Monthly Forecast Update – March 2021

Forecast updates

Demand from China surprised global markets as GDT leapt higher this week. There are consistent parallels with the price run from 2013 and 2014. For now, we are keeping the forecast well short of those lofty levels; however, we do foresee a significant price shift higher – especially for milk and whey powders. There could be some delays for the United States closing the gap on world dairy product prices given the current shipping issues and disruptions; however, Ceres views this as an issue that should start to improve by Q2 2021 that may permit prices to close with New Zealand prices declining, EU prices remaining at or above current levels and US prices improving.

Ceres expects higher year-over-year (YoY) US milk production through Q2 with the YoY gaps closing later this year. At the same time, Fonterra price forecasts continue to lift – that could slow the seasonal slaughter pace resulting in higher milk flows as well as more production during the off-season. At present levels of supply and demand the market should largely remain in balance – it could be somewhat deficit given the current pace of Asian demand.

With 62% of Americans viewing the pandemic situation improving and with states reopening at a faster pace that could lift foodservice demand; it may also slow retail demand later in Q2 assuming people begin going back to work, school and dining out more frequently this year vs. last year.
Increased 2H butter forecast – given the sizeable increase in overseas prices the United States will likely slow imports and should have an advantage into the Middle East. There could be a lag until shipping congestion is resolved.

Increased milk powder prices late Q2 forward. Given China’s internal milk price and the level of demand – the United States should be in good position to backfill areas of South America
and Asia that New Zealand has retreated due to its focus on China. Expect world prices to begin to converge later this year. That will lift Class I and II skim prices also.

Increased 2H cheese prices modestly on expectation of pent up demand and higher foodservice/institutional uses later in the year. Those increases could be tempered by more cheese
capacity added this year.

Increased EU prices – milk remains flat and demand is starting to increase – that should support higher prices.

Increased Q2 NZ price, but have prices easing once US product can more reliably ship.

Higher feed costs could keep milk production gains at bay until the market recalibrates and increases margins.