Monthly Forecast – November 2022

Forecast updates

Markets appear to be easing ahead of the holidays – some faster than others. Still, prices found some support as US exports in September performed well and reports have surfaced that Mexico and China may be returning to markets. That will take additional time to prove, but for now that has caused buying support throughout the dairy complex.

  • Ceres assumes that if milk prices were to drop below $18/cwt USDA would step in to support prices. That policy has been in place since the US/China trade war. Before the recent bout of inflation, that price was $16/cwt. Given tight margins, that number is likely higher.
  • Reports indicate that US cheese exports are well committed through year-end but that higher prices reduced export commitments in Q1 2023 – which could negatively impact prices as domestic demand seasonally declines.
    • However, lower prices into the end of this year and Q1 2023 could set-up for risk management opportunities and increased promotion and exports in Q2 forward.
    • New capacity will not arrive until the end of next year, and even the cheese quality could take into early 2024 before it is market ready. That could result in higher prices during 2H 2023 – that is in the forecast.
    • Unknowns remain economic conditions in China and overseas and the potential for a recession that slows demand for months. Further, fewer EU-27 exports to the UK could cause European exporters to drop prices to compete in SEA.
    • For those reasons, the cheese forecast increased throughout 2023, with prices expected to pull back in 2024 when more cheese is available to the market (that may shift depending on the impact to EU-27 milk supplies caused by the implementation of Europe’s Green Deal and CAP starting in January 2023).
  • Reduced NDM/SMP price forecasts. While the prices remain well above the five-year average, higher interest rates and inflation could reduce buying from nations overseas. China is beyond the glut created by the Q2 2022 lockdowns and forecasts better 2023 demand related to the Lunar New Year and Spring Festivals.
    • For a time, US and EU milk supply could continue to expand, responding to higher prices this year. That will likely slow Q2 2023, and milk could contract again.
    • China is still adding a lot of cows and new dairies. Although the output is lower on these farms than those from Europe, the United States, or Oceania, the sheer number of animal units could keep output up. That, means more new demand will be fulfilled with domestic production – but that doesn’t necessarily mean fewer imports.
  • Butter is lower but remained above average. Expect carry-out stocks to remain low. The recent price reset could drive short-term demand from retailers to fulfill holiday demand. Additionally, the price decline has moved US prices closer to New Zealand reducing gaps making domestic AMF more attractive and increasing the likelihood of 2023 exports.
  • EU-27 whey prices could be lower than US for a time due to higher drying costs and widely available whey solids – expect the gap to close once spring arrives and gas price abate.
  • Overall, economic news and lackluster demand could cause Q1 2023 prices to decline, but Q2 2023 forward availability of dairy products and improving demand could cause prices to pick up – below this year, but likely a close second.