Monthly Forecast Update – August 2022

Forecast updates

  • Added 2025 forecast for milk and all dairy products.
  • Reduced the Class III milk and related product outlook.
  • Adjusted AUG22 cheese prices lower; however, still forecasting a market recovery before the end of the year above $2/lb.
      • Presently, spot markets are disconnected from the commercial markets suggesting they better reflect specific company issues rather than the overall cheese complex economics.
      • That suggests when these companies reduce spot Cheddar sales at the CME, the market could spring up 15-20 cents with little effort. That is considered in the current forecast.
      • Burger and sandwich season will wind down in August as kids return to school. However, the 22/23 season will not have free meals, and that could reduce milk and cheese to that channel this year compared to last year.
      • June export data was positive, and foodservice continues to perform nicely, with Blackbox Intelligence reporting the modest price decline has brought customers back to restaurants in recent weeks.
    • Overall, cheese prices could stay above average but likely sub-$2/lb for most months. Should the impact of the recession further slow demand, that could cause prices to dip in early 2023 and not recover to 2H 2023 – considered in the current forecast.
    • Reduced whey price outlook given declines in EU price. EU prices should seasonally recover – but given weaker demand from China and whey replaced with permeate prices could trend lower at the start of 2023.
    • Long-term whey outlook may present a modest recovery; however, given new capacity additions in 2025 prices could remain muted.
  • The current outlook has reduced the 2023 forward Class III price compared to 1H 2022; additional Class III is below Class IV for a prolonged period. While that seems unlikely, NDM prices between $1.35 and $1.60 and butter between 2.30 and $2.50 result in + $20/cwt Class IV milk. It seems reasonable that those price gaps could contract with stronger cheese prices.
  • Reduced the Class IV forecast – skim lower, butterfat higher
    • Adjusted the 2023 butter price higher.
      • Presently, butterfat demand, whether cream or butter, remains strong domestically and internationally. It seems pricing returning to $2.20-$2.30 prematurely could create more robust demand that could increase prices. As a result, Ceres revised its butterfat forecast higher for 2023 forward – albeit less than this year.
    • Reduced NDM prices.
      • Still forecasting a modest Q4 recovery, reducing those prices to $1.50-$1.60 levels.
    • Expect 2023 prices could retreat. While most will watch China – lower demand is already factored into current prices.
    • EU27 policy is causing cow numbers to contract.
    • A La Nina weather pattern tends to negatively impact Oceania productions.
    • Lower on-farm margins this fall and early next year could cause milk to contract anew.
    • That could support prices in the $1.50s despite slower buying from China.
  • Those modifications have resulted in a stable Class I price forecast, with prices fluctuating between $20 and $22/cwt between 2023 and 2025.