Dairy Market Outlook Q1 2020

Milk production in the main export regions was up just 0.4% vs. prior year in the most recent month that data is available (November), and global supplies of milk powder are tighter than previous years. Price trends vary by product with higher butter/fat supplies keeping downward pressure on butter prices, but lower production and good demand for milk powder driving prices to multi-year highs. US cheese prices hit 5-year highs in Q4, a trend unique to the US market. Some analysts are forecasting prices to remain firm or move even higher in 2020. However, bearish factors include improving milk supplies in the northern hemisphere, a slow-down in demand due to higher prices, trade disputes, and uncertain economic conditions (oil prices, Middle East tension, potential recession).

The GDT index rose 2.8% on January 7 following a 5% drop on December 17, the largest percentage decrease since March 2017. Global milk prices remain firm given tighter supplies and uncertainty over milk production in Oceania. This is expected to continue in Q1 with lower prices possible in Q2, but dependent on milk production in Europe and the US.  

Milk Production

Summary: The pace of milk production growth slowed in the US and Europe and remains weak in Oceania. Production is expected to increase in the northern hemisphere into Q2 and spring flush.  

US milk production was up only 0.5% vs. year ago in November, down from 1.0 to 1.3% growth in October and September, respectively. Milk output continued to grow in the Southwest and Western states, with a rebound in some Upper Midwest and Northeast states. However, milk output in Wisconsin (-1.6%) and Michigan (+1.7%) fell from prior months’ pace. The year-over-year decline seen in Wisconsin was the worst since 2014. Part of the lower output can be blamed on unseasonably cold weather in November. But both states suffer from poor feed quality, both corn/corn silage and hay, from the 2019 growing season. More monthly data is needed to determine what was due to weather vs. feed quality, but this will remain a watch-out until new feed is harvested. US cow numbers were unchanged in November vs. October, which were revised higher. The year-over-year gap is the smallest since July 2018. 

As in the US, milk production in Europe posted modest gains of 0.5% in October and 0.7% in November. Of the major countries, gains were seen in France, the Netherlands, Poland, and Spain, offsetting losses in Germany, Ireland, and the UK. The EU dairy herd contracted in the first half of 2019 leaving fewer cows in production. Feed availability and compliance to environmental regulations are expected to keep cow numbers in check. The year-over-year comparison is easy through February, and milk prices are profitable. The growth in milk will help feed the significant expansion in cheese production in Europe, particularly Mozzarella. Overall, minimal demand growth combined with modest supply growth will result in surplus product for export.

Oceania milk output continues to trail prior year levels with both New Zealand and Australia seeing year-over-year declines in September and October, a trend that could continue for several more months. The outlook for New Zealand weather is generally positive for pasture growth and milk production. Given the weak finish to last season, year-over-year comparisons become easier by February. However, growth for the season is forecasted to be modest – up 0.5%. Australia is in worse shape as bushfires make global news. Cow numbers were 7% below last year to start the season and the mood of the farmer is not good.

In other key countries, milk production was mixed last year. Output grew in China, India, and Brazil in 2019, but fell in Argentina, with forecasts of additional growth in China and India in 2020. While neither country will export much, the growth in domestic production could reduce their need for imports. With growing production and exportable supplies from the US and Europe, the market is expected to be more in balance this year given the current outlook.


Summary: CME cheese prices have fallen back from 5–year highs, with a particularly sharp drop in barrel cheese prices, narrowing the gap between US and global prices.

October total US cheese production was down 1.4% vs. prior year, a rare decline and the largest year-over year drop since July 2011. American cheese production fell 2.4% below prior year while Cheddar output was down 4.1% vs. last year. By the end of October, the American cheese days of supply was near 10-year lows. In retrospect, this helps explain the cheese price rally in October and November. The latest USDA Dairy Products report showed production improved in November with total cheese production up 0.5% vs. last year with Cheddar down only 1.2% and American cheese up slightly. Total cheese stocks at the end of November remained below year ago by 2.1%, but anecdotal reports note improving supplies in December, validated by declining cheese prices through the month.

US cheese prices fell during December with an especially dramatic drop in the price for barrel cheese from $2.26 on December 2 to $1.57 on December 17. One factor for the cheese price rally was the late Thanksgiving and shortened period of time between the holiday weeks at the end of the year. There was effectively one less week to fill and ship orders in December, so that demand fell in November, helping push prices higher. By the time orders were filled, and plants didn’t want to make extra cheese at high prices, supplies freed up and prices moved lower. There has been renewed buying interest in January as companies backfill inventories and get ready for the Super Bowl weekend, one of the largest cheese demand events of the year.   


Summary: CME butter prices have fallen to 3-year lows on higher production and stocks while global prices trade sideways.       

In the US, butter production and stocks have been above year ago levels since June due to ample cream supplies and additional butter production capacity. In November, butter production was 4.4% above last year. Since June, the US has produced nearly 32 million lbs. more butter than the same period in 2018. As of November 30, butter stocks were 26 million lbs. above last year. With expected growth in milk supplies, cream and butter production will also increase in 2020.

US butter prices have steadily moved lower since peaking above $2.40 in July, and have closed the gap to global prices, which have remained range bound since late summer. The CME price fell to $1.88 on January 7 – the lowest price since November 2016. The long-term uptrend was broken in the fall with the next support level near $1.80.

Milk Powders

Summary: SMP/NFDM prices have pulled back in the last month, but the outlook remains firm given low global supplies.

SMP/NFDM prices have leveled off, but the momentum to the upside remains for Q1. The GDT SMP price fell 7% on December 17 before recovering most of those losses on January 7. European SMP prices have remained firm while US prices exhibited some weakness. The upward movement in the GDT price is supportive to global prices over the next few weeks before the next Event.

November milk powder production in the US rose 7% vs. October on a daily basis. Production was 5% above last year with NFDM output rising 5.7% and SMP increasing 3%. Stocks on November 30 were 23% below prior year, the largest year-over-year gap since January 2014. However, stocks rose 2.4%, the first monthly increase since June. Export demand reportedly slowed as Q4 wore on as prices moved higher. In addition, NFDM demand from cheese plants has fallen as class 3 skim milk prices decline. In Europe, milk powder production was up 0.8% vs. prior year through September. Q3 exports of SMP were 20% above last year and stocks are reportedly tight.

Chinese milk powder imports continue at a solid pace, but with lower SMP volumes offsetting higher WMP volumes. In November, Chinese SMP imports fell 18% from prior year at just over 25,000 MT. China shifted some purchases to Europe with less bought from Oceania. WMP imports in November were up 56% from last year. China imported over 62,000 MT of WMP in November, which was the second highest monthly volume in 2019 and the second largest for any month of November. The outlook for Chinese demand is dependent on domestic milk supplies, stock levels, and the economy.

Whey Products

Summary: Whey prices have bounced off their lows amid stronger demand.  

In the US, dry whey production was up 4% vs. last year in November and stocks finished the month 17% higher than year ago. Stocks have been basically flat for the last 3 months. Dry whey prices bottomed out near $0.30 and have moved higher since mid-November. Global prices have converged in the low-mid $0.30’s with forecasts for gradual increases over the year. The main watch-out is Chinese demand. If they recover from African Swine Fever (ASF) faster than expected, it would be bullish for whey prices.


Information contained within is not guaranteed, is the opinion of the McCully group, llc, and is intended for informational purposes only. Commodities trading involves risk and is not suitable for everyone. The McCully group, llc is not a licensed commodity broker nor trades in commodity futures markets.

About the Author

Mike McCully is the owner of The McCully Group LLC, which provides management consulting for dairy and food companies. For more than 15 years, Mike worked in dairy, meat, and grain management roles at Kraft Foods where he was responsible for the commodity risk management for dairy and meat, dairy policy, sourcing of dairy commodities, and corn purchasing.