Weekly forecast – August 11, 2023
Forecast updates
No significant forecast changes this week.
- Some modifications to WPC, reducing the value through year-end.
- Adjusted Central and Western whey prices.
- Increased fall butter prices.
- Reduced SEP23 NDM forecasts.
Milk Market
As schools return to session over the next few weeks, bottling demand on the rise. Milk available to manufacturing will tighten until the bottling restocking normalizes. That has discounts vanishing quickly and some plants competing for milk. It could be more challenging for cheese plants as Class IV milk remains a substantial premium to Class III this summer, and stronger butterfat markets should keep it that way for most of this year.
Weather will continue to impact milk production, with some regions reporting that the heat and humidity have combined to reduce supplies – with more on tap for August as temperatures ramp back up. Some now estimate those cows are unlikely to return to higher production until the fall and the start of the new season. That, along with bottling picking up could make milk feel tight. There are some reports that plants in Kansas and Texas are running below capacity due to cost of milk.
Cheese Market
Cheddar blocks were steady again this week until Friday, when prices increased to $1.99/lb with no trades. CME spot blocks averaged $1.9705/lb this week, up 0.95¢ from the previous week on three trades. Barrels followed a similar trajectory – mostly steady until Friday. Barrels averaged $1.8055/lb, down 3.65¢. That caused the weekly average block-barrel spread to widen to 16.5¢. Reports indicate that <30-day cheese remains tight. In some cases, that is pulling older cheese from storage. Milk headed to cheese plants is somewhat limited, which could restrict fresh cheese supplies. Something that could allow prices to rise.
US June cheese imports totaled 30.9 million pounds – 17.6% less than a year ago. YTD imports are 2% lower compared to last year. Italy accounted for one-third of the volume declines compared to last year. All other European processors accounted for the rest. Given the Q2 price disparity, some US importers likely sourced domestic products for specific uses as it was more cost-effective.
US June cheese exports totaled 79.2 million pounds, 18.6% less than last year. YTD exports are 7.1% behind the same period the previous year. Fresh cheese exports were 37% lower than last year, consistent with 2021. Cheddar exports were similar, down 36.5% vs. 2022 but higher than 2021. Grated cheese exports remain higher – up 42.2% vs. last year – indicating that pizza demand is rising. Fewer exports to South Korea accounted for half the losses in June, followed by Panama and the Philippines.
Butter Market
The cream is still tight and lifting multipliers again this week – sufficient to attract cream and slow churning. Cream is particularly tight in the East and pulling cream from Central states. Add to that, as bottling restocks, some butterfat will be removed from the system. Hot weather is working to increase ice cream demand and limit butterfat in raw milk. That tightness is starting to show up in stop markets. CME spot butter traded eight times and averaged $2.669/lb 2.6¢ higher than the previous week. Despite news that butter could be tighter than expected, futures continue to forecast that prices, in a matter of months, and the height of the season, will decline.
US butterfat exports totaled 5.8 million pounds in June, 28.4% lower than a year ago. Exports to Canada and Mexico were less. Given the gaps in world pricing, it comes as a little surprise.
US butter imports totaled 10.2 million pounds – 23.6% less than last year, a sizeable mid-year correction. YTD imports are nearly 25% higher than a year ago. Most declines were from Ireland, accounting for two-thirds of the YoY shortfall. That was followed by fewer imports from India (likely related to the government prohibition) and France. That may suggest that the higher cost of European butter (82% butterfat) may have fallen out of favor with consumers that have been trading down in recent months to control the cost of grocery shopping and the impact on their wallets.
NDM/SMP
Last week the August 1 GDT took prices lower; this week, anticipating the August 15 GDT and more WMP and SMP volumes on offer cooled markets. CME NDM prices dropped to $1.11/lb by Friday. Spot CME averaged $1.12/lb, down 1.58¢ from the previous week. Concerns remain about whether China and others have the appetite to buy sufficient milk powder to keep markets balanced. While prices moved lower, volumes purchased increased. China’s milk production declined compared to last year, with output slowing to 6.7 billion pounds. 0.7% more than last year and the smallest YoY gain this year. But demand is half the story, supply continues to contract, and less milk is headed to driers in the Northern Hemisphere. The combination of modestly improved buying and slowing supply could support, event lift prices moving forward.
US NDM June exports were 152.2 million pounds, 1.4% more than a year ago and well above the five-year average pace for that month. YTD exports are keeping close to last year’s rate, down 0.7% through the first half of the year. Exports to Mexico soared, up 22% compared to last year. Volumes to the Philippines, Vietnam, and Honduras increased over last year. Those gains were able to offset declines from China and Malaysia.
Whey & Lactose Products
CME whey prices increased again this week; prices averaged 27.3¢, up 1.2¢ from the previous week. While spot trade volumes picked up with 31 loads trading this week, there were unfilled bids and uncovered offers left on the board each day. Little news changed for whey this week other than US exports slowing. The DMN Central whey mid-point was 25¢, unchanged from the previous week. DMN west mid-point was 29.5¢, up 1¢ from the previous week. DMN lactose was up 0.25¢ at 19.75¢.
June exports totaled 27.1 million pounds, down 35% compared to last year, a significant loss. China imported less whey and infant formula in June. While volumes are lower, there are reports that some US processors are looking to feed whey solids rather than process them. For now, there seem to be few reasons for prices to move in either direction.