Weekly forecast update – Jun. 17, 2022

Forecast updates

·       July 2022 Class I milk price is forecast unchanged to June, but with a lower skim milk price and a higher butterfat price.

·        Adjusted 2H 2022 Cheddar cheese prices modestly lower.

·        Adjusted Q3 2022 butter prices modestly lower.

·        Adjusted 2H NDM prices – moved some months up, but mostly lower.

·        No change to whey or WPC forecast.

Milk Market

Anecdotal reports indicate that milk is rising seasonally and that output-per-cow is improving. Plants and haulers are still having labor issues. In some cases, there are reports that some milk in California is being dumped due to a lack of hauling to move products long distances. This seems to be a persistent issue this spring and one that is unlikely to resolve itself before milk abates due to warmer weather. The weather has been ideal for milk production for the past few weeks.

European milk production remains less than last year. With Sweden left to report, EU-27 April milk production was 0.7% less than the previous year. Lower global milk production output continues to support above-average prices; however, there are some signs that demand may be easing, causing prices to retreat from recent highs.

USDA will release the July Advance milk prices next week on Thursday due to the Juneteenth holiday.

Cheese Market

CME cheese prices moved decisively into the teens this week. Blocks averaged $2.1705/lb – down 10.25¢ from the previous week. Barrels averaged $2.1795/lb, 7.9¢ lower than the prior week. That closed the block-barrel spread to 0.9¢. Despite the significantly lower spot market – JUL22 futures ended the week at $2.30/lb. That is a considerable gap given that CME spot will begin to price the JUL22 futures starting next week – an indication that futures need to move lower or spot prices higher over the next few weeks. Overall, demand remains good, but mounting evidence suggests a slowdown may be on the horizon. Slowing demand colliding with seasonally higher cheese output may explain the recent uptick in volume on offer in the spot market and products available commercially also.

ERS announced April’s cheese commercial disappearance at 1.075 billion pounds – 3.1% less than the same period last year. That was the first YoY decline this year and mirrored anecdotal reports of slower sales. Retail sales remain lackluster, with the 52 weeks ended May 15 down 2% compared to the same period a year ago. That suggests that foodservice velocity may have slowed during the month. Blackbox Intelligence reported that burgers, chicken sandwiches, and pizza remain the top menu items for limited-service restaurants between March and May 2022. Still, the group confirmed further foot traffic slowdowns in May that could be creating a headwind.

Butter Market

CME butter prices pulled back, but they stabilized. CME butter prices averaged $2.956/lb – down 2.3¢/lb from the previous week. Trading picked up with 36 loads trading hands during the week. US and New Zealand butterfat appear to be trading a consistent gap. There is more discussion about US exports and imports, with anhydrous milkfat (AMF) making the top of the list. Trade will be important for CME butter price moves through the end of the year. Higher imports could result in a shift in production toward bulk butter – the opposite is also true. For now, plenty of spot activity suggests buyers and sellers are comfortable with prices near current levels.

ERS announced April butter commercial disappearance at 162.5 million pounds – 10.2% more than the same period last year. That was the second-highest domestic use since 2010 for April. Retail sales remain lackluster, with the 52 weeks ended May 15 down compared to the same period a year ago. That would suggest a much stronger pull from food service that is more than offsetting the slowdown in retail sales. Still, the figures look a little suspect given the sizeable increase needed from food service to overcome months of declines at retail. That may suggest some issues with cold storage reporting.

NDM/SMP

CME NDM prices declined throughout the week, dropping as low as $1.79/lb before recovering. Prices averaged $1.8165/lb – down 5.55¢;/lb from the prior week. While lower global milk supply continues to support prices, weaker news from China and signs of more resistance from international buyers have markets easing this week. After dropping throughout the week, futures prices found some support, but prices declined faster than spot markets. For now, futures are projecting a steady decline toward the end of the year. Most will be watching the second GDT of June.

ERS announced April NDM commercial disappearance at 58.9 million pounds – 37% less than last year and the lowest for that month over the past ten years. Last year, US NDM commercial disappearance dropped to 801 million pounds – the lowest volume over the past ten years. So far this year, NDM commercial disappearance is tracking 30% lower than last year, suggesting even further declines as MPC, condensed skim milk, UF skim milk and other products replace NDM as an ingredient.

Whey & Lactose Products

CME whey averaged 50.8¢, down 2.9¢ from the previous week. DMN western mostly price was 59¢, down 0.2¢ from the last week. Central prices declined this week to 57¢ – 0.5¢ less than the previous week. The lactose price was 44¢ this week, unchanged from the last week. European prices were mixed again this week on reports that some whey solids were dumped as capacity was maxed out.

News this week was EU-27 April exports. EU27 whey exports fell 21.3% in April to 118 million pounds. Fewer exports to China (-45% vs. last year) accounted for 75% of the monthly declines. Exports to Vietnam also slipped. EU27 WPC/WPI exports were estimated at 6.2 million pounds and 35.7% less than last year. Given recent revisions higher – this number appears too low and will likely be revised up later.