Weekly forecast – July 14, 2023

Forecast updates

Cheese:

  • Adjusted CME barrels for spot markets.
  • No other significant changes to the 2023 forecast.

Butter

  • Modest increase to butter price forecast for July through November to accommodate higher spot markets.
  • Expected butter prices to rise and for output to fall during 2H 2023 to support prices.

NDM

  • Adjusted Q3 NDM prices – lifting prices as spot and CME moved higher.

Whey

  • No significant changes to 2023 forecast.

Milk Market

Heat and humidity remain the main story this week as record temperatures spread across the country. The heat events are widespread and lasting a long time. While daytime temperatures can rise, should overnight temperatures decline, milk production remains largely intact. But, when overnight temperatures remain elevated cows struggle to release the heat built up throughout the day resulting in milk production declines. Markets appeared to be reacting to the possibility that milk production could tumble in the coming days.

Cheese Market

CME trading remains volatile with barrel and block prices returning to $1.40 and $1.53/lb, respectively before easing into Friday. Blocks averaged $1.4875/lb, up 11.25¢ compared to the previous week. Cheddar barrels averaged $1.4025/lb, up 5.19¢. The block-barrel spread was 8.5¢ with blocks again premium to barrels. Markets showed optimism after USDA announced a small bill for approximately 10-11 loads of Cheddar early in the week. But after spot-barrel sellers returned to the markets, CME futures and spot prices retreated again. Overall, the domestic demand appears balanced, but some reports suggest that trade with South Korea and Japan could be sluggish due to higher prices earlier in the year, resulting in European and New Zealand suppliers gaining a larger portion of Q2 and some Q3 sales.

In May US cheese commercial disappearance improved in May in an on again off again fashion. ERS reported domestic commercial disappearance at 1.13 billion pounds and 2.7% more compared to last year. YTD commercial disappearance is running 1.3% higher compared to last year. That removed 72.7 million pounds of cheese from the system during the first five months of the year. That suggests the domestic market is largely in balance and that most of the Q2/Q3 woes are the result of fewer exports compared to last year.

USDA issued a Cheddar cheese bid on July 11 that will be awarded on July 25. That combined with record setting heat spreading across the United States seemed to be cause for markets this week. This will be for Q4 2023 deliveries. Not the largest bid, but one that follows a pattern in place since 2018 when USDA started buying programs that would ship fluid milk and cheese to food banks. Still, markets remain particularly volatile.

Butter Market

Spot butter prices increased the week – rising above $2.50/lb for the first time since mid-December 2022. Futures appeared to follow, with prices reaching above $2.50 through November. CME butter averaged $2.5115/lb, up 3.9¢ from the previous week. Trading volumes picked up this week, with 45 loads changing hands. Heat kicking in is slowing milk and dropping components like butterfat. Additionally, it is lifting ice cream demand. Both combined to slow cream to churns – that should continue through the fall.

In May, US butter commercial disappearance continues to exceed last year. ERS reported domestic, commercial disappearance at 163.8 million pounds and 3.7% more than last year. At the current rate, that could deplete butter stocks by the end of the year, which would support prices. YTD commercial disappearance is running 5.4% higher compared to last year. That removed 44.2 million pounds of butter from the system during the first five months of the year. Circana reported May scan data less than last year by 1.4% on a volume basis, implying the growth is coming from food service demand rather than retail.

NDM/SMP

CME spot NDM prices were lower this week following a much lower Global Dairy Trade (GDT) showing on July 4. GDT SMP prices fell 6% to $2,525/MT ($1.145/lb); WMP dropped 0.4% to $3,149/MT ($1.428/lb). Following that, CME spot markets ended the week at $1.08/lb – the lowest price since November 2020. The CME weekly average was $1.1056/lb, down 1.39¢ from the previous week. Futures also pulled back, with prices below $1.15/lb through the end of the year. Despite indications that China is importing more milk powder than last year and that milk production could slow, markets turned bearish in early July, with that sentiment spreading through the end of the year.

In May, US NDM commercial disappearance continues to exceed last year. ERS reported domestic commercial disappearance at 73.6 million pounds and 61.1% more than last year. YTD commercial disappearance is running 12.8% higher compared to last year. That removed 37.2 million pounds of NDM from the system during the first five months of the year. In part, some of the large NDPSR based sales at the end of April and May could drive the results as end-user stocks would not be factored into the equation.

Whey & Lactose Products

CME whey prices slipped lower again this week. CME whey averaged 23.06¢, down 0.38¢ from the previous week. DMN Central mostly prices dropped, down 0.75¢ to 25.25¢; Western mostly was 30¢ unchanged. NDPSR whey prices continued to slide, with prices reported at 27.65¢ down 1.27¢ from the previous week. Reports that China’s whey demand is slack continue to impact the market. Additionally, more WPC and WPI with modestly higher infant formula demand continue to leave the market surplus. As a result, prices remain low as the markets attempt to regain balance – but it could take time.