This is an abridged version of the dairy outlook for Q3 2024 from Terrain, our service for agricultural insights. For the full text of this article, visit terrainag.com.
Persistently tight milk supply created an opportunity for strong exports to drive prices to new heights for the year. But the new price level could be just enough to push us out of export competitiveness, leading to choppiness and the possibility of a downward correction later in the year.
The spring flush, the seasonal peak in milk production, has been marred by ongoing cow and heifer shortages along with the curveball of avian influenza. Milk production levels through April were down 0.7% compared with 2023. So far, in terms of milk production, 2024 looks much closer to 2022 than 2023.
Can dairy markets summon some of the price strength of 2022? The rally seen across Class III markets from April to May suggests they’re willing to try (see Chart). Domestic demand continues to do well, but shaky exports might not be ready to play along.
A Mixed Story for Exports
In terms of total milk solids, domestic demand was flat in the first quarter versus Q1 2023 and up 1.7% from Q1 2022. February and March both showed slight declines in domestic demand (down 0.1% and 1%, respectively), which could hint at some of the long-anticipated pushback against elevated prices.
However, the down months come at the end of a 12-month streak of positive gains averaging 3%. Whether recent months mark the beginning of a true slowdown in demand for American consumers (unlikely) or a brief pause to catch their breath will be an item to watch in the months ahead.
The real price driver on the demand side has been and will continue to be export markets. Largely uninspired in 2023, exports have perked up in recent months and brought commodity prices with them.
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