Weekly forecast update, 073021

Forecast updates

  • Reduced block and barrel cheese forecast through 2022. While domestic markets have been able to absorb a lot of the new production from Michigan, unless exports increase, the market could tend toward oversupplied for a time.
    • Fewer USDA orders – effectively a reset to 2018 spending levels, could put more pressure on exports to keep markets balanced.
    • Seasonally barrel demand will slow in the fall when burger and sandwich season winds down – that could keep a lid on prices through the end of the year.
  • Reduced the butter forecast through 2022. Prices could see additional pressure if stocks begin to build after the holiday season.
    • While there could still be a seasonal lift, butter, like cheese, will rely heavily on exports. Should exports whittle back the 55 million pounds of additional butter, that could support prices – but if they don’t that could cause prices to moderate even further.
    • Lower prices should make US butterfat exports competitive and could help keep domestic AMF demand elevated.
    • Processors are now focusing on the holiday demand season that will take place through Thanksgiving.
  • Milk powder prices and whey forecasts are similar.

Fluid Milk Market

Hot weather in the Upper Midwest curbed output. That, along with more milk headed to the Southeast, may have helped demand over the near term. That said, milk is traveling long distances in search of processing, and as a result, it is still trading at a $3-$4/cwt discount.

The weather appears to be “normal,” which is consistent with long-term summer forecasts. Some parts of the country are receiving more than adequate rainfall – while some growing regions are seeing scant moisture. As a result, the quality of this year’s soybean and corn crops depends on where the crop was grown and whether the weather has cooperated. For now, feed prices are lower than earlier this season but still projected to be more than the past few years, given the decline in Class III milk prices that could squeeze farm margins when they begin to feed new crop rations.

Cheese

CME cheese markets, like other products, were somewhat quiet this week – it could be a summer lull. More reports are due out next week, and markets mainly were content to remain near current levels. Cheddar blocks averaged $1.6335/lb – that was up 6.35¢ vs. the previous week on just three trades. While the week over week gain was good-sized, most of it came on Monday with a smaller increase on Tuesday – after that, markets were unchanged. Barrel prices lost ground throughout the week; however, the weekly average of $1.403/lb was still 0.65¢ more than the prior week.

Most of the cheese news this week was from overseas. New Zealand June cheese exports totaled 67.8 million pounds and nearly 25% more than the same period last year. New Zealand shipped more products to China, Australia, and SE Asia. Japan was the only country to reflect a significant decline vs. the previous year. USDA’s FAS forecasts New Zealand’s cheese production to expand by 9% this year vs. last year – most of that new product will go to China.

Russia’s cheese imports continue to improve, as does South Korea. Japan has slipped below year-ago levels as of mid-year. Trade will be essential to keeping the US cheese markets balanced.

Butter

CME spot butter prices faded through the week, with prices reaching a low of $1.6225/lb. on Wednesday before mounting a recovery on Friday. In the end, CME spot butter averaged $1.6365, down 7.2¢ compared to the previous week on just six trades. Markets have been unable to shake the Cold Storage report with buyers feeling comfortable about product availability through the end of the year. Until and unless US butter processors can chip away at the 55 million pounds of additional butter put into warehouses during April 2020, the market could seasonally increase but remain well below the five-year average for this time of year. Lower prices could spark additional exports and provide good opportunities for retailers for Class II butterfat and butter products for this holiday season.

Overseas news indicates that Russia and China are importing more butter through mid-year. Both are on pace to import more butter should the current level of imports continue. That could absorb a lot of New Zealand production, providing opportunities for US exporters into the Middle East.

For the first time since 2008, food expenditures from home exceeded food purchases away from home. According to ERS, the foodservice industry experienced the most significant decline, 16.8%, on record due to the Covid-19 pandemic. Add to that demand, by category shifted, with limited-service restaurants rising to 43% of total sales and full-service outlets dropping from nearly 37% to 31% – all other types continue to trend lower. This may account for significant shifts in demand and why butter has been unable to recover fully.

NDM/SMP

CME NDM was primarily stable this week with a few modest ups and downs. NDM averaged $1.2575/lb this week compared to $1.245 last week – a 1.25¢ increase on the week on fewer trades. Most are awaiting the massive amounts of data out next week, including the first GDT of August – and a glimpse at what trading for new season milk powders could look like this go-round. Fonterra continues to reduce the amount of WMP available to the 2021/22 powder – which has worked to lift NZX WMP and SMP futures slightly. Still, most will wait for more significant moves next week, depending on how Chinese buyers interpret the latest forecasted volume.

In June, New Zealand’s SMP exports totaled 63.2 million pounds, which was 2.1% more than year-ago levels. Exports to China are running 44% more than the previous year, indicating that demand continues to tick along. Exports declined in SE Asia – that provides an opening for US and EU exports. New Zealand WMP exports in June totaled 351.1 million pounds, which was 45.2% more than a year ago levels. Exports to China were up 147%. Those increases, along with cheese, will continue to pull NZ milk solids away from other products like SMP – which could provide an opening for US and EU skim-solids yet this year.

Whey & Lactose Products

For weeks, CME spot whey prices shrugged off bad news about China’s whey imports – buyers are sourcing more products from Belarus and less from the United States and Europe to manage costs. But this week, news of slowing demand may have caught up with spot whey markets as CME, Dairy Market New, and NDPSR all took a step back. CME spot whey prices averaged 51.95¢, down 1.7¢ from the previous week. In addition, the gaps between Central and Western mostly whey prices are starting to grow wider, with western prices holding up better at this point. Lactose and WPC prices were mostly stable this week.

New reports indicate that Belarus’s whey is committed for August – that could provide some opportunities for US and EU-27 exporters. That said, European whey prices are currently trading below US spot prices, which could mean more volume for Europe. Still, US stocks are not burdensome, and WPC80 continues to provide a good alternative.