Weekly forecast – July 21, 2023

Forecast updates

Cheese:

Increased block prices through the end of the year, given the rapid appreciation this week.
Left barrels due to higher rates of off-spec, processed cheese solids entering the market during plant start-ups.
That widened the block-barrel spread through the end of the year.
Increased January 2024 cheese price – that is the final month of the season – original forecast was too low.
Should exports pick up – Q1/Q2 2024 may be too low.

Butter

Increased butter price through November based on higher spot price.
There could be more upside during the holiday demand period – 10 to 25 cents.

NDM

Adjusted JUL/AUG prices – left other prices unchanged.

Whey

Reduced prices through the end of the year on expectation of more whey hitting the market and significant slowdown in Chinese infant formula imports.

Milk Market

AMS announced the August Class I base price at $16.62, $0.70/cwt less than July, and the lowest price this year. Given the price recovery in late July, August may be the year’s low point before prices recover. Oppressive heat and low margins impact milk production from California to Florida, suggesting that milk output deteriorates from the recently released June Milk Production figures.

US milk production totaled 18.9 billion pounds in June, down 0.02% compared to the previous year. That news was sufficient to set markets ablaze as a slowdown was expected, but not necessarily as soon as June. YTD milk production is up 0.66% compared to last year – that sets US milk on pace to fall below last year if the slowdown continues.

Idaho and Arizona were the only states west of the Rocky Mountains to increase output compared to last year.
Colorado, New Mexico, Texas, and Florida all reduced output.
The Upper Midwest, Mideast, New York, and Georgia combined to offset losses elsewhere. Weather in these locations has been ideal for milk production – warm weather during the day followed by cool nights.
The US milking herd was 9.41 head – down 5,000 head from last year and 13,000 cows from May – YTD, resulting in fewer cows.
Output per cow was 2011 pounds – 0.05% more than last year and insufficient to offset losses from animals.

Cheese Market

After months of lower prices, spot CME Cheddar markets lifted decisively this week. The lower-than-expected June milk production report only worked to push prices higher at the end of the week. CME blocks average $1.6335/, up 14.75¢; barrels were up 11.35¢ to average $1.5140/lb. Reports suggest US cheese exports picked up in Q3, which is working to clear some of the extra Cheddar cheese that overwhelmed spot markets in Chicago. Additionally, milk is tightening faster, with some parts of the country moving from discounts to premiums again as cheese processors look for milk. Food service and retail demand continue to push along.

Natural cheese retail volumes in June were 1.9% higher than last year. That pushed the 52 weeks ended July 2, 2023, 0.2% higher than last year. Processed cheese is running 3.2% less over the same 52-week period. Cheese snack kits are up 0.6%. Grab-and-go and pre-sliced cheese are performing well in the deli-case, up 0.8% and 5.3% over the same 52-week period. Specialty cheese continues to lag, down 2.4%, but the gaps are starting to close compared to earlier in the year. Given the better performance from retail and foodservice, rebalancing exports could result in markets that look very different in Q3 vs. Q2.

China’s cheese imports continue to increase. June imports totaled 36.8 million pounds and 73.5% more than last year. That put YTD imports 12.9% ahead of last year through mid-year. While China’s overall economy continues to struggle – foodservice is picking up as draconian lockdown measures finally ended in December last year. While larger purchases may be struggling, smaller luxuries like fast food appear to be within the budget for many that have missed that treat for the last year.

Butter Market

Spot butter prices dropped on Thursday, with prices more than recovering on Friday, with 37 loads changing hands that day – an impressive volume. That led to a weekly average of $2.5595/lb, up 4.8¢ compared to the previous week. Heat is knocking back components, and with fewer cows and less milk market is starting to realize butter could be tighter than expected just a few weeks ago. Add to that record-setting heat that kicked ice cream demand into overdrive over the past few weeks. Cream multipliers are rising and out of reach for most butter processors; therefore, more are relying on microfixing at this point in the season. That will whittle down storage butter over the next few months.

Butter retail sales volume was up 1% in June compared to last year – that closed the gap for the 52 weeks ended July 3 to 0.9% less than last year. Creamers, cream cheese, and other higher-fat dairy products are hovering just below last year, with the gaps closing in recent months. So far, butter commercial disappearance is substantially higher than last year, indicating food service and other uses are helping to lift demand. While trade is a non-issue this year, higher domestic demand could remove more products from storage by the end of the year.

China’s butterfat imports have been lackluster in 2023 – until June. Last month China imported 26.8 million pounds – 43% more than in May and 28% higher than last year. It was the highest imports for that month on record. This may be consistent with other post-pandemic patterns. When the weather improves, and people can be outdoors, more foodservice demand increases. YTD, China’s butterfat imports are still 14.3% behind last year’s pace; however, with slowing Chinese milk production, imports could rise into the second half of the year.

NDM/SMP

CME spot NDM prices eased into mid-week and started to lift at the end of the week as markets started to react to the prospects of milk slowing down at a faster pace. Add to that the West Coast milk production slowdown could mean less NDM/SMP as those are the states that produce most of the nation’s milk powder. CME NDM averaged $1.108/lb, up 1.65¢ this week. Futures reacted by Q4 23 and Q1 24 prices moving up. They are still below prices earlier this spring, but some may be viewing value, and chances that prices could increase more should milk production continue to ease.

China’s WMP imports picked up in June compared to last year. China imports 107.6 million pounds, 4% less than in May on a daily average basis but 37.6% more than last year. As the YoY gap continues to increase, it is possible 1) slower domestic milk at a higher cost is resulting in more imports and 2) the zero-tariff powder is resulting in more consistent buys throughout the year compared to stacked purchases in Q1. Imports are still 44.5% less than last year.

China’s SMP imports followed a similar path to WMP – higher than last year but less than in May. Imports totaled 63.6 million pounds, 7% less than in May but 20% more than last year. That was the second-higher June, only surpassed by 2021. YTD imports are running 21% more than last year. Given slowing milk, this gap likely continues and may expand into the second half of the year.

EU-27 May milk production totaled 29.5 billion pounds, up 1.1% compared to last year. YTD output is up 0.8% vs. last year. After slowing in March and April, YoY gains returned. Germany and Poland led the gains in May, followed by distantly by Italy and Belgium. French declines were significant and 3.4% below the previous year. Record heat in July may not bode well for European milk production gains this summer.

Whey & Lactose Products

CME whey prices picked up on some of the market enthusiasm this week as prices averaged 24.65¢, up 1.25¢ from the previous week. Whey news is slightly less positive than other markets – especially with China’s imports slowing compared to last year. As has been the case for weeks, there may be no reason for whey prices to fall further in the coming weeks, but there may also be a few reasons for prices to increase. The DMN Central whey mid-point was 24.25¢, down 1¢ from the previous week. DMN west mid-point was 27¢, down 3¢ from the previous week. DMN lactose continues to slide, 19.25¢ and 0.25¢ less than the previous week.

News from China was not great this week as import improvements stopped for whey. China’s whey imports slowed in June – 116.3 million pounds and 2.8% more than last year, but 5.5% less than May. Imports from the United States accounted for 47% of total volumes in that month. China’s infant formula purchases collapsed – down 36.6% compared to last year. In all cases, that weighs on the whey markets as the largest purchases of whey, lactose and high proteins slowed demand.