The government shutdown has resulted in the loss of this month’s Dairy Products report, the US Dairy Trade report, the World Agricultural Supply and Demand Estimates (WASDE), this week’s Crop Progress and Crop reports, among many others, which means less for the markets to feed on and less to report on.

Last month, you’ll recall the Agriculture Department raised its estimate of 2025 and 2026 milk output for the seventh month in a row in its WASDE report. I suspect this month’s issue would have echoed much of the same.

“Dairy margins were relatively flat over the second half of September as milk prices stabilized following steep losses over the past six weeks,” according to last week’s Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“Dairy product prices may be finding value at current levels although concerns remain over demand not keeping up with increased production,” the MW warned. 

“USDA’s monthly Milk Production report showed August output totaled 19.52 billion pounds, up 3.2 percent from last year and the eighth consecutive month of year-over-year increases. Milk output through the first eight months of this year is now 2.1 percent higher than during the same period in 2024.”

USDA also revised July’s production estimate higher to reflect a 4.2 percent increase from last year, 0.8 percent above the initial estimate. The increase was due to an upward revision in cow numbers and milk yields. USDA added 25,000 cows to its initial July estimate, with the August figure pegged up another 10,000 from July to 9.52 million head which is 176,000 higher than last year and the largest herd size since 1993. August milk yields rose 1.3 percent from last year also to 2,050 pounds per cow as cheaper feed costs helped to boost productivity.

“USDA’s Cold Storage report showed butter inventories at the end of August totaled 305.858 million pounds, down 7.7 percent from July and 5.7 percent below last year. The decline was more modest than the typical drawdown between July and August. Total cheese inventories of 1.42 billion pounds were up 1.7 percent from last year and down 0.8 percent from July. American cheese stocks of 818.182 million pounds were up 3.1 percent from last year though and 0.6 percent above July as they increased more than other varieties,” the MW concluded.

Speaking of cow numbers; Reuters reported this week that Mexico’s agriculture ministry has confirmed another case of screwworm, this time in Nuevo Leon, which borders the U.S., “marking the state’s second case in about two weeks.”

Dairy prices in Chicago weakened this week. The 40-pound Cheddar blocks fell to $1.7350 per pound Tuesday, but were trading Thursday morning at $1.76, after closing Friday at $1.79, highest CME price since Aug. 26.

The 500-pound barrels fell to $1.74 per pound Tuesday and were holding there Thursday, following a Friday finish at $1.77, highest since Sept. 3.

Eyes are on Europe where cheese prices are dropping to compete with the U.S. Dairy Market News reports that Central region milk production is steady but remains up from previous months. Class I purchases are strong. However, downtime at some cheese plants in the region added some spot volume. Contacts were moving some loads to other regions where inventories are tighter, according to DMN. Mid-week Class III spot prices ranged flat to $3 over. Cheese production is strong, despite downtime at some plants reducing their schedules. Last week’s increase in CME cheese prices contributed to an uptick in demand for bulk cheese, says DMN. Retail cheese sales are steady to higher but remain light overall and food service sales are light.

Strengthening milk production in the West is providing plenty for cheese vats. Cheese production was steady to stronger. Cheese producers noted mixed availability of loads for spot buyers this week. Some report production is largely obligated to contractual sales. Distributors and traders convey that mozzarella is somewhat tight, but other varietal cheese is widely available. Domestic demand is flat. The retail sector continues to be more robust than food service. Export demand varies from somewhat weaker to somewhat stronger, according to DMN.

After rising 3 cents last week, CME butter saw daily declines this week and fell to $1.6025 per pound Thursday, lowest since Feb. 26, 2021’s $1.47. It closed Friday at $1.75.

Milk output and component levels are strong in the Central region, says DMN, and there’s plenty of cream available. Demand is steady to light. Butter makers are utilizing internal cream for production rather than turning to the spot market. Churns are generally active in the region, but some plants scheduled downtime this week. Domestic butter demand was light. Retail sales are picking up but remain below some expectations. Spot loads of 80 percent butterfat butter are available, but strong export demand is keeping inventories of 82 percent product tight, says DMN.

Seasonally strengthening milk production and fat components were adding to already adequate cream availability in the West. Cream demand from butter makers was mixed and multiples were unchanged through Wednesday. Butter production was lighter to somewhat stronger. Plant managers convey some unplanned downtime, mostly due to equipment maintenance. Some butter manufacturers indicate that inventories are decreasing. However, more than ample loads of salted and unsalted product is available. Retail demand is steady to stronger and ahead of food service sales. Export demand is strong, says DMN.

Grade A nonfat dry milk closed Thursday morning at $1.1350 per pound, following a Friday close at $1.16.

HighGround Dairy’s “Monday Morning Huddle” stated: “The U.S. is not the only place with milk flowing; New Zealand’s season-to-date milk solids collections are up 4.2 percent, providing plenty of dairy commodity output. As such, Fonterra has increased its GDT whole milk powder offer volumes by 10,000 metric tons which will be allocated at events from October to February.”

The Daily Dairy Report’s Sarina Sharp wrote in the Oct. 3 Milk Producers Council newsletter, “Immense demand for high-protein products is using up much of the whey stream, but as cheese production climbs, manufacturers will have to dry more and more whey into powder. Thankfully, whey exports are decent.”

U.S. dairy cows are producing a lot more milk right now that is high in butterfat and protein, which is what U.S. dairy farmers are striving for. But, that’s causing some problems for dairy processors, according to a new report from CoBank.

Lead dairy economist Corey Geiger reported in the Oct. 13 Dairy Radio Now broadcast that the issue came to light especially in June, July, and August when butterfat was up over 5 percent from year ago levels. With half of U.S. milk going into cheese, the protein to fat ratio is off and in processing circles, they want a protein to fat ratio closer to .80 or slightly higher, says Geiger. Anything significantly lower than that can reduce cheese quality and compromise production yields.

Protein is the foundation for cheese, he said, especially mozzarella, and processors always had to pull butterfat off to make it or other Italian styles, but now even Cheddar, Colby, and Pepper Jack producers need to pull butterfat or else add milk protein concentrate to the milk to raise the protein content.