Weekly forecast – Apr. 7, 2023

Forecast updates

On the horizon, there are signs of better demand and a shift toward pre-pandemic trends, including travel and experience spending, that could lift food service demand. For this forecast, we have contemplated those factors and more demand from China and India that could tighten supply quickly over the summer months. Globally, stockpiles of dairy products are higher than last year, but that is not a good barometer because stocks were limited, resulting in higher prices. By that standard, current stocks are manageable and quickly depleted should demand rise quickly. Presently, milk prices are lower and European cooperatives and Fonterra are dropping milk prices through the spring. Lower milk prices against higher feed costs and cull cow values could cause exits and slaughter rates to increase.

For those reasons, the Q2 forecast remains low, with expectations some products like butter and NDM could track lower; however, the 2H and 2024 forecasts are higher for nearly all products (whey excluded).

Cheese

• Markets appear to rely on the quick start-up of new plant capacity to supply markets – that may be a faulty assumption. St. John’s Michigan took approximately eight months to reach capacity – that would put most of that cheese outside of this holiday cycle.
• February production favored commodities – suggesting US exports continued to perform well through Q1.
• Scarcity, should food service and exports pick up, could cause prices to lift.
• China is importing more cheese, and recent GDT activities suggest Fonterra is focused on supplying more cheese to China – which could reduce milk flows to WMP/SMP in the final months of the season. That would provide more outlets for EU and US cheese should NZ refocus efforts on China’s demand during the 23/24 season.

Butter

• Markets appear well supplied, and it is likely that US exports slow as imports increase.
• Commercial disappearance remains lackluster for high-fat products – that could keep more cream headed to churns this spring.
• Reports India is tight butterfat could slow exports and may result in imports. Indian imports are infrequent but impactful.
• More butterfat in raw milk has added approximately 18 million pounds of butter equivalent fat to the US market this year.

NDM/SMP/WMP

• Spring could result in lower prices. Some reports indicate exports are moving closer to $1.10/lb with infrequent reports of lower prices.
• India was an SMP exporter last year. Given the tight supplies and spread of disease in an election year could cause politicians to take unusual steps – like prohibiting exports and possibly importing dairy products to manage inflation. The above link provides a report of the situation.
• Better demand from Asia and Mexico, slowing supplies and no exports from India could open up opportunities for more exports later this year.
• US demand may pick up if plants need additional cheese to satisfy demand – economics favor standardizing cheese vats with NDM this year.
• New Zealand tilting toward cheese/whey away from butter/SMP or WMP could tighten supplies.

Whey

• Whey could plot a steady course. While supplies are limited (USDA February 2023 report appears to understate production) today, given weaker WPC and WPI markets most expect more whey to move to whey powder in the coming months.
• EU whey market demand appears to be lower as Danone shift buying from Europe to Asia to supply its needs in Asia.

Milk Market

USDA announced the March Class III milk price at  $18.10/cwt, 38¢ more than February, but $4.35/cwt less than last year. Class IV was Over the weekend more milk flows to manufacturing plants as bottling plants take time off. Additionally, it is spring break for parts of the country, so demand is down over the next week. From this point forward, milk intake into bottling plants will progressively slow as schools start to let out in May. At the same time, spring-like weather conditions are spreading throughout the country. The Southeast has experienced above-average temperatures, and milk production appears near its peak. Elsewhere spring has been slow to manifest, which could cause peaks to arrive this month and into May. Prices remain discounted, especially in central states, as milk off the farm expands, and capacity is expected to arrive to absorb some of that milk next month.

New Zealand and Europe processors are announcing lower milk prices in response to declining dairy prices and rising milk supplies. Lower global milk prices could eventually slow output.

Cheese Market

During the shortened holiday trading week, CME block and barrel prices diverged – blocks rising, barrels falling. CME blocks averaged $1.8144/lb – 15.41¢ less than the previous week. Barrels averaged $1.7656/lb, down 13.44¢. The block-barrel spread widened to 11¢ by Thursday. Most of the news USDA reported this week was neutral cheese markets but fell short of justifying the end of March price run higher. That said, international and global demand may support current spot prices. Markets confirmed that barrels are plentiful and quickly come out of cold storage for the right price. While Q2 futures prices pulled back 2H prices remain above $1.95

US cheese production totaled 1.11 billion pounds in February – up by a slight 0.38% vs. last year. Despite reports of more milk in the system, cheese production for most reporting states was less than the previous year. Minnesota, Wisconsin, and Pennsylvania are the only reporting states to better the previous year. The YoY change has not been this low since 2019. Cheddar output totaled 325.4 million pounds and 5.6% more than the previous year with California and Wisconsin output higher. Mozzarella production was 365 million pounds and 1.6% more than the previous year. Other American-style cheese and Parmesan production dropped, causing the scant gains vs. last year.

US cheese imports totaled 28.6 million pounds in February – 16.1% more than a year ago. Cheese came in from unusual spots, including Mexico, Jamaica, and Nicaragua. Imports from Europe were modestly higher. US cheese exports were similar to last year at 72.8 million pounds and down 0.4% vs. last year. Exports to Mexico lifted – up 11.2% vs. last year. That was almost enough to offset losses to South Korea and Japan. More grated cheese, including pizza cheese, offset declines in other varieties.

Butter Market

CME butter prices dropped this week, with prices finding support in the low $2.30s. Prices averaged $2.3281/lb, down 5.34¢ from the previous week. Most of the news this week was unfavorable for butter markets and a likely reason why prices declined. That said, internationally, there are a few reasons why US butter could find some support near current levels. Still, spring could result in more bulk butter production – should stocks build too quickly, prices may trend lower for a time.

US February butter output totaled 186.4 million pounds – 1.6% more than the previous year. California and Pennsylvania produced less butter, down 2.1% and 3.4%, respectively. Other western states increased production by 5.1%. Atlantic states, including Pennsylvania, increased output by 5.8%. Central states were up 1.9% vs. last year.

US butterfat exports fell behind the pace for the last two years. US exporters shipped 8.4 million pounds in February – 44% less than a year ago. Volumes to the Dominican Republic, Egypt, and Baharian plummeted. Sales in North America dropped also. US butterfat imports totaled 12.3 million pounds in February – 66.6% more than the previous year. Most of the butter came from Ireland. Imports from other countries were mixed.

 NDM/SMP

NDM prices weakened further this week on lower GDT results and modestly weaker data from the USDA. CME prices averaged $1.1438/lb, down 0.73¢. By Thursday, prices dropped to $1.125/lb – the lowest price since 2021. Presently more milk is headed to driers throughout large swaths of the country and in Europe. At the same time, demand in Q1 was somewhat lackluster. As milk seasonally subsides and new cheese capacity comes online, that could slow milk powder output. But, markets will hinge on international demand. So far, it appears higher production is headed to storage and that is weighing on spot prices.

US NDM production in February totaled 178.5 million pounds – 12.9% more than in January and 4.5% higher than a year ago. While Central states’ output accelerated, California’s output fell 8.7% vs. last year – a reflection of slowing milk production due to extreme weather conditions. SMP production totaled 38.2 million pounds, up 28.9% vs. the previous year – that may indicate stronger demand from SEA.

Manufacturers’ stocks of NDM totaled 310 million pounds on February 28 – that was 7.5% more than the previous year. Despite being higher than a year ago, the January to February stock build was typical for this time of year. Stocks will likely peak in June or July this year.

US February NDM/SMP exports totaled nearly 139 million pounds and 0.5% less than last year. Given the reported demand weakness, that was a good performance. More products flowed to Mexico, up 43%, nearly offsetting declines throughout SEA and MENA. Consistent with reports, New Zealand won share this year due to cost-competitive products.

Whey & Lactose Products

Whey prices broke down this week despite unusual data from the USDA. CME spot whey prices dropped to 36.5¢ on Thursday. Weekly prices averaged 41.88¢, down 2.53¢ from the previous week. Futures have forecast a whey price decline for several weeks. Dairy Market News whey prices were more stable. Central prices averaged 44¢, unchanged from the previous week. Western prices averaged 43¢, down 0.5¢ from the previous week. NDPSR price increased 1.58¢, up to 45.33¢. Most data remains neutral to bearish for whey especially the higher protein products.

USDA production for February whey appears suspect as cheese production was modestly less than last year while whey production fell double digits for some categories. US food-grade whey production totaled 61.9 million pounds in February 10.2% less than the previous year. US WPC (25-49.9%) output was 12.1 million pounds 14.2% lower than the previous year. US WPC (50-89.9%) output was 24.6 million pounds 7.5% lower than the previous year. US WPI production was 8.5 million pounds and 19.5% lower than the previous year.

Despite lower whey production – stocks on Feb. 28 were 69.4 million pounds and up 10.2% vs. last year. US WPC (25-49.9%) stocks were 31.9 million pounds 35.8% more than a year ago. US WPC (50-89.9%) stocks were 53.9 million pounds 22.6% more than last year. US WPI stocks were 24 million pounds and 76% higher than last year.