Weekly forecast – April 21, 2023

Forecast updates

Milk production gains are present but slowing – that could impact markets should demand increase later this year. Reports from Europe indicate some cooperatives are reducing discounts as they forecast milk production declines could compromise supply. In the United States, slowing West Coast milk production could limit NDM and butter once the spring flush passes. Colder weather stalled the spring flush in some states as winter reappeared in mid-April.

Despite news that should slow consumer spending, consumers continue to buy products and spend on travel and the like. That helps to keep dairy demand moving forward. March retail scan data supported that sentiment as cheese and butter and several other categories lifted above last year. Those year-over-year increases could continue through Q2 as last year. Purchases plummeted as inflation and higher fuel and energy prices sapped consumers’ wallets.

Ukraine grain exports could drop as Russia has threatened to revoke the Black Sea agreement if G7 nations move to a near-total ban on exports to Russia. As European nations are rolling back, bans at the EU27 rejected the moves. Romania, Poland, and Slovakia moved to prohibit Ukraine grains as the availability caused farm protests.

While geopolitical issues on the horizon could derail markets – most forecast adjustments were in Q2 and Q3, and those were higher milk powder and butter. Moderated cheese Q2 forecasts but left 2H unchanged.

Milk Market

USDA announced the May Advanced Class I milk price at $19.57/cwt, up 72¢ from April, but $5.88/cwt less than a year ago. Class II skim for May is $9.78/cwt.

USDA confirmed that California’s milk production is slowing due to heavy winter rain, leading to widespread flooding in the Central Valley. US March milk production totaled 19.8 billion pounds, up 0.46% compared to last year. While more animals were added to the milking herd, output-per-cow was less than last year. Central states continue to push output higher led by South Dakota, Iowa, Kansas, and Texas – a common theme of new capacity coming online or recently added. West Coast milk is down 1-2.5%, with California output negatively impacted by widespread flooding and rainfall last month. The US milking herd totaled 9.44 million head in March – up 0.33%. Output-per-cow was 2,100 metric tons, up 0.15% – pretty modest growth. Given weather conditions and feed costs it makes sense. California’s output-per-cow fell 2.1% due to weather conditions.

Cheese Market

Barrel market trading continued to be impressive, with 85 loads changing hands – Tuesday was the only day with single digits.  Barrels averaged $1.531/lb. down 4.05¢ compared to the previous week despite markets ending the week higher than they started. Block trading was, by comparison, muted 29 loads changing hands. Markets averaged $1.757/lb, down 4.2¢ compared to the previous week. The block-barrel spread remained a wide 22.6¢. There are many theories about the current activity. One known is that there is a primary barrel seller, and the volumes are impressive, suggesting a slowdown in export interest in early Q2. Barrel buyers are diverse and have a seemingly insatiable appetite for products. Given current carry, it is straightforward to freeze barrels for use later in the year and protect the entire cost. Should export interest pick up the active buying suggests prices could lift with little resistance.

Dairy retail sales received a shot in the arm in March as butter and cheese volumes exceeded last year’s by a sizeable amount suggesting that consumers are returning as prices ease and promotions return. IRI reported March natural cheese volumes up 2.5% vs. last year. Butter increased 5.2% higher. For the last 12 months, butter is still 0.9% lower than the previous period. Fluid milk and creamers continued to underperform, but several other categories picked up. Grab-and-go deli cheese did mostly better on volume, up 0.2% vs. last year, but other categories were lower. Service deli cheese dropped 7.3%

Butter Market

CME butter prices recovered this week as processors looked to establish Class II prices this week. CME butter averaged $2.384/lb., up 3.45¢ from the previous week. Prices were once again at or above $2.40/lb during the week. The Global Dairy Trade (GDT) auction likely lifted sentiment also. GDT butter closed up 4.8% at $4,821/MT ($2.13/lb on an 80% eq); AMF ended up 4.7% at $4,981/MT ($1.825/lb on an 80% eq). Domestically little has changed, but buyers seem to be anticipating shifts in product mix toward cheese away from butter/NDM or that less milk from California could tighten supply later in the year. Concerns about futures butterfat availability appear to be making ownership more attractive and international prices appear to be firming this spring. Add to that demand has picked up and looks much improved in March compared to previous months.

Most news this week was from Europe. EU-27 February butter production totaled 361.5 million pounds – with Cyprus left to report. That was 0.3% less than last year. Germany and France increased production by 5% and 4.4%, respectively. Lower Polish output offset those gains, down 15.6% vs. last year – a significant reversal. Output from other countries had to offset production.

NDM/SMP

A more robust GDT milk powder performance and lower West Coast milk lifted NDM/SMP price expectations throughout the week as the unexpected firming caused buyers to jump back into markets. Like butter, NDM is plentiful today, but there are signs that milk shifting toward cheese and away from butter/powder over the next few months could leave the market snug later this year. As a result, CME NDM prices averaged $1.1475/lb, up 0.65¢ compared to the previous week. GDT SMP prices lifted 7% to $2,776/MT ($1.259/lb); WMP was up 1% to $3,089/MT ($1.40/lb). Prices may still experience volatility through the spring, but weather and other factors have buyers willing to secure product at current levels.

With Cyprus left to report, EU27 February milk production was 24.5 billion pounds, up 0.9% vs. last year. Expectations are that milk production will remain positive and outstrip last year through the spring. That explains why reports indicate that milk prices are dropping – to curb output. But, there are droughts in Spain and Portugal, and France is curbing water use given the modest snowpack this winter. German milk production was up 2.3% compared to last year. French milk production is still lagging last year, down 1.2%. Romania, while a smaller producer is experiencing output growth 12.8% higher than the previous year adding as much milk as Poland. Spain’s milk was less than a year ago – down 1.9%.

Whey & Lactose Products

CME whey prices peaked mid-week and then started to pull back. CME spot whey prices dropped to 36.55¢, down 0.2¢. NDPSR dropped back this week, down 1.36¢ to 44.81¢. Futures forecast a whey price decline for several weeks after NDPSR prices increased. Nearby futures moved up also. Dairy Market News whey prices were stable to lower this week. Central prices averaged 43.75¢, down 0.25¢ from the previous week. Western prices averaged 41.5¢, unchanged from the previous week. Lactose prices continue to decline, with prices dropping to 28¢ – 0.5¢ less than last week.