Weekly forecast August 25, 2023

Forecast updates

No significant forecast changes this week.

• Some modifications to WPC, reducing the value through year-end.
• Increased 2023 lactose prices; markets appear to be stabilizing.
• No changes to cheese or butter.
• Adjusted NDM reduced AUG23 and SEP23 prices and some into 2024 by a few cents.

Milk Market

Milk remains tight, and USDA confirmed that with the latest milk production report released this week. Add to that heat and humidity throughout the week in the Upper Midwest was expected to drop milk intake again. This was a lot of heat and humidity, keeping evening temperatures elevated. That is erasing premiums and causing some processors to relax base programs. Reports suggest that limited milk supplies also kept plants running below capacity in parts of the country. USDA released the Advanced September Class I prices this week at $18.90/cwt, up $2.28 from August. The Class II skim was $8.64/cwt up $1.42/cwt from last month. Milk price outlooks have recovered through the end of the year, but dairies have kept culling elevated and have been slow to add cows, concerned prices could dip again.

US July milk production totaled 19.1 billion pounds, 0.6% less than last year. That put YTD milk production gains up 0.5% vs. the previous year. Last year, milk production started to expand during the second half; this year’s slowdown will likely widen the YoY gaps. Milk production slowed throughout the Southwest, with the Midwest, Mideast, and Northeast continuing to expand output compared to last year. South Dakota continued to lead the percentage increases, up 7.7% compared to last year; New Mexico’s output plummeted, falling 9.9% vs. the previous year, followed by California’s production down 5.5% and Texas’s 4.8% less. That will reduce milk to some cheese plants or make it more expensive. The US milk herd was 9.4 million head, 0.14% below 2022. Output per cow was 2,029 pounds, 0.4% less.

Cheese Market

CME blocks pulled back this week to the mid-$190s – trading remained limited. CME blocks averaged $1.9470/lb, down 6.8¢ compared to last week. CME barrels were somewhat stable in the low $1.80s. Prices averaged $1.8045/lb – still 0.9¢ less than the prior week. That kept the weekly block barrel spread wide at 14.35¢. Overall, the news has not changed too much – there is more interest in cheese, which appears to be pulling some older cheese from storage. At the same time, fresh cheese remains tight as nearby production is less than a few weeks ago as milk became tight. But, it is common for markets to consolidate ahead of the Labor Day holiday, and it appears that may be the case this year also.

US cheese stocks totaled 1.49 billion pounds on July 31, 2.2% less than a year ago. The June-July drawdown was 22 million pounds and the strongest since 2019 and 2020 – a stark contrast to the last two years. American-style cheese was 838.2 million pounds and 2.5% lower than a year ago – again a strong MTM drawdown. Other than American and Swiss cheese stocks declined by 1.8% to 627.9 million pounds.

Butter Market

CME prices pulled back this week, with Friday dropping to $2.67/lb. In the end, CME butter averaged $2.702/lb, down 1.85¢ from the previous week. Like other products, little has changed this week. Trade volumes totaled 58, less than last week, but still a sizeable trading week. While sellers aggressively offered prices lower, reports suggest buyers are still interested in owning butter for use ahead of the holiday build. Cream reports were similar to last week – it appears day-to-day with cream finding its way to churns and then back to other uses. Again, most will watch the Labor Day holiday to see how much cream heads to churns.

US butter stocks totaled 331.6 million pounds on July 31, 5.3% more than a year ago. The June-July drawdown was 18 million pounds, consistent with the past two years. That neutral number could keep butter prices seasonally higher than a year ago but may avoid the lofty levels compared to last year.

New Zealand’s July butterfat exports totaled 99.8 million pounds internationally, 6.8% lower than last year. Lower exports to China accounted for the YoY declines. Exports to Australia (+26%), Mexico (+3.3%), and the United States (+239%) were higher. Exports to SEA and MENA slowed compared to last year.

NDM/SMP

NDM prices increased this week, with CME prices averaging $1.10/lb, up 0.2¢ from the previous week. There seems to be good buying interest – whether futures or spot. Buyers are worried that supplies could contract later in the year as milk production slows and more milk heads to cheese vats. That may explain the tight trading range for futures over the past few weeks – in the upper teens, interest cools, and in the low teens, it picks back up. Most news this week from overseas was neutral, leaving markets in a holding pattern for now.

Most of the news this week was from overseas. China’s July SMP imports totaled 72.8 million pounds, 20% more than a year ago. That puts YTD imports at 20.9% more than last year. Except for January, all months have been double-digits higher. China’s SMP imports from New Zealand were approximately 53% of the total volume and nearly 74% higher than the previous year. Imports from Belarus and Europe were also higher. Imports from the United States were 75% lower.

Whey & Lactose Products

CME whey prices increased this week on some mixed news. CME prices averaged 26.3¢, down 0.15¢ from the previous week. Spot volumes remained consistent from week to week.  There was some news that spot WPC is limited – that may support prices; however, China imported less whey leaving markets without much reason to move up. DMN lactose prices were stable this week – holding at 21¢. The DMN Central whey mid-point was 25.25¢, unchanged from the previous week. DMN west mid-point was 32¢, up 1¢ from the previous week.

China’s July whey imports totaled 114.3 million pounds – 4.4% less than last year. That reflected the first YoY decline this year. Imports from the United States were down about one-third compared to last year. China bought more whey from the Netherlands and Belarus.