Monthly Forecast, November 2020

Based on the election, it appears the United States will proceed into 2021 with a balanced government – that has markets and business optimistic that some of the election promises of higher taxes on business could be held in check. Additionally, Sen. McConnell has announced that the Senate would undertake Covid-19 stimulus before the end of the year. While overall good news for the economy, the changing of the guard and timing could withdraw USDA buying for a short time, and that could tip the scale, especially for cheese, to oversupplied. The spread of Covid-19 is forecast to worsen in the coming weeks, reaching a peak sometime in December. That could negatively impact holiday buying – suggesting fewer purchases in-store and a significant shift to on-line purchases this season. It could shift to delivery, take-out, and homing dining, causing foodservice demand to turn lower. That trend could reverse spring 2021 with improved weather and hopeful signs of a vaccine by that time.

  1. Expect CME block and barrel prices to turn lower, but not as low as typical for this time of year and given new capacity from the Michigan cheese facility. Price could begin to lift late Q1 into early Q2 if the stimulus is enough to raise consumer purchases. Additionally, slowing the spread of Covid-19 could also improve the outlook for foodservice. At the very least, better weather could allow for demand to lift again.
  2. Butter should experience higher demand over the next four to six weeks, but lackluster foodservice could keep prices under pressure. There is plenty of frozen butter in warehouses, and some data suggests it could be older product. With time running out to trade old crop butter at the CME, that could pressure Q1 prices lower. March forward, the new crop could see prices lift as cream headed to churning in Michigan could abate with the advent of the new cheese plant. Still, milk production in New York, Texas, Idaho, and California continue to expand, suggesting the butterfat losses to cheese could be readily replaced elsewhere in the country.
  3. Reports are starting to surface that some countries are trying to slow NDM/SMP purchases – mostly out of the Middle East. The low oil price contrast against current NDM/SMP prices creates a substantial deficit for these governments. Still, leaving citizens without food is untenable – more news will be needed to determine a clear path forward. EU could produce more SMP this winter to offset foodservice declines due to closures that could last for weeks as the regions look to reduce the spread of Covid-19. Several are reporting that it is commitments are short of current printed prices. As the EU and US SMP retreat, New Zealand’s prices could ease as the premiums are sizeable, but it will take improving weather to erase the premiums entirely – that won’t be known until the calendar turns.
  4. China’s demand for whey products continues to lift prices; however, 2021 products are reportedly being committed at lower prices, including lactose. The new Michigan cheese plant will supply more WPC and lactose to the markets in 2021 – that may not send prices substantially lower, but it could work to cap runs.

Our mailing address is:

Ceres Dairy Risk Management LLC
PO Box 2440
Sun Valley, ID 83353-2440