So I think that milk could be a little tighter here over the next few, yea, few weeks, 5 or 7 weeks, then some people expect. And so that that could create a fertile ground for a rally. Remember in the cheese market especially, all it takes is a shortage of 4 to 30 day old cheese to generate a rally?
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I’m not saying that we expect real fireworks, but I think that, you know, could we get short? Sure. We could get short for any couple of week period.
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So just, you know, bring in Eric his conversation about dairy products involved here related to butter. Erica, you noted that butter production was up quite a bit from month to month and year over year. And yet our stocks report came in lower. And you know, now that we have the exports will run the balance sheets. But I suspect it’s going to imply that there was a pretty darn good domestic butter demand.
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Is that the case from.
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An export perspective? That’s been kind of the release valve, 115 million pounds of cheese. That’s a record for the month of June and a 100% increase in butter. So that’s definitely been a place where product has been going to keep it out of domestic markets here in the U.S.. Phil.
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Yeah, I almost forgot that, you know, the export story is not new, but that is also still bullish, right? We moved record amount of cheese as Erica said. But our exports were good. So you know we’re not likely to get too long on product sitting on our shores if we can keep moving it to other countries. To your point about butter, demand for the month of June, I calculate domestic implied you says up 7% year over year for the first six months of the year.
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Domestic butter demand was up 4%. And the retail numbers, you know, kind of don’t argue with that all that much. So we are seeing a little bit more butter consumption and that’s not unfriendly for sure.
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Those are big numbers out there. And as we’ve said in the past, we’re going to need those demand numbers because we’ve got a lot of milk and a lot of finished goods coming at us. Okay. Every month, Phil brings us what we refer to as the favorite. Look, Phil, I’m excited to see what you’ve got this month for us.
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Yeah, this is a really cool one. And this is really Matt Gould’s work. We’ve been trying to get a quantitative handle on the impact of beef income on dairy farm finance. As you know, lots of beef and dairy animals. They’re worth a lot of money. Beef futures prices, live cattle futures prices hit all time record highs again in the past couple of weeks.
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And so we see that beef income going higher higher and higher. And one of the first cuts that Matt’s taken at the data shows that in the month of June we estimate that beef income. So that’s from cull cows and calves added up to more than $4.35 per 100 weight, which, you know, the long run average is about a buck 25 to a buck 50, and we’re up to $4.35.
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It actually added up to about 17% of milk income in the month. We’re also trying to figure out what the impact on profitability is. Max theory is that beef income could be making up as much of dairy farm profitability as the milk side. We’re still working out the data on that, but 14% of of total revenue is a big number, way up from where I’d been hanging out in the past.
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And so this beef thing is big and getting bigger.
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It’s pretty amazing. And I’m guessing that’s just not a discussion that we’ve ever really had before.
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Dairy farmers have always been in the beef business to some degree, but dairy farmers are really in the beef business now. Yeah. Stay tuned. We’re gonna keep digging on this one.
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Okay, that’ll do it for this month’s episode of Forecast Update Live. Thank you to our panelists. Thank you to everyone on the Ever AG Insights team for your work on the forecast. And thank you, the viewers, for tuning in. If you like this video, be sure to subscribe to our YouTube channel. Give us a thumbs up and share with a friend.
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We’ll see you next month for another edition of Forecast Update Live.
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