Monthly forecast – June 2023

Forecast updates

This month’s data suggests that the difference between the Class III and IV prices could be substantial for the foreseeable future. Typically, these gaps don’t last that long – meaning Class IV would decline or Class III increase. The latter appears more realistic as butter prices appear well supported, and declining supplies could cause NDM/SMP prices to rise. All of that said, more cheese is coming into the system, and exports will need to increase, especially to SEA, to keep the domestic markets balanced. As evidenced by the low Q2 2023 prices, exports slowed, and markets are out of balance, causing more cheese to head to the spot markets. For those reasons, prices are different from the last forecast.

  1. Expect milk production to move to contraction as futures forecast low milk prices domestically and overseas. That should curb further declines in milk prices Q3 forward with Class III expected to make sizeable inroads and Class IV to rise.
    1. Given the average of pricing – higher Class IV prices will be muted by lower Class III prices meaning Class I is expected to be less than Class II and Class IV through the end of the year – that could mean depooling is on the table.
    2. Ceres has Class III June 2023 forecast sub-$15/cwt – the lowest prices since May 2020. That will put tremendous pressure on dairy producer margins and likely cause culling to pick up faster as the spring flush has past.
    3. US cheese prices are the lowest in the world and futures are well below spot prices from Europe and New Zealand – that should promote and facilitate more US cheese exports through 2H 2023.
    4. USDA’s bid should begin removing cheese out of the system in Q4 – but more will need to be seen with the September bid -is this more cheese or half of the annual bid volumes.
  2. Moderated cheese prices – but there could still be some upside to 2H markets should exports pick up.
    1. Maintained a wide block-barrel spread with barrels above blocks in July.
    2. Expect cheese could run above $2/lb – that will depend on demand and supply.
    3. Reduced 2024 cheese price forecast as more cheese is expected to come to market. That could be subject to revision higher should demand remain consistent and milk supplies slow down internationally.
  3. Increased butter forecast through November 2023 – prices have been supported, and ice cream demand should increase over the next few months.
    1. Additionally, NDPSR pricing could cause prices to remain elevated for longer.
    2. Expect a modest seasonal adjustment lower for butter to be higher in 2024 and 2025 as slower milk off the farm and more American cheese will tighten butter and NDM supplies domestically.
  4. Reduced the whey forecast. Demand is lackluster, and more supply will begin in 2H 2023. With infant formula demand ho-hum, that could imply too much product, and prices will need to moderate more.
  5. Made modest adjustments to the NDM/SMP forecasts. Prices could lift as supply falters; however, that will be contingent on demand.