Weekly Forecast Update December 25, 2020

Forecast Updates

  • Increased cheese, whey, butter, and NDM prices Q1 2021.
  • Increased cheese and butter forecast based on the announcement the president signed the stimulus package, and that could translate into more USDA buying during the JAN-MAR pricing periods. Deliveries would not be expected until later Q1-early Q2; however, based on last week’s price run – it is likely spot and futures could move higher again next week. New food-box orders could incorporate more products beyond Cheddar cheese.
  • Increased NDM based on better overseas’ prices – still that is well below the current futures forecast.
  • Increased whey-based on higher EU-27 prices this week.

Fluid Milk Market

USDA announced the January Class I base price this week at $15.14/cwt and $4.73 less than December; a significant price reset after the December Class III price collapsed – Class IV remains somewhat consistent. Despite the decline, the February Class I price forecast is rising due to the stimulus package’s prospects providing additional dairy purchases at the beginning of the year.

After a week of controversy, Sunday evening news outlets confirmed the president signed the stimulus package to avoid widespread evictions and avert a looming government shutdown. Traders have eagerly anticipated the stimulus package and the $10-$13 billion allocation to dairy. That includes $1.5 billion to fund food purchases with speculation about 1) how quickly money could be dosed into the system and 2) whether that consists of a variant of the family food-box program. Money could be allocated for direct payments to farms – that could be problematic for dairy as additional funds could keep milk flowing at higher levels for longer. There is also $400MM for food banks, including $80MM for distribution costs and $400MM for dairy product donations. Additionally, there is more funding for PPP and EIDL. While this could provide an outlet for slowing foodservice orders – it could also result in more milk causing long-term price limitations.

Cheese Market

After another sizeable mid-week run-up, sellers returned to Chicago, and prices dropped before the Friday holiday. Blocks traded as high as $1.675/lb. before falling to $1.5975 on Thursday on news that President Trump was unlikely to sign the stimulus bill. Barrels followed a similar trajectory. In the end, blocks averaged $1.6244/lb. down 1.56¢/lb. compared to the prior week. Barrels averaged $1.5294/lb. up 7.74¢ versus the previous week. Prices could remain erratic next week also as many stay on holiday, there is one fewer trading day. Traders may once again send prices sailing higher based on news that the stimulus package was signed on Sunday.

US Cheese stocks totaled 1.345 billion pounds on November 30 – 1.7% more than year-ago levels. American cheese stocks grew 0.8% over the same period to 760.2 million pounds. Certainly not bullish data – but not necessarily too negative either.

Butter Market

CME butter prices lifted throughout the week, with prices rising into the $1.50s again. While traders lifted the spot market on news of the stimulus moving forward, there is a sizable gap between fundamental data and anticipation of a program that could bring more USDA buying. Presently, cream is plentiful, and multipliers have moved sub-1.00 based on some reports. Bulk packers are running heavily with butter headed to warehouses. While there could be more USDA orders – that may be just enough to offset reports of slowing foodservice orders barely moving the needle on the overall supply-demand balance.

Butter stocks totaled 251.8 million pounds on November 30 – 39.4% more than year-ago levels. That is right, near expectations of 250 million pounds and sets up for being the first or second highest carry-out stocks on record. This was a bearish report that should cap price runs higher over the next few weeks. This supports stories of butter backing up into warehouses and increases the likelihood that prices could turn weaker again after the first of the year. Stocks will likely build from this point forward, suggesting December stocks could be extremely large.

NDM/SMP

CME NDM prices were stable throughout the week with very few trades. NDM prices averaged $1.1481/lb. up 0.16¢/lb. compared to the previous week. While news supports prices, moving higher seems difficult without new news to cause buyers to step back into markets. Most expect that with all of the milk floating throughout the country that driers and balancing plants will be working hard this week and next. Still, there are expectations that milk could be dumped and that significant discounts will be floated for those having a hard time finding processing time.

Overseas, New Zealand milk production fell 2.5% in November vs. last year. That amounted to 6.5 billion pounds of milk during the month and likely a supportive factor to elevated Oceania SMP prices compared to other regions. That may not bode well for second half production now that summer has arrived and the prospects for drier conditions arrive.

Whey & Lactose Products

CME whey prices picked up again, with prices climbing above the mid-40 cent level. EU prices increased, also suggesting that US prices could be supported through the start of next year. CME whey prices averaged 46.44¢/lb., up 0.19¢ compared to the previous week.