Weekly forecast – Jan. 26, 2024

Forecast Updates

It should be noted that Ceres has not yet incorporated FMMO changes into the 2025-2026 forecast. Given the current pace of the hearing, it seems unlikely there will be any impact in 2024.

Class III-Cheese-Whey:

  • Cheese: Adjusted Q1 prices are higher than last week but consistent with the monthly forecast. Seasonally, prices could still come under pressure after the Super Bowl, but reports of improving exports and mostly lower milk intake could tighten up Cheddar supplies this spring.
  • Whey: no significant changes, increased WPC34 and lactose through Q1.

Class IV-Butter-NDM:

  • Butter: Increased 1H 2024 prices due to recent run-up. It is unlikely that prices settled to earlier in the year forecasts as there is a lot of concern around availability. It seems reasonable to expect a post-Easter price decline as ice cream season is still months away.
  • NDM: No significant changes this week – international prices will need to increase to sustain higher US prices. That has not happened yet.

Milk Market

Prices:

  • There were no USDA price announcements this week.
  • CME Class III and IV futures increased this week, suggesting that milk prices could improve.
  • There are still sizeable gaps between the Class III and IV milk prices.
    • Class II will still be the highest price.
    • Given sizeable gaps between Class II, III, and IV, widespread depooling could occur.
  • In Europe, milk prices remain consistent, but that has not stopped widespread farm protests this month that spread from France to Germany.

Spot Market Updates:

  • Spot milk is experiencing bids of $5-$7/cwt below the classified price in some regions. In some areas, those discounts are lower.
  • Winter weather moderated, with some areas reporting spring-like conditions, resulting in cow comfort improvements.
  • Most regions handled milk supply with few issues, but anecdotal reports suggest that cheesemakers could be slowing milk intake to balance inventory. That could create a sense of over-supply and send more milk to butter/powder plants.

Market News:

US December 2023 Milk Production. US December 2023 milk production totaled 18.8 billion pounds and 0.32% less than 2022. That puts 2023 milk at just 0.05% more than 2022. That has left milk production somewhat flat since 2021. Several states fell behind the prior year’s pace – especially those with higher Class III or cheese production. Mideast and Northeast states continued to expand. The stalwart gainer, Georgia, slowed in December 2023, down 2.86% compared to 2022. New Mexico remained the largest decliner – down 11.1% compared to the previous year. South Dakota continues to expand on a percentage basis – up 11.4% vs. 2022. The US milking herd was 9.36 million head, down 0.4% vs. 2022 and 39,000 fewer cows. Output-per-cow was 1,949 pounds, up 0.1% compared to 2022.

Cheese Market

Price:

  • CME spot Cheddar blocks markets increased 2.95¢ this week, with the weekly average price reaching $1.5120/lb, recovering most ground lost the previous week.
  • For the same week, the CME spot Cheddar barrels declined, settling at $1.4590/lb, down 0.23¢ from the previous week.
  • The weekly average block-barrel spread was 5.3 cents.

Spot Market Updates:

  • This week, there were conflicting reports about the status of cheese supplies.
    • Some reported more US cheese export sales bookings – something that could tighten supplies later this year.
    • Others stated that despite increased export sales, most processors still had sufficient supplies of cheese, with more capacity increases offsetting those factors.
  • At IDFA, there were discussions of an American-style cheese plant that closed this month – that can offset some of the new supply to the market.
  • Super Bowl is now set with the Kansas City Chiefs and San Francisco 49ers meeting in Las Vegas in two weeks – the typical end of the cheese demand season. Promotion headed into Super Bowl could be telling should retailers pick up private label activity.

Market News:

Cold Storage. US 2023 cheese carry-out stocks totaled 1.44 billion pounds, 0.18% less than 2022. The month-over-month increase from November 2023 to December 2023 was 6 million pounds, well below the five-year average pace of 14.8 million pounds. American cheese stocks totaled 837.8 million pounds – up 1.5% compared to the previous year. The stock build was consistent with the past five years. Other than American and Swiss cheese stocks, they totaled 583.7 million pounds, 2% less than the prior year.

China’s Imports. China’s December 2023 cheese imports totaled 33.8 million pounds, 32.2% more than the previous year. That resulted in 2023 imports 22.4% higher than 2022 and the most cheese imported on record. Despite reports that China’s economy continues to languish and consumer confidence is low, people are still buying more cheese – likely on a pizza or burger. Most of the volume and increases came from New Zealand. However, China also purchased more cheese from Australia, EU-27, and the United States. Imports from the United States increased by 112% compared to 2022.

Butter Market

Price:

  • CME spot butter markets increased 5.86¢ this week, with the weekly average price reaching $2.623/lb, causing the highest weekly average of the year.
  • CME futures markets reacted with prices reaching daily trading limits higher (7.5¢) on Thursday.
  • CME cash-settled butter futures are now forecasting $2.74/lb for 2024 – if futures prices come to fruition – that would be the highest annual butter price on record.
  • There were interested sellers in the mid $2.70s – that may indicate a short-term peak. Prices are unlikely to return to recent lows.

Spot Market Updates:

  • Cream is plentiful again this week, with low multipliers (Central 1.08; West 1.10). That has cream headed to bulk butter churns and some turning away cream.
  • IDFA may have triggered panic as buyers realize that butterfat could be tighter later this year as more milk moves to American-style cheese production.
  • Still, higher retail prices could curb consumption in early 2024. Combined with reports that cheese plants are slowing intake, that could help send more milk to butter/powder over the next few months. But markets will likely want proof before prices can ease, if at all.

Market News:

Cold Storage. US 2023 butter carry-out stocks totaled 199.5 million pounds, 7.75% less than 2022. The month-over-month, from November 2023 to December 2023, inventories decreased by 13 million pounds, well below the five-year average pace of 12.4 million pounds built. That deficit would explain why US butter prices are starting the year at historically high levels. While sufficient cream is available to the market, many may be concerned about the amount of butter available later this year. Although stocks are less than last year, they are comparable to 2016, 2017, 2018, and 2019 – with 2020 and 2022 anomalies. Still, that may do little to slow market prices. This week’s stock report likely caused spot and futures prices to surge higher on Thursday in post-report trading. There could be follow-through trading for a few more days.

China’s Imports. China’s December 2023 butterfat imports totaled 29 million pounds, 20% more than the previous year. Still, 2023 butterfat imports were 8.7% less than in 2022 and equivalent to 2021. Imports from New Zealand accounted for most of the volumes, 17% more than in 2022. But, Chinese buyers imported more books from throughout Europe.

NDM/SMP

Price:

  • CME spot NDM markets increased 0.91¢ this week, with the weekly average price reaching $1.196/lb, as Friday’s prices reached $1.22/lb.
  • CME futures markets surged on Friday, rising 2-3.6 cents in most months.
  • While CME prices are lifting on worries about supplies later in the year, international prices were mostly unchanged this week. US prices are moving ahead of competitive regions – that could pose a problem for exports should US NDM/SMP be the highest globally.

Spot Market Updates:

  • Plants are busy, and there is a chance that some milk could move from cheese vats to driers this winter as cheese processors look to mitigate stock builds.
  • So far, most driers are well equipped to handle milk supply.
  • A new PNW plant is scheduled to begin commissioning in April – which is unlikely to shift the supply-demand balance significantly.
  • Overall, higher NDM/SMP is driving Class II SNF higher – higher SNF and butterfat could influence ice cream production schedules this spring.
  • The gaps between Class III and IV milk prices could cause milk to shift toward the latter, especially if cheese plants are carrying excess uncommitted cheese supplies.

Market News:

EU protests. With the European Union’s new Farm-to-Fork policy not even 30 days old, farm protests erupted throughout the region – mainly in France and Germany. Farms are upset, indicating they are not being paid enough and bearing the brunt of environmental regulations designed to limit animal agriculture in future years. Europe’s new policies managed CO2E emissions and nitrogen and phosphorus land application – the latter is limiting the number of animal units per hectare. With numerous elections this year, politicians are seeking ways to diffuse the situation.

China’s Imports. China’s WMP and SMP imports disappointed in December 2023, with volumes falling well behind the pace set in 2022. China’s December 2023 WMP imports were 45 million pounds and 47.1% less than the previous year. That was the lowest volume for December since 2017. New Zealand accounted for all the losses – implying the nation had to find alternatives.

China’s SMP imports fell to 40.5 million pounds in December 2023 – down 37% compared to the prior year. That put YTD imports up 3.8% compared to 2022. New Zealand, the United States, Finland, and Australia accounted for most of the declines, sharing nearly equal declines. There were some increases – including Belarus, but those were minor compared to the declines.

Whey & Lactose Products

Price:

  • CME spot whey markets increased 2.49¢ this week, with the weekly average price reaching 43.8¢, as prices moved back to the mid-40s.
  • CME futures had a mixed response, with some months increasing fractionally and others remaining unchanged.
  • While CME prices are higher, other prices are not responding in kind – this happened last year, and CME prices ultimately pulled back.
  • Dairy Market News (DMN) – west mostly increased 1¢ this week, with the weekly average price reaching 45.0¢, the first increase since the first week of the month.
  • DMN – central mostly increased 0.25¢ this week, with the weekly average price reaching 41.25¢; this price has more influence over NDPSR.
  • DMN lactose increased by 0.5¢ this week, with the average price reaching 26.81¢.
  • European whey prices were unchanged this week.

Spot Market Updates:

  • Anecdotal reports indicated that WPC80 domestic and export demand remains elevated.
  • More cheese has resulted in more whey – but most of those solids are still unprocessed and moving into the feed markets.
  • US prices pulling ahead of European prices could be problematic when exporting to China.
  • The nearby whey powder strength seems to be related to strong WPC80 demand rather than strong whey demand. New capacity expected to come online throughout Q2 could curb some of that price enthusiasm.

Market News:

China’s Imports. China’s December 2023 whey imports totaled 123.3 million pounds – 2.9% less than the previous year. 2023 imports ended 9.6% higher, but more volume came from Belarus and Poland – an indication buyers were looking to cut costs. In December 2023, imports from the United States increased by 6.4% vs. 2022. Most of the declines came from Poland.