Weekly forecast update – April 30, 2021

Forecast updates
Given current international demand and better-than-expected US foodservice and government pull – increased the Class IV and Class III milk prices.
For Class III, that increased the 2021 average price to $18.44/cwt., up from $17.73 last month.
Q2 and Q3 reflected most of the increases. Adjusted May and June prices higher given strong demand at the CME supporting prices; still, Ceres forecast is less than current Class III milk futures forecasts.
Increased CME blocks to average $1.8188/lb. this year – that is approximately 5-cents more than last month’s estimate.
Increased CME barrels to average $1.7151/lb. this year – that is nearly 7-cents higher than last month’s forecast.
That resulted in a lower block-barrel spread for the year.
Increased whey by 1.5-cents vs. last month with most of those increases in Q4 2021 – do not expect the fall off to happen in this year.
We increased the Class IV milk price forecast by 62-cents/cwt. with an average of $16.33 for the rest of this year.
Substantially increased the 2022 and 2023 prices by raising both butter and NDM price expectations.
Increased the average CME butter and NDM prices this year by five and 6-cents, respectively, compared to last month.
That makes the Ceres NDM and futures prices comparable for Q2 forward.
Ceres increased the butter forecast – lifting prices to reach the $2 mark by Q3.
The most significant change to the forecasts is the increases in 2022 and 2023.
In turn, those increased lifted the Class I and II skim and butterfat forecasts from this point forward. The forecast excludes any potential changes to the Class I formula as it is unlikely to impact 2021 and 2022 prices.
Most of the Class I price came from increasing the Class IV milk price.
Should demand from Asia or the United States slow – that could cause a re-forecast. For now, the indications suggest that prices could remain elevated through Q3/Q4 when China returns as a significant buyer.
The 2022 and 2023 increases focus on slower-than-expected milk production growth rates that have been unable to keep pace with expanding dairy demand.

Fluid Milk Market
The news for milk was relatively quiet this week. Overall, the weather seems to be causing milk to move up and down as cows contend with weather that can vary 30 degrees between daily high temperatures. Sustained heat this early in the spring can take a toll on cows as they have yet to shed their winter coats so which can cause heat events to have a more significant impact as it is more challenging to expel heat. Additionally, there are continued reports that dairy producers are adjusting rations to accommodate higher feed costs, which could be causing some milk production variability. Seasonally output is rising, but in some parts of the country, it is starting to look like the spring flush has passed, with milk still elevated but not adding to earlier increases.

Rain and delayed plantings send corn and soybean meal higher. Despite forecasts of higher milk prices this year, dairy producers could still see most of those price increases head to feed costs as corn traded at new highs this week, with MAY corn futures jumping above $7/bushel for the first time. Add to that, rain in Argentina usually is welcome news, but this week it created challenges for the soybean crop, lifting prices anew. Higher feed costs could keep expansion plans in check.

National Milk Producers stated it intends to file an emergency federal order hearing request with USDA to review the Class I milk price formula. The hearing would focus solely on the Class I price formula – something that may not have industry consensus. Agripulse quoted Secretary Vilsack saying, “I know that within the dairy industry there are conversations, and I think those conversations need to mature a bit more before anybody makes a decision that there’s going to be a significant change.” That may provide some insight as to USDA’s approach to the request.

Cheese Market
Spot CME cheese markets pushed higher this week, with barrels carrying a 3.5¢/lb premium to blocks on Friday. In the end, CME barrels averaged $1.8110/lb., up 2.05¢/lb. vs. last week’s average. Cheddar blocks averaged $1.801/lb. up 0.85¢ compared to the previous week’s averaged. In April, trading volumes picked up with 87 loads of blocks changing hands and 85 barrels – that was the most trading since December 2020 and January 2021, respectively. Still, reports that processors are experiencing a slowdown remain, suggesting that more cheese could head to Chicago over the next few weeks as processors look to market uncommitted products.

New Zealand cheese exports rocketed higher in March, reaching 81.7 million pounds and 30% more than the previous year’s levels. That was the most cheese exported for that month on record, easily surpassing the former high set in 2015. Exports to China doubled relative to last year and accounted for nearly one-third of all volume. Exports to Japan and South Korea also bettered last year by 5.1% and 1.2%, respectively. All data are supportive of overseas’ demand and likely prices for the remainder of this year.

Butter Market
Spot butter prices looked to recover this week, but Friday markets took a significant turn lower. CME spot butter averaged $1.7860/lb, 0.8¢ less than the prior week’s average. Less than half the volume traded this week vs. last week. This month 108 spot loads trading making it the largest trading volume since December. Still, prices are higher than most expected for this time of the year. Overall, more processors report a bit more cream available to churns over the last week, and cream multipliers decreased; however, multipliers are still higher than the five-year average for this time of year. Some are noticing that foodservice orders are slowing – that could signal that the foodservice channel is restocked and that orders could resume a “normal flow.”

New Zealand’s butterfat exports recovered to 2019 levels in March, with shipments totaling 97.4 million pounds. That was 21.1% higher than year-ago levels – but still well behind the record set in 2015. Exports to China were 149% higher than a year ago levels and doubled 2019 shipments. Exports throughout Asia, Russia, and the Middle East were all higher than year-ago levels. Like other products, New Zealand’s exports signal heightened international demand – that could support prices as milk output has been slow to respond to current demand levels.

NDM/SMP
NDM prices continued to push higher this week, with CME spot prices reaching the highest level since October 20, 2014. That lead to a weekly average of $1.311/lb – 6.9¢ more than the prior week. Trade volumes doubled to 16 loads – that was the fewest loads traded since December. While spot prices continue to lift, some are reporting some pushback from domestic buyers at current price levels. That is typically for this type of cycle. Other reports are suggesting that demand from Southeast Asia and Mexico is rising. While US prices are higher – they are still trailing those from Europe and New Zealand. Still, further price appreciation would require international prices to push higher. For the year, NZX futures are pricing New Zealand SMP above $1.50/lb.

New Zealand exported 69.6 million pounds of SMP in March – that was 5.5% less than the previous year. New Zealand will make WMP a priority – therefore, the increases in that category likely resulted in fewer SMP exports. That provides a tremendous opportunity for US exporters in Asia as they backfill the missing demand. That is also supportive to prices later this year should demand to continue at current levels. Most New Zealand SMP exports (41%) went to China, which was 50% more than year-ago levels. Exports to Thailand and Malaysia declined – two countries the United States has expanded its share in recent years.

Whey & Lactose Products
CME whey prices averaged 66.3¢, down 0.5¢ from the previous week on six trades. Dairy Market News central and western prices increased again this week, averaging 63¢ and 65.50¢, respectively. Lactose was unchanged at 45¢. Although European prices are trailing the United States, EEX futures projects whey prices to remain in the mid-50s/lb. for the rest of the year. Again elevated demand from China and throughout Asia as well as solid pull from the United States is lif

There are some reports of pushback as processors circulate price increases to customers. That is across all categories, from whey powders to isolates. Demand from Asia, especially China, is robust, forcing buyers to accept higher prices this year grudgingly.