Forecast update – February 26, 2021

Forecast updates
Additional adjustments this week
Increased dry products, including whey, WPC, and NDM. Demand from SE Asia and predictions of a higher GDT could lift nearby prices modestly.
Maintained butter and cheese forecasts this week.
The adjustments, in turn, adjusted milk prices.
Fluid Milk Market
Markets are starting to settle after the winter weather upheaval over the past few weeks. More discussions of school districts throughout the country returning to in-person learning could provide some improvements for school milk demand headed into the spring. USDA bids for Section 32 milk purchases were due last week – that could also support demand yet this year.

According to the Dairy Bakery Deli Association, the dairy case added $7 billion in sales last year. In January 2021, milk sales added $83 million compared to the previous year. Those sales were supported by more cheese, butter, cultured products, and creamers sales also. Retail demand remains the driver for dairy demand – that could slow later in the year should people resume daily life closer to pre-pandemic routines – including dining out more frequently.

January 2021 U.S. milk production totaled 19.2 billion pounds, 1.7% more than December 2020 and 1.6% higher than year-ago levels. That was a slower growth rate than some analysts predicted; however, components may remain elevated despite lower milk output. California fell behind the previous year’s production – a shift from recent months. Ten of the 23 states experienced unchanged or lower output than last year.

Cheese Market
CME weekly cheese prices surged last week in hopes of a new round of food-box orders. The Senate confirmed Secretary Vilsack to his former post as Secretary of Agriculture this week. Shortly after, letters from various groups went out seeking new rounds of food-box purchases. USDA still has money that could be spent on the program. Traders are also hopeful that the stimulus bill passes the Senate by the mid-March target, bringing some of the $3.6 billion allocated under Title I for feeding and related programs directed toward additional food-box purchases. Trading lifted the CME block average to $1.6015/lb., up 6.77¢/lb. Barrels picked up at the end of the week, but that was not enough to lift the weekly average above the previous week. In the end, CME barrels averaged $1.409/lb., 3.29¢/lb less than the last week.

USDA announced total cheese stocks as of Jan. 31 at 1.399 billion pounds – 3.3% more than the prior year and unchanged to Dec. 31, 2020. American cheese stocks totaled 800.8 million pounds, 0.1% less than Dec. 31 but 2.7% more than the previous year. Stocks expanded in the Pacific, Central, and the Mountain States relative to last year. The news was more favorable than markets anticipated – so a bit supportive to nearby prices – suggesting that prices may not need to fall further. Other cheese holdings expanded – that could be hard-Italian cheese stock rebuilding or slower Mozzarella exports.

Butter Market
CME butter markets continue to move up as traders expect to see more USDA purchases, including the most recent Section 32 bid pare back stocks. Spot butter prices started the week above $1.50/lb but eased after the latest Cold Storage report confirmed significant stockpiles. Q2 2021 futures continue to project NDPSR price above $1.70/lb – a price that has many questioning whether it is possible. Still, markets are lifting, which cannot be discounted as buyers are willing to own butter near current levels. Price could be elevated as the USDA Section 32 bids are due early next week. At the same time, cream multipliers relaxed this week as more product was available to the market.

On Jan. 31, U.S. butter stocks totaled 328.4 million pounds – 20% more than Dec. 31 and 32.8% higher than last year. That was the largest stockpile of butter for January since 1993. Those levels of butter on hand easily explain lower prices at the start of the year. While traders are expecting USDA orders to deplete stockpiles – it could take a fair amount of buying, given the starting point.

CME prices retreated at the start of the week; however, prices rebounded by the week’s end. More news about potentially more robust demand from China and Southeast Asia is lifting prospects of better demand this year. NZX futures markets suggest next week’s Global dairy Trade (GDT) auction could rise again this week as Chinese buyers return to the office. A higher GDT would likely support higher nearby US NDM prices. Still, shipping disruptions due to limited containers are driving the sizeable gaps between U.S. and EU-NZ prices. Stronger overseas demand could support higher NDM, and in turn, Class II and IV skim prices.

New Zealand skim milk powder (SMP) exports fell 22% below the last year’s levels in January 2021. Exporters shipped 32,825 MT (72.4 million pounds), which was well below the five-year average page for January. While exports to China increased – shipments everywhere else fell – that could be due to higher prices or the shift to whole milk powder (WMP) exports. New Zealand exported 153,052 MT (337.4 million pounds) – 6.5% more than last year. China pulling more products is providing opportunities for European and U.S. milk powders.

Whey & Lactose Products
CME whey prices were mostly stable this week on very little new news as China concluded its lunar new year celebration this week. China’s whey imports are due out next week – so that will be new information that could provide further market support. Still, anecdotal reports suggest that whey and whey derivatives like WPC-34 prices are supported through the spring. Lactose may have found a level of support as the low-end price ranges are starting to stabilize.