Weekly Forecast Update October 2, 2020

Forecast Updates

Added 2023 to the forecast file for all milk and dairy products.
Increased 2020 barrel price forecast.
Reduced some of the block-barrel spread.
Increased Q4 2020 and Q1 2021 NDM prices slightly.
Added seasonality into butter forecast – including a decline in Jan and Feb 2021 and 2022.

Fluid Milk Market

USDA issued the October Class III and IV prices on Wednesday at $16.34/cwt. and $12.75/cwt., respectively. The Class III price was $3.34/cwt. less than the previous month; Class IV was 22¢/cwt. more than the last month. The Class III milk price is forecast to rise again in October based on higher cheese markets. The steadier Class IV price this year has kept Class I and II prices more stable also.

As the weather cools across the country, milk per cow has started to increase. Several regions report that fewer dairy producers are adding cows this year compared to previous years with high prices. Given widespread base programs and uncertainty about what markets could bring next year, many producers choose to stay put. Still, there are several comments that some larger dairy producers are expected to continue on their path toward expansion.

Overseas, Fonterra announced it would be selling its dairy located in China for NZ$555 million as well as its interest in Hangu farms for NZ$42 million. These ventures have lost the cooperative money since inception. This also coincided with an announcement from China that it intends to become more self-sufficient in dairy.

Cheese Market

CME Cheddar markets increased this week with barrels gaining at a faster pace than blocks. Cheddar blocks averaged $2.5775/lb., up just 0.1¢/lb. more than the previous week. Cheddar barrels gained 17.35¢/lb. to end the week averaging $1.8120/lb. That has lifted futures again – but the impact has been less than the spot increase as 2021 prices have not reflected the wide block-barrel spread. While there is still good interest in government and retail sales, many are reporting that nearby need seems less than earlier this year.

This week USDA celebrated 100 million food boxes given to families, but Sec. Perdue also signaled the program could wind down. Still, other programs could support dairy products, including Section 32 purchases. Before the end of the year, more USDA orders need to be fulfilled, and that could keep demand elevated; however, there are some growing concerns that the food box program could cannibalize retail sales later this year. Given the money the government injected into the market this year, 2021 could be challenging if spending reverts to normal.

Butter Market

CME butter markets remained relatively stable throughout the week, but the big drop on Monday resulted in a lower weekly average vs. last week. Spot butter averaged $1.5085/lb. down 4.3¢/lb. In September, 189 spot loads of butter traded, the third-largest trading volume behind February and August. The holiday build is well underway, and cream demand remains robust, and that is keeping multipliers elevated, albeit lower than previous weeks. Still, frozen butter for use this year will likely need to reach processors by mid-November for tempering, use, and shipment to store shelves. Given the latest butter stocks figure, that could leave some frozen butter in the warehouse, which may be what keeps prices lower.

So goes foodservice, so goes butter, and with no additional Covid19 funding, the U.S. airline industry began furloughing employees this week – some place the estimate near 65,000 for jobs lost. This week Disney also announced it would be laying off 28,000 employees. Those losses could cause a ripple effect on hospitality and other industries. Lower demand from foodservice has been the culprit behind wavering butter demand this year. The latest news suggests this could be a lingering problem.

NDM/SMP

Spot CME NDM continued to rise this week. Prices averaged $1.1275/lb., up 4.4¢/lb. compared to last week. Trading volumes picked up with 21 loads changing hands. Futures did not follow spot markets higher this week, causing carry to vanish. That suggests the best sale is a current sale, which may explain why more sellers were active in the spot market this week. While global prices are lifting and demand remains positive, many domestic sellers are still wary and reluctant to believe this market has staying power or the ability to reach the lofty heights markets continue to forecast. Even, prices are lifting, and that will eventually impact the NDPSR prices.

Weather in New Zealand continues to wreak havoc on the two islands this spring. A late-season snowstorm hit the South Island this week. It slowed pasture growth progress and caused some temporary milk pick up disruptions – but overall, it seems to have had little impact on milk output. That said, the prevailing La Niña system is forecast to bring hot and dry weather conditions – that is likely the pattern the markets are keeping a watchful eye on right now. That could also explain why New Zealand SMP continues to carry a stark premium to E.U. and U.S. powders.

Whey & Lactose Products

U.S. spot whey prices continued to push higher this week, stopping just short of 40¢/lb. this week. Prices averaged 38.7¢/lb., up 1.1¢ compared to last week. Many are reporting that overseas demand remains positive and that some Midwest supplies feel a bit more balanced compared to prior weeks. Dairy Market News whey prices inched higher while lactose slipped 0.25¢/lb. – but it remains above 50¢. Like many products, spot demand and sales bookings are favorable; however, there is less interest in deferred periods.

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Ceres Dairy Risk Management LLC

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Sun Valley, ID 83353-2440