Weekly forecast – August 18, 2023

Forecast updates

No significant forecast changes this week.

Some modifications to WPC, reducing the value through year-end.
Adjusted Central and Western whey prices – lifted western prices this week.
Increased 2023 lactose prices; markets appear to be stabilizing.
No changes to cheese or butter.
Adjusted NDM, namely SEP23, prices higher.

Milk Market

Milk remains tight in most parts of the country as bottling increases in response to schools moving back into session. Additionally, there are some weather events, namely heavy August rainfall from an unusual tropical storm on the West Coast. Storms tend to cause milk sales to increase – which could pull additional milk from manufacturing. Some suggest milk is so tight that larger cheese processing plants run below capacity and may take additional maintenance downtime. Given the gap between cheese and NDM prices, augmenting raw milk with NDM in cheese vats may make sense this fall. Overall that is lifting milk prices and price expectations for later this year. While milk prices are recovering, the weekly slaughter rate continues to surpass last year. The slaughter rate was still 5.6% higher for the first week in August than last year. Given the cost of replacement cows, it could be difficult to see expansion anytime soon.

Cheese Market

CME blocks surpassed the $2/lb threshold for the first time in months. Blocks steadily climbed throughout the week on limited trading. So far, only nine lodes have blocks traded in August – a sharp contrast to Q2 and July. Barrel trading was more erratic, with prices plunging on Thursday and recovering on Friday. That resulted in a weekly block average of $2.0150/lb, up 4.45¢ from the previous week. Barrels averaged $1.8135/lb, up 0.8¢ compared to last week. Futures markets pulled back due to the widening block-barrel spread – 20.15¢ last week. Markets are concerned about the growing gap between US and international prices. While domestic demand is ticking along, it was only a few months ago that markets succumbed to supplies left in the domestic market when US cheese was less competitive internationally.

While food inflation moderated in July, consumer grocery spending made little progress. Circana reported that consumers are still looking for sales or deals, and that is a motivation to buy. That may suggest there could be implications should prices appreciate too quickly or promotions slow – there could be repercussions. Most anticipate higher spending levels for the remainder of the year for occasions – Amazon Prime Day, July 4th, to name a few, but Halloween, Thanksgiving, and Christmas are on deck. But some say people spend on lesser-known days like Chocolate Chip or Chicken Wing Day. In July, 77.3% of meals were home-cooked; dining out – 49% on-premises, 45% takeout and 16% delivery. Cheese sales continue to improve, with natural sales in July up 2.8% compared to last year on units; processed cheese was down 2%. That put YTD natural sales 0.4% ahead of last year, suggesting the slowdown in commercial disappearance may have been related to food service vs. retail. Processed cheese was down 3.3% YTD. Deli cheese sales did not perform as well. Grab & go was up 1.9%, but all other categories, like pre-sliced and service, were lower. Specialty cheese increased by 0.2% for the first time in months – suggesting there may be a switch back to premium cheese as prices moderate.

Butter Market

While CME weekly butter prices are higher, prices stepped back on Friday, falling 7¢ compared to Thursday. CME prices averaged $2.7205/lb, up 5.15¢ from the previous week. Volume traded soared to 98 loads last week. Wednesday reflected the busiest trading say since November 2004. Reports indicate that cream remains tight and spot multipliers are high. That has micro-fixing in full swing, with processors moving through bulk butter quickly. As a result, stocks are expected to drop. The step back may indicate that some are concerned that stocks will remain elevated – but USDA should bring that speculation to an end next week by releasing the Cold Storage report.

Circana reported that butter sales were up on a unit basis by 0.9% compared to last year. Year-to-date volumes are still 0.9% lower compared to the previous year. That suggests that most butter consumption increases have come from food service or that retailers are stocking up on physical production in private warehouses before the holiday season. Cream/creamer sales continued to lag last year, with July volumes 1.9% less than a year ago; YTD, the volumes are similar, down 1.5% vs. the previous year. Sour cream picked up 0.8% more than last year in July, down 0.8% YTD. Whipped toppings were up 2.7% in July and are running 1.2% on a YTD basis.

NDM/SMP

NDM prices dropped post-GDT on Tuesday. Prices climbed back throughout the week, largely supported by steady NDPSR price reports and futures buying that lifted prices into the end of the week. CME NDM averaged $1.098/lb, down 2.2¢ from the previous week. GDT results were disappointing but expected, given the higher volumes on offer. While prices pulled back, buying picked up, with MENA and China buying more than the prior auction and last year. New Zealand is concerned about China’s demand trajectory for the rest of this year. At the same time, data indicates that EU-27 and US milk is slowing and that is reducing NDM/SMP production at a faster pace which seems to keep many interested in getting price protection.

EU-27 milk production in June was 25 billion pounds, with Spain and Sweden yet to report. That was unchanged compared to last year for the reporting nations. That suggests that EU nations are starting to slow output compared to last year and could reveal the impact of prolonged hot weather – following a similar pattern to the United States. German milk production was up 2.1% vs. last year, offset by lower milk from Italy, down 5.3%. France had similar declines to Italy, down 2.9% vs. last year – wiping out gains from Poland, the Netherlands, and Belgium.

Whey & Lactose Products

CME whey prices ease this week, giving back all of the previous week’s gains and then some. CME prices averaged 26.45¢, down 0.85¢ from the previous week. Spot volumes remained consistent from week to week. Little news changed, although DMN lactose prices show signs of stabilizing, even lifting. The DMN Central whey mid-point was 25.25¢, up 0.25¢ from the previous week. DMN west mid-point was 31¢, up 1.5¢ from the previous week. DMN lactose was up 1¢ from last week to average at 21¢.

June whey commercial disappearance increased to 52.4 million pounds and 28.7% more than the previous year – a sizeable increase. June WPC commercial disappearance increased to 18.1 million pounds – 5.4X higher than a year ago. It is consistent with reports that demand improved as prices moderated since last year.