Monthly Forecast Update – February 2021

This forecast reflects lower price expectations for the first half of 2021 as the pandemic recovery is still forecast late Q2 that could easily extend into 2021. At the same time, US milk production continues to expand on more cows and higher output-per-cow. While Cheddar markets started to move higher again on Friday, there is little news to support traders’ attempts to lift markets anew after calls and research. There is speculation the Biden $1.9 trillion stimulus package could result in more money to agriculture. That may be the case, but many suspect more traditional programs like SNAP and WIC could be the vehicle for the spending. A recent executive order seems to support that sentiment.

While US exports were sizeable last year, the shipping container issue could continue to pose problems for agriculture through the second quarter. Further, there are opportunities to export butterfat; however, access to containers could be difficult, if not impossible. For these reasons, the forecast reflects a substantial price disparity between US-EU-NZ dairy product prices that may not diminish until Q3. Add to this – there are some signs that China’s purchases could slow – both seasonally and year-over-year.

The newest US cheese plant continues to add capacity each day; simultaneously, block trading at the CME has increased. Again, that is a change that could keep price gains, limited relative to past periods. Anecdotal reports suggest the fifth round of the USDA food-boxes had more processed cheese to minimize costs while meeting the one-pound requirement. That could reduce the block-barrel spread.

Although demand may remain muted through the first half of the year if the vaccine roll-out is successful and people can move more, there is considerable pent up spending opportunity for 2H 2021. Estimates put consumer savings and debt reduction over $1 trillion. That could support prices.

Forecast updates:

Reduced Q1/Q2 US dairy product prices
Increased Q1 EU-NZ prices based on continued demand due to delays from the United States.
No significant changes to 2H forward pricing.