Monthly Forecast Update – March 2023

Recalibrated the monthly forecast. Early 2023 has been marked by higher-than-average milk and dairy product prices; however, data is starting to suggest that stocks are mounting globally as mounting supplies are met with weaker demand. News indicates that China’s economy is on the mend, which could imply a post-Covid demand boost similar to the United States, Europe, and India when each of those regions came out of the pandemic – but the run higher could be a few months away (typically this occurred in late spring/early summer). Additionally, China’s manufacturing sector is much improved – which could relieve those awaiting chips, parts, etc. At the same time, there is some news at home about mounting consumer short-term debt that could pose problems as interest rates continue to rise – that could provide for tepid recovery later this year.

As milk supplies continue to increase, processors are storing more products. If demand is strong, that could lift prices seasonally, but additional products in storage could prevent prices from reaching levels that reduce demand. If demand is modest, that could lead to oversupply later this year. US dairy producers receive the first advanced milk checks at significantly lower prices. Given the value of feed and cull cows, it is better to liquidate than to continue producing milk – but whether contraction begins is yet to be seen. European cooperatives are starting to reduce prices – primarily those in Ireland and France in response to higher and consistent milk supplies. That could slow things down – but it still may take time as prices remain relatively high as feed prices are beginning to moderate.

  • Reduced the 2023 cheese forecast.
    • Still expect a lift later in the year – how strong may be determined by demand from Mexico and China. Given more production, it will be incumbent upon stronger exports that rival last year to keep the domestic markets balanced.
    • Widened the winter/spring block-barrel spread through 2025. Expect that as US exports strengthen into 2024 that the spread will moderate.
  • Reduced the 2023-2025 butter forecast.
    • Given China’s increased and consistent WMP production that may reduce needs over the next few years – assuming less milk is needed for fluid demand.
    • If that persists New Zealand, Europe and the United States will shift focus to SMP/butterfat products.
    • Additionally, butterfat in milk continues to rise.
    • That could provide sufficient butterfat to meet demand – easing prices from recent highs.
    • Drops below $2/lb could be problematic as that reduces milk prices too much.
  • Adjusted NDM/SMP forecast
    • Reduced 1H 2023 forecast – lifted back half into 2025.
    • China has been buying more SMP and moderating supplies could lift prices again.
  • Reduced whey
    • Data doesn’t seem to support current US price strength – a sizeable gap between US and EU prices doesn’t tend to last for that long.