Weekly forecast update, 080621

Forecast updates

  • Increased CME butter, block, and barrel price expectations. USDA returned with fluid and cheese Section 32 bids. The volumes were relatively small for Cheddar cheese, but it may suggest that the USDA could support overall milk prices. Before the announcement, SEP21 futures were poised to move lower with a possibility of dropping below $16/cwt.
    • As has been the case, spot cheese markets could be prone to move higher than expected and then correct lower than anticipated – that pattern is in the current forecast.
  • While there was no Section 32 bid for butter, one may show up next week if the pattern hold.
  • Decreased Q4 whey values – lower exports and easing European prices could become a more significant drag for US prices this year. Most of the declines are expected in 2022.
  • Adjustments increased the Class I and I milk prices for the rest of the year.

Fluid Milk Market

USDA issued two Section 32 bids for fluid milk this week, the first for 274,200 gallons and 205,200 cases of half-gallons. The second bid was for 8.6 million cases and gallons combined. That immediately caused Class III and cheese futures to jump in anticipation of further orders. USDA’s Section 32 bids for fluid milk were on hiatus since May 2021. That has markets anticipating additional USDA buying yet this year. Add to that milk is starting to head to bottling to resupply the school lunch program as schools across the country resume in-class session with Florida and Missouri already back in school. That year-over-year difference could be substantial for a time. So far, cheese processors are starting to notice less spot milk, and some are beginning to pick up buying activity to obtain milk for processing. It should take the rest of August before school milk normalizes and milk flows back to cheese vats and driers.

Cheese Market

Following USDA’s mid-week Section 32 bids, for a short time, cash-settled cheese futures trades as much as 4-6 higher through the end of the year. However, spot markets maintained their course, and futures sold off by the end of the day. The Section 32 Cheddar cheese bids totaled 1.352 million pounds, with Swiss at 740,430 pounds for a total of 2.902 million pounds of cheese. That was lower than comparable weeks over the past few years and likely a reason futures sold off. CME blocks averaged $1.635/lb and a modest 0.15¢ more than the previous week. Cheddar barrels sold off on Monday and then maintained a steady course for the rest of the week. Barrels averaged $1.31/lb, down 9.3¢ from the previous week. Cheese processors continue to report that packaging and labor disruptions are impacting product mix – making market movements somewhat unpredictable as summer winds down.

US cheese production totaled 1.124 billion pounds in June –0.2% more than the previous year. The modest YoY increase had more to do with the massive increase in June 2020 than a significant shift this year. A year ago, processors were restarting production lines to keep up with food-boxes, as well as elevated domestic demand. Cheddar production was 327.9 million pounds and 8.2% more than last year – reflecting new capacity from Michigan.

US cheese exports were 74.2 million pounds in June and 12.8% less than last year. Still, year-to-date exports are 2.8% more than in the same period the previous year. Fewer shipments to Mexico, South Korea, and Japan caused the YoY gap. That said, last year, the United States was exporting $1 cheese – a likely reason volumes were so high. US cheese imports fell 3.9% below prior-year levels, totaling 53.2 million pounds.

Butter Market

Butter markets dropped to $1.605/lb on Tuesday before recovering to $1.6475 by Friday. In the end, prices averaged $1.6455, up 0.9¢ compared to the previous week with 19 loads changing hands. Fundamentally, market changes were subtle compared to spot and futures price reactions. Like cheese, it seems that butter markets are reacting to the possibility of a USDA Section 32 bid and stronger exports. That said, more milk headed to bottling and components off the farm are helping to support nearby butter markets. In addition, reports indicate that spot cream dropped this week and that churns switched over to microfixing to meet short-term demand. That is likely to continue through the end of the year.

USDA released June butter production at 160.7 million pounds – that was 7.8% above last year. However, year-to-date butter production continues to lag the same period last year. That said, most of that additional first-half 2020 production came from April 2020 – the height of the pandemic impact on markets.

US butterfat exports remain higher than 2020 through mid-year. In June, exporters shipped 9.2 million pounds of butterfat overseas – that was 49.8% higher than the same period last year. Sizeable exports to Canada, Bahrain, and Australia drove the increases. Conversely, butterfat imports fell to 14.7 million pounds –nearly 20% less than the same period last year. The most significant declines came from Ireland and India.

NDM/SMP

CME NDM prices drifted lower throughout the week. On Tuesday, the Global Dairy Trade (GDT) results were higher for SMP, up 1.5% compared to the previous event; however, the overall index slid on lower WMP performance. While Fonterra removed more volume from the auction, prices continued to experience pressure. That set the tone for this week’s NDM trade. In the end, NDM averaged $1.261, up 0.35¢ compared to the previous week.

USDA announced NDM/SMP production at 184 and 34 million pounds, respectively, which was +19.8% and -46.1%, respectively, compared to last year. A large portion of the SMP likely became NDM this year, which typically suggests lower overseas demand. NDM stocks totaled 349.5 million pounds on June 30th – 24% more than last year, another likely cause to lackluster markets this week. That was a sizeable build; however, the shifting product mix could account for some of that lift.

US NDM/SMP exports totaled 179.5 million pounds, 7.4% more than last year and the most for June on record. Higher volumes to Mexico and Indonesia drove better results. US exports to China performed better also. However, some slowdowns throughout SE Asia could be causing the cautious undertone of current markets.

Whey & Lactose Products

CME whey prices picked up throughout the week, mainly on USDA reports indicating that production and stocks both trailed last year in June. That despite lower whey exports to China. European prices are also easing as China buys less whey from the two regions and imports larger quantities from Belarus. This week CME whey prices averaged 50.7¢, which was still 1.25¢ less than last week. Dairy Market News prices declined for Central and Western whey prices. Stable whey prices could keep Class III prices elevated by the end of the year.

US sweet whey production totaled 79.4 million pounds in June –0.9% less than last year. Stocks were 63.2 million pounds – 26.3% less than last year, given weaker exports that would suggest a good amount of domestic demand in June. Lactose had a similar performance, with production down 7.9% vs. the previous year. Lactose stocks remain higher, but 6.8% less than in January. WPC combined production totaled 39.4 million pounds, 8.9% more than last year –stocks are marginally higher 0.2% – suggesting good demand.

US sweet whey exports declined in June on fewer sales to China. In total, the United States exported 39.1MM pounds – 2.1% less than the same period last year. Fewer sales throughout SE Asia was another contributor to lower volumes. However, exports to Vietnam proved pivotal in pushing US lactose exports above prior-year levels in June.