Weekly forecast update – Mar. 25, 2022

Forecast updates

  • No significant changes to the forecast this week – for cheese, butter, and NDM.
    • Adjusted for spot market impacts.
  • Adjusted buttermilk and WPC prices higher based on market trends.
  • Reduced whey prices Q2 to Q3 forward.

Fluid Milk Market

USDA announced the April 2022 advanced Class I base this week at $24.38/cwt – up $1.50 compared to March. The Class II advanced skim price is $15.21/cwt. That is the highest Class I price since May 2014. The Class II skim price has not been that high since September 2014. There are mounting concerns that higher prices could eventually take a toll on demand. Presently, there are worries that food supplies could be insufficient this year – that may help explain some of the recent buying frenzies that have lifted CME dairy and milk futures to highs never experienced. Based on the continued war in Ukraine and global milk supplies lagging last year.

US milk production totaled 17.5 billion pounds in February, 0.96% lower than the previous year, driven by fewer cows. In February, the herd totaled 9.37 million head and 84,000 fewer cows than last year. Output per cow totaled 2003 pounds per cow and 0.1% more than last year. Cheese-producing states continue to push production higher. Mideast and Northeast milk production slows compared to the previous year. Milk from New Mexico is substantially lower.

Cheese Market

At the beginning of the week, there was a sizeable gap between spot cheese prices and futures markets. Given the April 2022 futures pricing is underway, either spot had to move up or futures down. Throughout the week, spot markets increased, closing the gap to the futures projections. By Friday, futures markets began to ease a bit. CME Cheddar blocks averaged $2.2205/lb, up 10.7¢ compared to the prior week. Barrels increased to $2.175/lb – 16.6¢ more than the preceding week. In the end, the block-barrel spread was 4.55¢ – narrower than in recent weeks. Futures are projecting cheese prices shy of the $2.30 mark for the remainder of the year. If those prices come to fruition, they would easily surpass the 2014 record. While prices appear high – overseas prices are presently near $3/lb.

US cheese stocks totaled 1.47 billion pounds – 2.3% more than the previous year. That was a 24 million pound build between January and February. Year-over-year there was 30 million pounds more than the previous year. Given the incremental production capacity compared to last year, that is a modest increase. That supports prices and may explain limited selling volumes at the CME as of late. It suggests that exports and domestic volumes remain elevated vs. last year. It explains above-average pricing for this time of year.

Butter Market

CME butter futures followed a similar trajectory to cheese – higher prices at the start of the week, with prices declining by the end of the week. Price averages fell below the $2.70 mark by the end of the week; still, prices remain elevated. Spot butter averaged $2.795/lb – 6.9¢ higher than the previous week. Butter markets had a similar story to cheese; domestic prices appear elevated, to the point of concern that consumers may eventually slow purchases. However, when compared to global butter prices in the mid $3/lb range for equivalent butterfat, prices are reasonable in the export market. Additionally, many forecast the consumer response to higher prices could be delayed due to two years of supplemental payments with few opportunities to spend.

US butter stocks totaled 263 million pounds as of Feb. 28 – that was 25.8% less than last year. Stocks were less than last year, and pre-pandemic levels. Again that level of stocks helps explain why prices are above-average for this year. The stock build between January and February was 44 million pounds – modestly above the five-year average pace of 39.2 million pounds. Stocks are below last year, but the overhang of 50 million pounds last year depressed prices well below the five-year average. Fewer stocks influence higher prices; however, higher overseas costs will likely drive well-above-average prices.

NDM/SMP

After rising to $1.88/lb, spot market dropped on Friday. Spot NDM prices averaged $1.865/lb – 1.35¢ higher than the previous week. There were several reports this week that supported milk powder prices. The story continues to be lower year-over-year milk production and less milk headed to driers. Trading volumes picked up with 26 loads changing hands this week. There have been some anecdotal reports that some western NDM is headed to storage – there may be some incentive to sell products given the high value.

The week’s biggest news was Chinese imports for the first two months of the year. China imported 662 million pounds of WMP -25.1% more than last year. That was well ahead of the five-year average pace for that time of year. Most of those increases came from New Zealand. The news was somewhat a surprise to markets as most forecasters believed that China’s imports would slow this year compared to last year. The largest importing month of the year started as the highest import volume on record. China imported 168.2 million pounds of SMP during the first two months of the year – 12.1% lower than the previous year.

Whey & Lactose Products

CME whey markets slipped this week on news that China imported significantly less whey in early 2022, with the United States suffering the biggest losses. That caused a sizeable sell-off in the futures. Spot whey prices averaged 74.6¢ – down 1.3¢ from the prior week. Dairy Market News Central and Western prices declined also. For the first time in a while, lactose prices move up.

China imported 152.7 million pounds of whey during the first two months of the year – 44.6% less than the previous year. Fewer imports from the United States accounted for most of the declines. That is consistent but higher than US exports would indicate.