Weekly forecast update – Mar. 26, 2021

Forecast updates
Adjust prices for spot markets.
Increased NDM and whey prices for the rest of the year given strong demand from China that could support markets. In turn that increased the Class I and II skim solids.
Increased 2H 2021 butter prices on expectations that stronger overseas demand and few concentrated milkfat and anhydrous milkfat imports could work to reduce some supplies. That combined with improving foodservice and continued USDA purchases could reduce stockpiles later this year.

Fluid Milk Market
Reports throughout the country indicate that spring weather is starting to lift milk production. That combined with further expansion of the milking herd this winter are combining to drive a large year-over-year gap. In some parts of the country, plants are already busy, and those looking for capacity are finding steep discounts. More milk is expected as the weather warms – there could be a slight pull from bottling as many schools return from spring break. That said, some reports are suggesting bottlers’ needs are less than they have been in recent months.

Cheese Market
CME spot Cheddar block prices started the week declining, but prices recovered most lost ground by the end of the week. After a sharp decline, Barrels increased throughout the week. Blocks averaged $1.7130/lb, 8.5¢ less than the previous week. Barrels averaged $1.4480/lb. and 6¢ less than the prior week. Traded volumes were limited this week. While buyers were scarce at the start of the week, they materialized by the end of the week. USDA awarded the Section 32 bid this week – which could keep processors busy as retail remains strong and foodservice orders are increasing.

US cheese stocks totaled 1.44 billion pounds on February 28 – that was 5.4% more than the prior year and seasonally 2.7% more than January. American cheese stocks were 816 million pounds and 1.9% more than January and 4.8% higher than last year. Given new capacity, that is expected.

China’s January and February cheese imports increased 35% over last year after adjusting for leap day. In total, China imported 67.6 million pounds of cheese. 70.6% of the cheese came from New Zealand. There were higher imports from all trade partners – including the US.

Butter Market
Butter markets increased throughout the week, with prices ending at $1.775/lb. – the highest price since June 2020. Compared to previous years and world butterfat prices, spot butter prices are low. Still, given this week’s Cold Storage report, prices seem elevated and prone to a bit of a downturn after the Easter holiday build. That said, improving foodservice demand and USDA orders could provide a level of support. Add to that growing interest in USDA butter for export, which may explain why prices are rising despite current holdings.

The February Cold Storage report contained few surprises to markets – butter stock remains elevated. On February 28, US stockpiles of butter totaled 352.7 million pounds, which was 6% more than January and 17% higher than a year ago. Those are the highest stocks for February since 1993 and the highest monthly volume since August.

China’s butterfat imports totaled 58.4 million pounds for the first two months of the year – that was 11.3% less than last year after adjusting for leap day, but it was still ahead of the five-year average. All of the declines came from New Zealand as it accounts for 91% of imports.

NDM/SMP

Like other dairy products, CME NDM started the week lower but lifted throughout the week. NDM averaged $1.156/lb, 1.05¢ less than the prior week. Price was lower the previous week, but when China’s trade data was released on Monday – sentiment shifted quickly. Domestically, there are still challenges like seasonally rising milk and persistent shipping issues that could challenge prices this spring. But, strong demand from China has historically lifted prices, which may be the case again this year.

China released its Jan and Feb SMP imports – with the first two months of the year drawing nearly 193 million pounds compared to 141 million pounds last year. That was 42% after adjusting for leap day – a bullish indicator for markets as China returns to trend after pandemic setbacks last year. 62% of the volume came from New Zealand. The United States experienced a 1971% increase with volumes ticking higher.

China’s WMP imports for the first two months of the year totaled 530.4 million pounds –10.6% more than last year after adjusting for leap day. 96% of that volume came from New Zealand. There were some increases from Australia, but they were small volumes.

Whey & Lactose Products
CME whey prices are rising across all price series. Each week CME whey prices set new highs, with this week reaching 62.75¢. Again it appears strong demand from China could be the catalyst for much higher prices this year. Relative to last year, whey prices have added $1.80/cwt. onto the value of Class III milk, which has increased the value of Class I skim.

China confirmed whey demand remains elevated. In the first two months of the year, China imported 277 million pounds – that was 54% more than last year. That is an extraordinary volume increase that surpasses any start of the year.