Monthly Forecast Update – April 2023

On the horizon, there are signs of better demand and a shift toward pre-pandemic trends, including travel and experience spending, that could lift food service demand. For this forecast, we have contemplated those factors and more demand from China and India that could tighten supply quickly over the summer months. Globally, stockpiles of dairy products are higher than last year, but that is not a good barometer because stocks were limited, resulting in higher prices. By that standard, current stocks are manageable and quickly depleted should demand rise quickly. Presently, milk prices are lower and European cooperatives and Fonterra are dropping milk prices through the spring. Lower milk prices against higher feed costs and cull cow values could cause exits and slaughter rates to increase.

For those reasons, the Q2 forecast remains low, with expectations some products like butter and NDM could track lower; however, the 2H and 2024 forecasts are higher for nearly all products (whey excluded).

Cheese

  • Markets appear to rely on the quick start-up of new plant capacity to supply markets – that may be a faulty assumption. St. John’s Michigan took approximately eight months to reach capacity – that would put most of that cheese outside of this holiday cycle.
  • February production favored commodities – suggesting US exports continued to perform well through Q1.
  • Scarcity, should food service and exports pick up, could cause prices to lift.
  • China is importing more cheese, and recent GDT activities suggest Fonterra is focused on supplying more cheese to China – which could reduce milk flows to WMP/SMP in the final months of the season. That would provide more outlets for EU and US cheese should NZ refocus efforts on China’s demand during the 23/24 season.

Butter

  • Markets appear well supplied, and it is likely that US exports slow as imports increase.
  • Commercial disappearance remains lackluster for high-fat products – that could keep more cream headed to churns this spring.
  • Reports India is tight butterfat could slow exports and may result in imports. Indian imports are infrequent but impactful.
  • More butterfat in raw milk has added approximately 18 million pounds of butter equivalent fat to the US market this year.

NDM/SMP/WMP

  • Spring could result in lower prices. Some reports indicate exports are moving closer to $1.10/lb with infrequent reports of lower prices.
  • India was an SMP exporter last year. Given the tight supplies and spread of disease in an election year could cause politicians to take unusual steps – like prohibiting exports and possibly importing dairy products to manage inflation. The above link provides a report of the situation.
  • Better demand from Asia and Mexico, slowing supplies and no exports from India could open up opportunities for more exports later this year.
  • US demand may pick up if plants need additional cheese to satisfy demand – economics favor standardizing cheese vats with NDM this year.
  • New Zealand tilting toward cheese/whey away from butter/SMP or WMP could tighten supplies.

Whey

  • Whey could plot a steady course. While supplies are limited (USDA February 2023 report appears to understate production) today, given weaker WPC and WPI markets most expect more whey to move to whey powder in the coming months.
  • EU whey market demand appears to be lower as Danone shift buying from Europe to Asia to supply its needs in Asia.