Weekly forecast update, August 20, 2021

Forecast updates

• Reduced CME prices for butter, Cheddar blocks and barrels through Q1 2022.
  • Reduced barrels based on off-season approaching and prices unable to sustain higher prices.
  • Still expect Cheddar prices to lift in September and November, but price declines in October and November could be larger given past trends.
  • Butter stocks remain elevated and the trend appears in place for lower markets into the end of the year with some stability early in the holiday season.
  • Some modifications to NDM to adjust for current markets.
  • Increased whey through Q4.

Fluid Milk Market

USDA announced the September Class I advanced price this week at $16.59/cwt – that was down 31¢ compared to August and the lowest price since April. More milk is headed to bottling since mid-August – that combined with seasonal declines from the Southeast is reducing milk to cheese and milk drying facilities. It has also worked to lift the bid on spot milk and erased the discounts in the market.

Western states felt the impact of the summertime heatwave based on the latest USDA milk production report released this week. The United States produced 19.14 billion pounds of milk in July –2.3% less than June on a daily average, but 2% higher than last year. Washington milk output plummeted 6.7% lower than the previous year as sweltering triple-digit temperatures negatively impacted production. California production dropped 0.8% also. Still, South Dakota, on a percentage basis, continues to push output up. Wisconsin added the most milk on an absolute basis during the month. The milking herd totaled 9.5 million head – unchanged to June, but still 1.4% more than last year. Slaughter rates started to pick up this summer, suggesting that the latest expansion could be over. Still, it could take time for US milk production to slow considerably.

Cheese Market

After rising the previous week, CME spot blocks dropped back to the upper-160s after peaking in the low 180s this time around. Barrel rose throughout the week, peaking at $1.5125 mid-week, but came under selling pressure and ended up easing by Friday. In the end, blocks averaged $1.7505/lb, down 0.35¢/lb compared to last week. Barrels average $1.493/lb, up 8.15¢ vs. the previous week.

Anecdotal reports indicate the Tosca and Arena packaging issues may be on the mend as more processors received containers, permitting processors to focus on restocking 640# cheese. That could result in less cheese headed to 40# blocks, and 500# barrels as processors look to make up for lost production this summer due to packaging shortages.

Seasonally less milk off the farm and more milk headed to bottling raise the cost of milk directed to cheese vats. It may also encourage some cheese processors to standardize cheese vats with nonfat dry milk (NDM) powder. Processors arbitrage NDM and Class III milk prices– standardizing when milk costs are high and reverting to milk when discounts return. Standardizing could last until the school milk supply line is filled and seasonally, milk-off-the-farm begins to increase later this year.

Butter Market

CME butter markets have set another lower high, suggesting that prices could decline into next week – especially since Cold Storage week has heralded lower prices since the start of the year. This week CME butter averaged $1.682/lb, up 0.8¢/lb compared to the previous week. Prices were steady at the beginning of the week but price decay set in mid-week. Since prices peaked in the $1.90s this spring, each high is lower, and each low is lower. That is a trend that appears to be following last year’s trend, albeit at a higher price level. Like last year, price held for a time during the ramp-up to the holiday season, but prices started to head lower again in early October. Without reducing the current stockpile of butter on hand, markets may be inclined to ease as the holiday season unfolds.

Lower milk production from western states could slow cream headed to churns and may recently explain the YoY increase in multipliers. That could support prices for a time. This year’s availability of milk supplies has resulted in less cheese standardizing, keeping a steady stream of cream headed to churns. That may temporarily slow as Mozzarella demand season picks up as colleges and fall sports begin this week. A modest seasonal increase in Class I demand is also reducing the amount of cream in the market. Seasonally hot weather in August could keep ice cream demand going for a few more weeks, but some are reporting many processors are in good shape for any demand surge they could experience shortly. All of that may do little to move the needle in the market direction.

NDM/SMP

Like other products, NDM was steady at the start of the week, but it started to drop mid-week. GDT prices were mixed again, with SMP rising 1.1% vs. the prior auction, but WMP fell 1.5%. Despite the lower WMP performance, all other products performed will cause the overall index to increase. That was enough to support prices for a time, but CME NDM remains in a range, with this week dipping below the previous week. In the end, CME NDM averaged $1.2545/lb – that was 0.6¢/lb less than the last week. While overseas markets continue to provide support, there are still concerns domestically.

Transportation issues continue to wreak havoc on the NDM/SMP markets. Although US exporters have been capable of exporting record milk powders this year, there are still substantial issues with US and EU exporters once again reporting significant delays. Q3/Q4 is peak demand to get consumer goods to market for the holiday season. That could again result in ghost sailings, meaning that container companies are incentivized to ship empty containers. Relief may not come until Q1 2022 and beyond.

Whey & Lactose Products

CME whey prices declined modestly compared to the previous week on unchanged news. WPC markets remain strong and demand positive. Seasonally cheese and whey production is declining, but China has been sourcing more products from less expensive countries. As a result, CME NDM averaged 52.5¢/lb compared to 52.75¢ the previous week. DMN lactose and WPC34 prices remain unchanged. CME whey futures continue to forecast a decline, but the drop continues to be pushed forward. That said, EU prices in the upper 40s could become a drag on US exports.