Weekly forecast – Apr. 16, 2023

Forecast updates

CME markets pulled back this week on little new information. There are some reports that international demand slowed and that there was an easing domestically also. That has caused prices to retreat. Adjusted the Q2 forecast lower.

• No significant changes to cheese, butter, and NDM through the year’s second half.
• Revised whey, WPC, and lactose prices lower as availability continues to weigh on prices.

Milk Market

Spring and warm weather spread across the country. Concerns about snow melt in California add to the already excess water. Some estimates suggest California’s milk production could be down 1-5% due to the excessive water. Conversely, the state could have a greater irrigation allocation this year. The La Niña has passed after three years, and an El Niño is forming – that could reduce the amount of rain and snowfall in the west. At the same time, the Biden Administration may become the tiebreaker for the Colorado River basin state proposals – it seems to be leaning toward prorate reductions that would favor cities vs. agriculture.

This week, there was an unfortunate fire and explosion at a Texas dairy, with estimates suggesting 18,000 cows and the dairy was a total loss. The official cause has yet to be determined. Estimates suggest that approximately 1.2 million pounds of milk were gone overnight.

Cheese Market

After cheese markets moved higher at the end of March for an extended period, prices corrected lower in early April. Typically if markets move too high for too long, prices over-correct lower to counteract the higher prices, that may be happening. At the same time, there are reports that prices could move lower as international interest slows and retail sales are headed lower also. CME blocks averaged $1.799/lb. down 1.54¢ compared to the previous week. Barrel trading activity was up last week, with 70 loads changing hands. Barrels averaged $1.5715/lb, down 19.41¢ from the prior week.

US February domestic commercial disappearance at 1.06 billion pounds, 2.95% more than the previous year. Cheese continues to push higher steadily. That and consistent exports would increase 2023 needs by approximately 750,000 pounds per day – more than forecasted new cheese production additions expected this year. While cheese is in warehouses (reported and unreported), that is a sizeable gap to overcome later this year, assuming exports are consistent with last year. Should US exporters continue to expand volumes shipped overseas – that could result in pressuring prices higher later this year.

Butter Market

CME butter prices dropped, but the weekly average increased. Prices averaged $2.3495/lb, up 2.14¢ from the previous week. Trading activity picked up a bit with 11 loads trading. Churning picked up this week as milk production continues to pick up. Some regions reported that interest in cream also returned after the holidays as plant operations returned to normal. Western churns are busy and expectations are for most of the butter to head to cold storage.

February 2023 commercial disappearance at 156.7 million pounds and 16.9% more than last year – a significant recovery from January’s nearly equal dip. There were reports that demand and promotion may have picked up during the month. If cold storage data is under-reported, it will likely result in significantly higher consumption figures – so that needs to be considered. According to USDA, butter on ads ahead of Easter was higher than the previous two weeks. 1 lb butter was $3.43 this year compared to $3.89 last year. Ice cream is considerably more expensive than last year’s $4.14 vs. $3.22 for 48-64oz. Same for sour cream $2.03 for 16-oz compared to $1.78 last year. Higher retail prices could negatively impact consumption, sending more cream to churns this spring.

 NDM/SMP

After the explosion in Texas, NDM prices jumped up. By the end of the week, prices pulled back again. While 1.2MM pounds of milk is suddenly gone, the spring flush is causing milk to rise seasonally, suggesting the reduction in milk could limit dumping and reduce some of the flows, but not all. Until new cheese capacity comes online or milk slows further in California NDM/SMP production could remain seasonally elevated.

February 2023 commercial disappearance was 36 million pounds – 10% more than last year. Given the price discounts and higher protein values, some may be interested in standardizing cheese vats with NDM. Given widespread discounted raw milk and condensed skim, the increase seems unusual. That said, with higher weekly NDPSR reports (40MM last week), there could be more “transfers” in a warehouse that will show up as commercial disappearance. While the product may remain in storage – it is no longer tracked as it is not held “by a manufacturer.” Still, commercial disappearance is off to the slowest start since 2020.

Whey & Lactose Products

Whey prices dropped again this week. CME spot whey prices dropped to 36.75¢, down 5.13¢. While CME prices are tracking lower, NDPSR popped back up. Futures forecast a whey price decline for several weeks after NDPSR prices picked up nearby futures moved up also. Dairy Market News whey prices were more stable. Central prices averaged 44¢, unchanged from the previous week. Western prices averaged 41.5¢, down 1.5¢ from the previous week. Lactose prices were the most bearish, with prices dropping to 28.5¢ – the lowest price since 2020.

February 2023 whey commercial disappearance at 30.3 million pounds and 3.3% less than last year. WPC commercial disappearance at 21.5 million pounds and 55.3% more than a year ago. USDA reported lactose commercial disappearance at 0 pounds. There have been negative reports in the past, but it is unusual and likely inaccurate. USDA’s production data could skew this month’s commercial disappearance figures.