Monthly Forecast – Dec. 2021

Forecast updates

• Given faltering global milk supply and consistent to higher demand – increased the 2022 and 2023 forecasts taking Class III and IV milk prices above $20/cwt for a sustained period. In turn, that will lift price expectations for Class I and II milk prices.
o Australia and New Zealand released the seasonal peak, October milk production at 3% less than last year and the lowest peak since 2016.
o US milk production continues to remain lackluster in October.
o EU-27 milk is also stunted.
o Despite higher prices, there are various issues – feed quality, costs, environmental limitations, cooperative limitations, etc. that are keeping milk flat. At the same time, demand for dairy remains elevated.
• Butter and cream demand remain raised as concerns about availability next year. Additionally, US exports are likely to stay high and imports minimized due to the gap between world and US prices. That could result in an anemic build this winter – keeping costs higher and above the $2 mark throughout 2022. That could persist through 2023. Those expectations are reflected in the latest forecast. While the estimates contemplate prices above $2/lb for an extended period, the price could be prone to bouts of runs higher. Cream multipliers could be high if limited labor and fuel costs persist at current levels.
• Cheese demand remains elevated. Given the Michigan cheese plant will no longer be incremental and there is no additional cheese capacity planned for next year – higher prices could be necessary to curb demand. Despite higher US prices as of late, they are still less than world prices, and there is reported interest.
• Reports suggest that WPI prices reached $8/lb – breaking with the trend and widening the gap to WPC between $4.50 and $5/lb. There is plenty of demand in either case and like cheese, no new capacity is slated, suggesting that demand will have to retreat for prices to decline. For now, that could keep 2022 whey prices above the 60-cent mark for most of the year. That will have a profound impact on Class III other solids values.
• Declining soil moisture in New Zealand could result in a substantial decline in second-half production. When demand is at current levels and supply falters, it tends to lift world milk powder prices.