Monthly Forecast Update – May 2022

Monthly forecast updates

• Adjusted cheese prices lower through the first half of 2022.
  • Reduced the Q2 forecast, but it remains above-average
    • Some concerns slowing retail sales could be problematic for demand.
      • IRI data for the week ending 4/17 has cheese snack kits volumes up 18.9% compared to a year ago levels – 25 million pounds.
      • Natural and processed cheese were 3.1% less over the same period – 3.07 billion pounds.
      • Deli specialty cheeses were 2.9% lower a 608 million pounds.
      • Deli service cheese was down 6.7% to 154.4 million pounds.
      • Less promotion or additional price hikes to consumers could be problematic.
    • Presently, US cheese exports and foodservice are more than offsetting those declines.
    • With Cheddar cheese production slowing, that could reduce cheese headed to the CME later this year.
  • Adjusted the cheese 2023 and 2024 prices higher. Given the current inflationary pressures, Ceres expects prices to be less than the 2022 average, but they could remain elevated compared to the five-year average.
    • Milk prices could be higher due to soaring on-farm costs.
    • The cost of processing remains elevated.
    • Price hikes at retail are unlikely to retract.
  • The higher 2022 cheese forecast could be at risk should Europe opt to make more cheese vs. SMP, given the cost of natural gas in Q3.
• Adjusted butter lower.
  • While Ceres still expects prices to reach $3/lb this year – that has been pushed until Q3 2022.
  • Reduced the Q2 forecast. Fundamental data is little changed, but sentiment, for now, could result in lower prices through the spring. World prices are taking a slight step back – that could reduce the ceiling for a time.
    • CME butter prices appear to be following GDT butter price trends for now.
  • Exports to Canada and Mexico are rising quickly, keeping the market balance to tight headed into the second half of the year.
  • Stocks approaching 250MM pounds as of July 31 are supportive of higher prices. Conversely, at or about 300MM pounds, stocks tend to put downward pressure on prices.
• Adjusted NDM and whey lower.
  • Like cheese, the SMP forecast could be subject to risk should the EU curtail SMP production due to higher natural gas costs this summer.
  • Adjusted the NDM/SMP forecast lower through Q2 – still forecasting an increase in late Q3/early Q4 for a time.
  • While China’s stocks are elevated – they are tracking current internal use gains suggesting some of these increases result from higher working inventories.
  • Reduced whey – China has been reformulating away from whey to permeate and lactose – which has helped lift the lactose outlook slightly and reduce whey to the mid-to-upper 60s through most of 2022. Recent export data indicates that trend continues.
  • At the start of the New Zealand 22/23 season, a La Nina weather pattern could be problematic. This would be the third consecutive start of the season with a La Nina.