Weekly Forecast Update November 20, 2020

Forecast Updates

• Reduced most DEC-20 and Q1 2021 prices due to declining CME prices.
• Increased CME spot NDM prices for December and January 21.
• No other significant changes this week.

Fluid Milk Market

USDA announced the December 2020 Advanced Class I base price at $19.87/cwt. – that is $1.83 more than November and 53¢/cwt. – that was the highest Class I price this year. That will likely be welcome news for farms for the final milk check of the year; however, it could be followed by prices that are $4-5/cwt. lower at the start of 2021.

US milk production totaled 18.6 billion pounds in October – that was again 2.3% higher than the previous year. In a year, with milk prices approaching or surpassing $20/cwt. output gains are expected. Excluding the period immediately following the near nationwide shutdown, US milk production gains have ranged 1.3% to 2.3% higher, with most of those increases coming in the latter part of the year. Western states continue to push output higher, with Texas, Idaho, and California leading the gains. Midwest and the Northeast milk production was tempered. Southeastern states continue to experience declines – the new Class I price anchored to a stable but low-Class IV price could be the culprit.

There were a few exceptions – New Mexico and Wisconsin YTD output remains less than the same period last year. That said, Wisconsin’s declines were attributed to low feed quality that has since improved – likely reflected in the sizeable October YoY improvements.

Cheese Market

CME Cheddar blocks touched the $1.50s momentarily this week before recovering. CME barrels were more consistent, holding at $1.40/lb. Monday through Thursday with markets lifting on Friday. In the end, blocks averaged $1.7145/lb. Despite the modest uptick, blocks and barrels averaged $1.7145 and $1.4045, respectively, ceding 43.6¢/lb. and  59.85¢/lb., respectively. Trading volumes were modest. The bounce off the bottom caused futures markets to move up on Friday – recovering lost territory. Still, expectations are for markets to trade well below that last few months.

US restaurants had their best performance in October since February (pre-pandemic). Still, that was foot traffic down 13.7% and same-store-sales down 7.5% – but that is an enormous improvement since this spring with a near national shutdown. Rather than focusing on the absolute figures, the industry is wary that gains slowed considerably, with October same-store-sales bettering September by just 0.6%. New Covid-19 cases were 10X larger in October vs. March – as a result, customers are more focused on safety. It could also be a voluntary or mandatory reason that people slow in-store dining this winter. That could mean more pick-up and take-out. While shutdowns could slow restaurant in-store dining this winter, most consumer surveys indicate that people are more likely to take-out or deliver food versus earlier in the year. Although sales could contract – most expect it to be far less than Q2 declines. Additionally, foods with cheese – pizza, burgers, Mexican and Italian foods are performing well under the current circumstances.

Butter Market

CME butter markets retreated throughout the week, with prices dipping to the low-$1.30s just a week ahead of Thanksgiving. Cream will head to churns during the holiday week, and that could put more pressure on markets. Still, retail demand remains extraordinary and expected to be strong through next week as holiday gathers are smaller, but could be more numerous than past years as people heed warnings to limit travel and get-togethers this holiday. This week CME butter averaged $1.3665/lb. down 6.87¢/lb. less than last week. Cream multipliers are declining and expected to drop at a faster rate next week. Several buyers report readily available cream and bookings through the end of the month and beginning of December.

Domestic data was limited this week, with most news coming in from Europe. EU-27 & UK exported 36.8 million pounds of butterfat in September 2020 and 22.7% less than year-ago levels. EU-27 exports were comparable to most countries – with Indonesia as the lone exception. Volumes fell 73% compared to last year. The UK suffered considerable losses to the EU but picked up volumes elsewhere, making exports net of EU somewhat flat. Irish butterfat exports to the United States increased by 17.1% more than last year – likely imports in preparation for the holidays.

NDM/SMP

NDM prices were consistent throughout the week, with 29 loads changing hands. GDT SMP prices recovered on Tuesday, with prices rising 2.5% compared to the previous auction at $2,799/MT – a likely factor to the support this week. CME NDM prices decreased 0.2¢ to average $1.0835/lb. Futures continue to forecast higher prices – but the gains through January have moderated, and expectations of higher prices are for later Q1 2010.

New Zealand’s NIWA increased its forecast of the La Niña weather event to more than 80%. A strong La Niña typically brings droughts to New Zealand and South America. That may explain recent highs for corn and soybeans that are causing prices to increase. It may also provide a cause for the consistent level of support for NDM. The issue with a La Niña – it can also bring droughts to growing regions in the United States. Higher feed prices this winter could collide with more milk resulting in a margin squeeze as dairy producers content with lower returns. That could be something that causes milk output gains to slow in mid-2021—speculation for now – but something to watch this winter.

Whey & Lactose Products

Much like other powder markets, CME whey prices were once again stable this week. The price averaged 42.6¢/lb. down 0.1¢/lb. from the previous week. Trade volumes were limited, with just two prices changing hands. While the CME was nearly unchanged, Dairy Market News (DMN) reported higher Central and Western prices with the mid-point of the Mostly and the WPC rising 0.5¢ for all indices. Lactose prices continue to decline, with prices averaging 46.75¢, down 1.5¢ compared to the prior week.

EU-27 & UK whey exports totaled 50.4 million pounds in August – that was 14.2% higher than a year ago. Export to China increased, but there were some declines in SE Asia. Generally, exports were positive but somewhat mixed.