Weekly forecast update, July 2, 2021

Forecast updates

• At the mid-point of the year, milk production is still running above last year’s levels, resulting in more dairy product production. Exports remain elevated compared to the previous year, but USDA’s pandemic-driven buying is slowing. Foodservice orders are recovering, and that is offsetting slower retail sales.
• Data is competing, suggesting that prices could still recover into the second half of the year, but that there is a chance that if exports are unable to remove excess milk solids, prices could retreat. Presently, international demand and modest milk production growth are keeping US dairy products headed off-shore. However, should exports slow – that could cause prices to decline.
• The forecast still reflects higher prices into late Q3 through Q4; however, the top-end is less than previous forecasts.
• The forecast expects that whey prices could retreat further as China is buying less product from the United States and replacing that product with less expensive whey.
• Expect that butter prices can reach $1.90s when the holiday demand season kicks in.
• The spot CME cheese price could continue to improve with prices lifting throughout July but lifting at a faster pace in August. Expect the block-barrel spread to remain moderate through August. When barrel seasonal demand passes, expect the spread to widen.
• Expect NDM prices to return to the 130s in August/September.
• All of these changes will impact milk prices. The Class I price, for now, is forecast to peak in November and December.

Fluid Milk Market

USDA announced the June 2021 Class III and IV prices at $17.21/cwt and $16.35, respectively. The Class III price was 75¢/cwt less than May and $3.83 less than year-ago levels. The Class IV milk price was 19¢ more than May and $3.45 higher than last year. That is a complete reversal for both milk prices. The Class III milk price appears to be feeling the weight of fewer government orders and higher output, while Class IV is benefiting from more robust exports.

This week, reports suggest plenty of milk with more tales of dumped milk due to the inability to obtain trucks due to lack of drivers. Bottling is still lower, with more milk pushing to manufacturing over the holiday weekend. Additionally, cheese plants are still struggling with packaging and labor issues that seem to be keeping intake below normal. That sentiment is wearing on markets and appears to be capping price runs.

Cheese

CME Cheddar blocks increased throughout the week while barrels felt some sell-side pressure. Cheddar blocks averaged $1.5435/lb and 6¢ more than the previous week. Spot barrels averaged $1.4955, up 0.95¢ compared to the prior week. Trading volumes dropped. There are stories that 40# block demand picked up due to disruptions from the 640# business caused by labor shortages and packaging issues. At the same time, barrels could be experiencing a bit more sell-side pressure as some processors are looking to balancing operations by producing more barrels.

In May, the United States produced 1.16 billion pounds of cheese – that was 1.5% less than April, but 4.99% more than last year. Cheddar production totaled 343 million pounds, 0.6% less than April but 8.7% more than last year. Mozzarella output totaled 377 million pounds was 3.3% less than April and 0.7% lower than last year. Most of the new cheese is coming from the new facility.

US cheese exports total nearly 68 million pounds in May – that was 26% less than April and 13.7% lower than last year. Exports to Mexico were higher, but volumes to Asia were lower. US cheese imports were 30.8 million pounds and 26% higher than last year. The trade reversal, fewer government removals, and higher output likely pressured prices lower.

Butter

CME spot butter prices started the week higher, but price enthusiasm waned by mid-week. In the end, CME butter averaged $1.7505/lb, up 1.1¢ with 26 trades. Cream multipliers remain consistent with 2019 but less than last year’s levels. Reports suggest that markets remain unsettled, with ice cream pulling a bit less than expected given the time of year and heat. Additionally, with milk headed to driers, the cream by-product is headed to churns. All of that seemed to cap a price move higher this week.

US butter production totaled 185.45 million pounds in May – that was 2.4% less than April but 7.6% higher than last year. US butter production is seasonally declining as more cream moves to other uses. Still, output is quite a bit higher than last year, which is limiting prices.

US butterfat exports totaled 12.2 million pounds, 107.6% more than last year but 1.2% less than last year. Exports to Canada and the Middle East were more than last year.

NDM/SMP

CME NDM declined throughout the week but recovered on Friday. Prices averaged $1.2625 this week, which was 0.3¢ more than the prior week. US exports remain strong, and that will be influential on price direction. Additionally, Europe is producing less SMP – which could keep production in balance. Prices have been weaker as output increased this spring, in addition to some price weakness in Europe.

Combined US NDM/SMP output totaled 241 million pounds in May – that was 3.3% less than April on a daily average basis but 12.7% more than last year. Most of the increases were in NDM – 30.6% more than last year.  US manufacturer stocks of NDM totaled 348 million pounds on May 31 – that was 2.7% more than last year. Given higher exports – that suggests that domestic sales slowed.

US NDM/SMP exports were 195.6 million pounds – the most on record for May. That was 11.4% more than last year and 9.4% higher than April. Through May, US NDM/SMP exports are running 16.7% more than last year. As a result, exports have been more than able to offset production increases this year.

Whey & Lactose Products

CME whey prices declined this week. In the end, prices averaged 56.1¢, which was 2.9¢ less than the previous week. Dairy Market News whey prices were mixed – Central prices held while western prices declined. Lactose and WPC 34 were unchanged. European prices are creating a ceiling for US spot prices.

US whey production totaled 76.4 million pounds in May, which was 0.8% more than April, but 7.7% less than last year. Stocks increased compared to April, but manufacturer stocks of whey totaled 66.5 million pounds on May 31 – that was 23% less than last year.

US whey exports totaled 46.9 million pounds – that was 29.5% more than last year. Most of the whey moved to China, and that was considerably more than a year ago. Still, the US percentage of Chinese whey imports declined.