Weekly forecast – July 28, 2023

Forecast updates

Cheese:

Increased block prices through the end of the year.
Increased barrels modestly – but kept the block-barrel spread.
That widened the block-barrel spread through the end of the year.

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

Adjusted whey prices up – removing last week’s deductions.

Milk Market

The hottest July on record will likely take a toll on milk production. That, along with increased culling milk production, is tighter than just a few weeks ago. As a result, discounts are vanishing. Ahead of the school milk supply line restocking milk is already snug in parts of the country – that could mean milk gets tighter at the beginning of August. Markets appear to be anticipating tighter supplies as futures prices picked up over the week compared to earlier. Milk in New Zealand, South America, and Europe followed suit as higher culling and weather-slow output.

The US beef herd is at its lowest point since 1971. That could keep pressure on culling if dairy farm margins deteriorate again. While the recent jump in milk prices helped stem catastrophic losses, the figures are still lower than most producers would want to see for expansion.

Cheese Market

CME prices continued to push higher. Blocks were mostly stable until prices lifted on Friday. CME blocks averaged $1.8720/lb, up 23.85¢ with only five loads trading. Barrels averaged $1.7925/lb, up 27.85¢. Despite a higher weekly average, barrels stepped back Monday and Tuesday’s highs. Domestic demand continues to tick along, but it appears US cheese is starting to move back into the export market faster than Q2. That may have slowed the amount of spot cheese available to the market.

There are some shifts in consumer retail behavior. First, Circana reported the “stocking up” behavior slowed as more product is readily available – for what remains, it is consumers trying to get ahead of price hikes. Grocers are using apps more frequently to transmit promotions to customers. Online shopping continues to move higher. In June, natural cheese retail sales volumes were up 1.9% compared to last year. For the 52 weeks ending July 2, sales volumes up 0.2%, suggesting a consistent retail performance during the first half of the year. Process cheese sales, despite inflation, were down 4% in June and 3.2% for the 52-week period. Grab & go, and pre-sliced cheese performed well in June, up 0.6% and 41.5% vs. last year; Specialty is still down 0.9%.

According to the latest Cold Storage report, US cheese stocks totaled 1.51 billion pounds on June 30. That was 0.27% more than a year ago. The MTM stock change was +13 million pounds – the highest in eight years. American cheese stocks totaled 853.3 million pounds and 0.78% higher than last year. That reflected a modest MTM decline around 4MM pounds, lower than the last three years, but a consistent May-June performance overall. Other than American & Swiss cheese stocks were 634.4 million pounds and 0.08% less than a year ago. It may reflect more Parmesan or other aged cheese, given the carry and low cost of production.

Butter Market

Spot butter prices continued to push higher this week as cream demand picked up at a faster pace. Eastern cream multipliers were reported 1.40 to 1.50 in some cases. Cream multipliers across the country increased – making it more likely that cream headed to churns is slowing. Based on the June Cold Storage report, stocks have likely peaked. The depletion, and how quickly it happens could cause price to lift ahead of the holiday build. This week butter averaged $2.654/lb, up 9.45¢ and the highest price this year. While domestic demand and consumption performed well through the first half of last year, when prices moved over $2.50, demand eased. That could shift the trajectory should consumers respond similarly this year.

US butter stocks totaled 347.5 million pounds on June 30, according to the latest Cold Storage report That was 5% more than a year ago. The MTM stock change was down 20 million pounds – the biggest MTM decline from May-June since 2016. Stocks likely peaked in May – an early but likely timeframe. If demand keeps up, that could mean carry-out stocks at year-end may be less than last year, even 2021. But, given the sharp price increase over the last week, that could wear on demand headed into the fall, tempering some demand similar to last year when prices were above $2.50/lb.

NDM/SMP

CME spot NDM prices varied this week, dropping before ending Friday at $1.16/lb. That end-of-week rise caused CME prices to average $1.152/lb this week, up 4.4¢ compared to the previous week. International prices are also on the rise – slowly. News of slowing milk production and improving international trade is helping move the market along. That may not be without setbacks. All eyes will be on Tuesday GDT auction to see if New Zealand SMP and WMP move higher.

There was a good amount of news from New Zealand this week. New Zealand’s June milk production was 230,000 MT, down 1.7% compared to last year and the lowest for the off-season since 2020. For the calendar year 2023, New Zealand’s milk production is still 2.78% more than last year. New Zealand’s June SMP exports totaled 98.3 million pounds, 69.5% more than last year and the highest for June. YTD exports are 50% higher than last year. Exports to China accounted for more than 50% of the volumes and were 108% more than last year. Exports to Saudi Arabia were 8.5X the volumes last year; Singapore was up 3X. Volumes were lower to Singapore – down 70% vs. last year.

New Zealand’s June WMP exports totaled 276.3 million pounds, 24.2% more than last year. YTD exports are 7% higher than last year – impressive given the lower demand from China in the year’s first half. Exports to China accounted for 50% of the volumes and were 39% more than last year. Higher volumes to Sri Lanka and Algeria followed that.

Whey & Lactose Products

CME whey prices picked up this week, making small gains and averaging 25.7¢, up 1.05¢ from the previous week. Whey news is little changed, and markets appear range-bound. The DMN Central whey mid-point was 25¢, up 0.25¢ from the previous week. DMN west mid-point was 28¢, up 1¢ from the previous week. DMN lactose continues to slide, 19.5¢ and 0.25¢ more than the previous week.

Whey news was quiet this week. There are reports of African Swine Fever outbreaks increasing in Asia. It is impacting China, the Philippines, and Vietnam. That could be problematic for whey for feed uses should these nations need to cull animals to contain the outbreak. That is positive news for whey when herds eventually need to be rebuilt.