Monthly Forecast – December 2022

Forecast updates

One of the most significant considerations for this forecast is if and when China will return to markets. Historically, when China’s demand eases, no other nation or group of countries can absorb that lost volume – it appears 2022 may be no different. So far, milk production from major exporting regions lagged last year, with the United States and Europe pulling ahead in recent months. While milk production has been slow to materialize, the lost volume from the world’s largest dairy product importer has outpaced supply slowdowns making markets sluggish as the year-end fast approaches.

  • Months of higher prices have started to encourage milk production. Add to that, major plant expansions in the middle of the United States are helping to bring new cows and dairies online. However modest, those gains are starting to drag on dairy product prices.
  • For this forecast, Ceres revised NDM prices lower for 2023-2025. Prices should remain elevated compared to the previous five years but less than this year due to lackluster demand from China.
    • While China has announced efforts to reduce its zero-Covid policy, most experts suggest it will be a bumpy road to normalcy due to low uptake of vaccines and boosters and very low natural immunity – implying periodic spread and sickness.
    • That may be contrary to China’s statements that its Lunar new year and spring festival holidays will be major events.
    • But, it could be a transition that eventually brings the Dragon roaring back to markets, helping stabilize demand later in 2023.
    • For those reasons, Ceres reduced milk powder forecasts from last month.
  • Butter prices remain resilient after Thanksgiving, with anecdotal reports that butter supplies are limited for this time of year. At the same time, data indicates that US butterfat imports are rising as more AMF is inbound. While US exports to Canada could continue – the value of New Zealand and European butter is well below US prices – that could create more competition for exports elsewhere. That resulted in a similar outlook for butter prices.
  • Cheese markets are on the rise at the beginning of November. That may be short-lived, but there seems to be little reason for prices to reset substantially to increase interest. Each time futures move toward $1.95 – interest comes back pushing price forecasts up again.
    • The Dumas Cheese plant should begin start-up procedures in May – that will provide new cheese to markets.
    • USDA’s Agricultural Feeding Kids & Families program could provide a floor for cheese prices through 2024.
    • US exports are strong and likely to remain positive next year, which will hinge on Mexico’s demand.
    • Elsewhere, European markets are mixed, with an outlook for cheese prices to head lower. New Zealand exports slowed on lower demand from China.
    • For those reasons, Ceres made modest adjustments to the cheese price outlook. The block-barrel spread remains tight – with barrels holding premiums at times.
    • Foodservice and retail demand is positive, but still expecting a seasonal decline in mid-Q1 2023.