Weekly Forecast Update – December 11, 2020
Forecast Updates
- Modest adjustments to DEC-20 and Q1 2021 prices for spot market changes.
- No other significant changes this week.
Fluid Milk Market
Seasonally milk is past its low-point, and output is rising. Several regions are reporting significantly higher production and concerns about end-of-year capacity. There are more discussions of distressed pricing and the potential for dumped milk. In some areas, schools have switched back to at-home ahead of the holidays, which has sent bottler demand into disarray. Additionally, milk is plentiful, and it seems to be displacing some processors. That could send more milk to opportunistic processors and manufacturing plants, causing cheese, NDM, and butter output to increase.
Overseas, European milk supplies are rising seasonally and year-on-year. Simultaneously, expectations for Oceania’s comparative production 2020 vs. 2021 are forecast to fade due to pervasive dry conditions that could negatively impact pasture conditions as summer unfolds. Concerns about a lackluster performance from Southern Hemisphere dairy producers are providing price support. Historically Southern Hemisphere droughts can lift prices; however, given the pandemic and increasing Northern Hemisphere milk supplies could keep markets more balanced and price increases somewhat subdued. That doesn’t mean no gains, but rather increases could be less than previous drought years.
Cheese Market
CME Cheddar blocks increased to the mid-160s until prices started to ease again on Friday and head toward the $1.60 mark. Barrels lifted throughout the week, with prices reaching the mid-140s by the end of the week. Both weekly averages bettered the previous week, with blocks and barrels averaging $1.6285/lb. and $1.4225, respectively, that was up 2.3¢ and 1.2¢, respectively. Block and barrel traded volumes were high at 26 and 25 loads, respectively. During the week, rumors of Section 32 purchases and hopes of new food-box funding began to lift markets as some processors slowed spot sales on the chance that prices would move higher. Sentiment shifted on Friday with announcements that stimulus talks stalled again – that seemed to slow buying interest, and sellers once again took command of markets. Many processors have mounting concerns that demand could slow as production lifts, sending more cheese to Chicago as the end of the year approaches.
The announcement that Secretary Vilsack will reprise his role as Secretary of Agriculture could increase the food-box program’s likelihood, assuming a stimulus package passes. This week, there was conjecture that even with the lower republican funding plan, there could be $5 billion allocated to agriculture – less than 1% of the overall budget. That would include a combination of food-boxes and direct payments to farms. That figure increases to $13 billion under the bi-partisan plan. Given Secretary Vilsack’s experience and knowledge of dairy, it seems reasonable to expect the food-box programs could be more viable. But, Secretary Vilsack’s understanding of dairy and other agriculture as well as exports may suggest a more judicial funding pattern that supports prices and feeding programs but avoids prolonged spikes that adversely impact US export viability.
Ceres estimates US cheese commercial disappearance at 1.13 billion pounds and 1.95% less than last year. While it was the third-highest pull for October, it was less than the previous two years. While stocks were less than year-ago levels, as was output – it points to a bigger slow down in domestic need. That may reflect the lull in the food box program showing that the slowdown in funding may cause further price weakness.
Butter Market
CME spot butter prices increased through mid-week, and then prices turned lower. The weekly average price of $1.514/lb., up 7.65¢ compared to the prior week. While that was a sizeable lift, current prices were 43.3¢ less than the same week last year. The announcement that USDA would be issuing a Section 32 bid for $50 million of one-pound print, salted butter by the end of the month for delivery from February 2021 to April 2021 probably drove the market increase. Still, markets have to contend with widely available cream at discounted prices and bulk butter production rising to handle internal cream for many processors. That may help explain this week’s market-wide trading range.
Some processors are concerned that cream supplies will be daunting this winter, with some already planning for events that may result in some dumping. That suggests cream could be heavily discounted during the final weeks of the year, encouraging more processors to acquire and run bulk packing equipment – that could increase butter stockpiles before the end of the year. Still, there is an expectation that butter output will slow in Michigan as cream heads to American cheese production at a faster pace in Q1 2021. Markets are wrestling with that dichotomy, likely causing the nearby volatility.
Ceres estimates October butter commercial disappearance at 212.7 million pounds and 5.7% less than last year’s demand. That was still the second-highest pull for October over the previous decade, but less than year-ago levels. Given less foodservice demand – the gap was limited and indicated the potential strength of retail demand during the fall. Still, this could suggest that stocks remain elevated through the end of the year.
NDM/SMP
NDM prices eased throughout the week. Still, prices are higher than past weeks as interest continues to lift as overseas’ demand remains elevated, and there are prospects for reduced production during the first few months of 2020. CME spot NDM prices averaged $1.1385/lb, down 0.4¢ compared to last week. While there are concerns about the amount of milk powder coming from Michigan in 2021, milk is plentiful in the near-term, with reports that balancing plants in Central states and western states’ driers are running near capacity. Given the rise in output, most expect NDM/SMP prices to remain near current levels. That said, overseas’ demand remains robust, and US prices are still competitive vs. New Zealand and Europe – that could keep the lion’s share of powder moving overseas. Despite higher prices, the Class II solids nonfat outlook remains stable. Supply will remain the driver for price over the next few weeks and months – that could cause prices to swing as markets contemplate new information. All eyes will be on next week’s Global Dairy Trade (GDT) auction. The forecast suggests prices could lift again – that may inject a little optimism into markets on concern from Class II and milk powder users to increase coverage.
The United States has formalized its complaint against Canada for unfairly limiting US imports – that would be consistent with what other countries have experienced with Canadian dairy deals. This will be a prolonged dispute that could take years to resolve and is unlikely to provide immediate relief.
Whey & Lactose Products
CME whey prices pushed higher again this week, with prices rising into the upper-40s. Weekly prices averaged 46.6¢, up 1.6¢ compared to the previous week. Dairy Market News prices were in the lower 40s and consistent, but less than CME prices. Lower production and strong demand from China are keeping costs elevated. Historically, US whey prices tend to hold the 40s between 13 and 20 weeks. That would suggest current price levels could be around through Q1 2021 if history is any indication. Higher domestic prices accelerating above European prices and new capacity as the Michigan cheese plant ramps up could keep further price appreciation limited, but that will hinge on China’s demand.
For China, pork is a strategic product, and the development of its hog herd is of national interest. That may explain the rapid rise in demand propagated by an expanding herd and feed necessary to improve sows and piglets’ condition. Those fundamentals could keep demand for whey, permeate, and lactose elevated throughout 2021.