The August dry products report showed the fourth consecutive decline in human nonfat dry milk inventories, falling another 4 million pounds to 296 million across the country. Amidst a backdrop of increased culling, depressed dairy prices, and scorching summer temperatures, the U.S. dairy industry appears poised to enter a contraction phase of milk output (July-Dec). Despite worsening fundamentals across America, international prices, as evidenced by poorer performance of the complex in the Global Dairy Trade auction platform, have struggled since early July. The latest results showed a decline of 4.3 percent across all dairy product categories as buyers were reluctant to step up purchases. The poor international performance has kept a lid on price action domestically, even though cow numbers, yield, and output all appear to be in decline. 

As of the end of June, nonfat dry milk inventories across this country are 7 percent lower than June 2022. Current inventory levels are also 15 percent lower than June 2021 and down 4 percent from the five-year average. There is a high probability that stocks will now continue to ebb throughout the second half of 2023, creating a more bullish scenario for the dairy market as 2024 gets closer. If the herd continues to fall as productivity falls in the second half of the year, the net result will be decreased milk output. Lower output should translate into less surplus milk making it to balancing plants with dryers geared toward production of low-heat nonfat dry milk. 

The full version of this commentary appeared on our IQ platform Aug. 9, 2023. Further information, statistics, and pricing for the dairy market are available to IQ subscribers. Learn more about becoming a subscriber. 

Posted by: Information Services
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