Monthly Forecast Update – January 2021

On January 4, USDA announced the fifth round of the Farms-to-Families food box program According to the press release, USDA will issue awards by January 19 with deliveries through the end of April. That would make this program similar in size and scope to the September awards with $1.5 billion spread over three months. Like the fourth round, the fifth round will include a broader range of dairy products, including more varieties of cheese and Class II products and butter.
Due to the amount of counter-seasonal purchases, Ceres increased the Q1 2021 forecast for cheese and butter.
Because of the increased varieties and “list 2” products, cheese markets could move higher as traders seek to bid up the markets, but the run could be less than last year for
several reasons.
First, more cheese varieties are included, which could provide processed cheese more opportunities during Round 5. It could also provide an outlet for Mozzarella cheese that
has been rumored to accumulate in recent weeks.

Second, there are more 40# blocks available to the market, and that will continue to increase through the delivery period relieving one of last year’s bottlenecks.

Third, US milk production is expanding, and likely the latest injection of direct payments and rising milk prices will do little to slow milk headed into the spring flush.

Finally, foodservice demand is faltering, and seasonally demand is lower than the Q2 and Q3 food box rounds last year.

For those reasons, Ceres lifted the cheese outlook. The pattern has been three months of a run higher, followed by a lull – that is reflected in the current market.

The news could provide some carry-on effects to butter – resulting in the recent forecast lift. Butter could be toppy due to the amount of product headed to warehouses and
the amount of cream; therefore, it may not reach the full forecasted value in Q1 2021.

Provided modest increases to the US NDM and whey price forecasts.
Weather in New Zealand is moderating, suggesting drought forecasts may be fully incorporated into markets. That could provide a ceiling to further price increases through 1H 2021.
Simultaneously, trade data and overseas demand remain strong, with evidence it could continue through Q1 2021. Without stocks building, there could be support at or near current
Seasonally, China’s peak imports should be before the Lunar New Year (February 12). Compared to last year, if Covid-19 remains at current levels, there could be much larger
celebrations – that could stoke dairy product demand.

The Philippines, Malaysia, and Vietnam continue to pull heavily – if the YoY gains moderate, it could cap runs, but steady to higher demand vs. last year could support and
even lift prices.