Weekly forecast – Mar. 24, 2023

Forecast updates

Adjusted 2023 forecast based on spot modifications

  • Increased the March block and barrel average – but kept April to June unchanged.
    • Current reports are conflicting regarding cheese demand – that could make recent high prices prone to springtime corrections if unwarranted.
    • Unchanged stocks could support prices through the spring.
  • Increased the butter price for March, but maintained lower output for Q2 prices.
  • No change to 2H butter prices.
  • Raised Q2 2023 whey prices but continued to forecast lower prices.
  • Reduced lactose and buttermilk prices.
  • Reduced Q2 NDM prices.

Milk Market

USDA announced the April Advanced Class I milk price this week at $18.85/cwt, down 14¢ from February and $5.58/cwt less than a year ago. While less than last year, that is still a high price for a typical April. Milk discounts may be abating for the majority of the week. The $10/cwt discounts are still prevalent in parts of the country. Some areas report that the spring flush is taking hold with milk production rising. That could bring discounts back  – especially if YoY bottling demand dwindles.

US February 2023 milk production was 0.8% more than the previous year. That was 18.9 billion pounds of milk. Output from western states and Florida continues to slow while milk from Idaho, New York, and central states pushes forward more than offsetting those declines. Weather took a toll on California production. The US dairy head totaled 9.42 million head, 62,000 more cows than last year, but comparable to 2021 – that was 0.4% more than 2022. Output per cow was 2011 pounds – 0.4% more than last year. It appears milk production growth came from equal parts output and more cows.

Cheese Market

CME Cheddar blocks and barrels pushed higher with prices ending the week at $2.10/lb and $1.9625/lb, respectively – the highest prices since January. Trading volumes remain consistent with previous weeks. USDA reported that barrel demand was good and that several processors reported being balanced. There were other aspects of the reports that seem to conflict. But with less cheese headed to cold storage, demand is keeping up with output, which seems to be supporting prices. CME blocks averaged $2.029/lb, 10¢ more than the previous week. Barrels averaged $1.9535/lb, up 7.95¢ compared to the prior week. Futures moved up throughout the week – still markets expect prices to pull back headed into the second quarter.

US cheese stocks totaled 1.45 billion pounds on February 28, 1.4% less than the previous year. That came as a surprise as it did not match earlier anecdotal reports of cheese piling up into storage and rationing of 640# block packaging. American cheese stocks were 816.95 million pounds and 1.7% less than a year ago. The MTM decline was consistent with last year. Other cheese stocks build was stunted in February – well below the five year average pace for January to February build.

Butter Market

CME butter prices pulled back this week as GDT prices tumbled and stocks remained higher than a year ago. Prices averaged $2.378/lb. this week 1¢ below the previous weekly average. CME futures are less than recent highs, but prices recovered on Friday from this week’s lows as buyers found value. Markets remain somewhat unsettled as data indicates that retail demand may be faltering. At the same time, trade data this week suggested that US exports could be less competitive and that imports are on the rise. While markets could remain supported through the Easter holiday build, reports suggest a steady stream of cream headed to churns that could pick up through the spring.

US butter stocks totaled 295 million pounds on February 28, 12.2% more than last year. The January to February build was 31 million pounds – consistent with the five-year average. The YoY growth pulled back from 20% higher, suggesting some moderation in the build.

 NDM/SMP

The week started with GDT SMP and WMP tumbling. That was followed by Chinese WMP imports for the first two months of the year that collapsed. Overall that caused market sentiment to turn bearish quickly and spot prices to drop. Prices stabilized at $1.15/lb – still, the weekly average was $1.1545/lb, down 2.6¢ from the previous week. Given expanding global milk supplies, buyers believe prices could grow weaker headed into the spring as more milk powder becomes available. At the same time, futures indicate that most still expect a price recover in Q3 forward. For now, it seems that prices could slowly descend until supplies become more balanced.

When released this week, China’s 2023 WMP took the wind out of the sails of milk powder markets. January WMP at 101.9 million pounds was the lowest start to the year since 2012. February was closer to normal at 108.2 million pounds but still down 31.1%. The January decline of nearly 80% would explain why powder is in excess, and prices are declining. It would also explain why GDT volumes continue to rise. The new tariff structure may relax and spread out purchases, reducing the January peak, but that has yet to be seen. This reduction seems more consistent with reports that China’s stocks are building as demand was lackluster

China’s SMP imports started the year modestly behind of last year – down 0.4%. That was a much smaller gap compared to WMP. Like WMP, January started slower and February priced up – with the most SMP imported for that month on record. Again this could reflect the zero-tariff powder for the first time in history. Imports from New Zealand were down sharply in January, but recovered somewhat in February. Imports from the United States and EU-27 nations were mostly higher over the first two months of the year.

Whey & Lactose Products

After China released its whey import data CME prices lifted midweek. In the end, CME spot prices averaged 44.5¢, down 0.6¢ from the previous week. Dairy Market News (DMN) prices were unchanged. The central mostly price was 43¢; western mostly prices were 44¢ this week. NDPSR whey prices moved down 0.51¢ this week to 41.95¢. European whey prices were up at 32.24¢. While US and EU whey prices tend to trend together, reports this week that Danone is sourcing whey from Asia rather than European processors may begin to explain the gap that has opened up in recent months.

China’s 2023 whey imports are off to a strong start, with YTD imports 62% higher than the previous year. That was a return to 2021 levels and may help explain the recent upthe tick in US prices. Imports from the United States increased 81% over the same two-month period last year. China also increased whey imports from Belarus and EU-27 countries.  China’s infant formula imports are starting the year higher, up 35.1% through February.