The worsening milk supply situation, confounded by the European drought, seems to be dominating dairy commodity market decisions at the moment.

While the New Zealand-based (NZ) Global Dairy Trade (GDT) is showing signs of weakness recently, it looks like European prices are going in the other direction.

While they have been up and down in the last week, they have been more up than down.

We’ve seen price increases in butter, skim and cheddar, with EU whole milk powder holding firm.

All eyes are still on the US in terms of milk supply side of the house. We know the EU supply is not going to improve drastically, despite the very good milk price and something similar is happening in NZ.

US milk production in July was just above last year’s level, which is a break in the trend, as we have discussed in this column previously.

USDA numbers show July milk up 0.3% compared with the same month in 2021. There are fewer cows in milk, but what is in milk is producing more.

The increase in milk is coming from the big dairy states, mainly California and Texas, where ongoing weather issues have been a problem.

High milk price is helping the supply bounce and the feed conversion efficiency, with falling grain prices helping.

Food inflation is biting, we understand, with lower purchasing power for US citizens.

Market analysts attribute the purchasing decline to skyrocketing inflation that is eroding purchasing power. US export numbers are up 10% of late.