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What is moving the price of dairy commodities that are used to price producer milk?

Producer milk prices are low.  They are down because the commodities used to price producer milk are low.  Why are they low?  The commodity prices are based on actual transactions of purchases and disappearance from wholesale inventories of these products.   The milk pricing process is managed by surveys conducted by the Agricultural Marketing Services (AMS).  The commodity prices are influenced by the availability of these commodities.  This post will examine the wholesale inventories, production of the commodities, and the exports as well as domestic commercial withdrawals.

Below are the most current data on butter, cheese, nonfat dry milk (NDM), and dry whey.


Butter is maintaining its price and the price is decent.  As shown in Chart I below, butter inventories are normal.  In 2023 May inventories were 5% higher than 2022 and 16% lower than 2021.  This is consistent with the pricing in 2021 and 2022.  In 2021, butter prices dipped when butter inventories were high.  In 2022, inventories fell, and prices escalated.  By 2023, inventories of butter are midway between 2021 and 2022 levels and so are the butter prices.

Butter production (Chart II) is currently higher than the prior two years.  This could lead to higher inventories and lower prices.

Butter withdrawals from inventories for domestic use have declined in 2022 and 2023 (Chart III).  This indicates a reduction in domestic consumption which would swell inventories.  Data on domestic consumption will be reviewed in an upcoming post to this blog.

Chart IV shows a major drop in butter exports in 2023.  Butter net exports have now returned to negative numbers as U.S. is presently importing more butter than it is exporting.  Exports have decreased in 2023 and imports have increased.  This could cause an increasing supply of butter later in 2023. and decreasing prices.  The charts below in total suggest that butter inventories may grow, and prices may drop in the upcoming months.

Chart I - Butter Inventories
Chart II - Butter Production
Chart III - Butter Domestic Disappearance
Chart IV - Butter Net Exports


Cheese saw some inventory drops in 2022 and some significant increases in inventories in 2023 (Chart VI).  Cheese pricing is based on cheddar cheese only.  As shown in Chart V, cheddar cheese has consistently made up about 70 percent of American cheese.  Cheddar inventories are not available but using 70% of American cheese is a reliable way to estimate cheddar cheese inventories,

The inventory of American cheese (Chart VI) took a dive in late 2022 and early 2023 but has recovered significantly in Q2 of 2023.  The lower inventories did bring higher prices, but in Q2 of 2023 the inventory has ballooned, and prices have taken a major fall.  Production of cheddar cheese (Chart V) is a little bit higher contributing to the inventory buildup and lower prices.

Domestic withdrawals (Chart VI) have been high and should reduce Inventories (Chart VI) and increase prices.

Cheddar inventories will have to decline before prices increase.  This is at best a slow process.  Expect low cheese prices to continue in the coming months.

Chart V - Cheddar and "All Other" American Cheese Production
Chart VI - American Cheese Inventory
Chart VII - Production of Cheddar Cheese
Chart VIII - Domestic Disappearance of Cheese from Wholesale Inventories.
NDM prices are controlled by export pricing.  As shown in Chart IX, export volumes far outweigh domestic use.  The biggest export market is Mexico.  Chart X shows the decreasing domestic inventory of NDM, which would normally cause an increase in prices.  However, international market prices have declined and reduced AMS prices of NDM.
Chart XI graphs the production of NDM.  Production is up over the past two years. Typically, this would increase inventories and further lower prices, but for NDM, the price is influenced primarily by global events.  The economies of many countries are struggling and will probably continue to hold NDM prices low.
Chart IX - NDM and SMP Domestic Withdrawals and Exports
Chart X - Nonfat Dry Milk Inventory
Chart XI - Nonfat Dry Milk Production
Dry Whey is a byproduct of cheese making.  Drying the whey and using it in both human and animal forms is the highest financial use for whey.  As mentioned in the prior post, in 2022 and 2023 the AMS price of Dry Whey has varied from $.80 per pound to its current $.26 per pound.  
Domestic inventories of dry whey (Chart XII) have increased significantly in recent months which will keep prices low.  This is caused by a drop in export volumes (Chart XIII) and a significant increase in production (Chart XIV) in the recent months.
Chart XIII shows the volume of domestic use and exports.  The average volume of combined domestic use and exports has not varied much between 2022 and 2023.  
This leaves a conclusion that dry whey prices will continue to be low.
Chart XII - Dry Whey Inventories
Chart XIII - Dry Whey Domestic Disappearance and Exports
Chart XIV - Dry Whey Production

There is little reason to expect any major changes in inventories of the commodities used to price producer milk.  Stability can be good, but higher prices would also be good.  The year 2023 is shaping up to be a year of survival for producers.


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