Weekly forecast – June 16, 2023

Forecast updates

There were a few changes to this week’s forecast.

1. Updated June 2023 prices based on spot markets
2. Modified Q2 2023 NDM and SCBM prices lower.

Milk Market

This week some heat and humidity in the Southwest and Southeast reportedly curbed output, with some farms in Texas noting considerably lower production. Additionally, two new cheese plants are starting to ramp up milk intake. That has caused milk in Texas to tighten relative to recent weeks. Most processors may get closer to normal summer operations, with most lower-bottling milk absorbed into the system. Weather is still favorable for milk production throughout most of the country, but warmer weather is again in the forecast. Dairy producers received their final May milk checks, which were much lower than expected. Many dairy producers took advantage of DMC, DRP, LGT, forward contracting, and futures/options – so the Q2 impact may be less pronounced. Anecdotal reports suggest that hedging activity is much less moving into Q3 making July a concern. Feed prices rise as weather and drought concerns inject a weather premium into the futures markets. For now, that is less of a concern for dairy producers, but new crop feed compared to milk futures do add up to profitability.

Cheese Market

Spot blocks and barrels declined throughout the week. Blocks averaged $1.3965/lb, down 6.5¢/lb compared to the prior week, and for the first time in three years, spot prices are in the $1.30s. Barrels averaged $1.54/lb, down 4.2¢ versus the previous week. Barrels remain premium to blocks, but the spread closed this week. Given higher Q2 cheese production expected, lower exports will tip the market toward imbalance. Demand is ticking along, but not enough to clear the current surplus. Given US price discounts in Q3 forward, it should help US exporters regain a footing in Southeast Asia – something that could help rebalance the market.

April 2023, cheese commercial disappearance totaled 1.1 billion pounds, 1.6% more than the previous year. That is a recovery from YoY declines in March. YTD commercial disappearance is running 1.2% higher than the previous year – suggesting that domestic demand improved given lower export volumes. Consider that performance was so-so given the drops last year caused by inflation and higher pump prices – it is a return to trend. American cheese commercial disappearance picked up 3.4% vs. last year – given more cheese in the domestic market, that comes as little surprise. Other cheese was up a small 0.3% compared to last year.

Butter Market

Spot butter prices climbed through mid-week, and prices dropped back by Friday. CME butter averaged $2.367/lb, down 0.75¢/lb. Prices are still under pressure, but spot trading activity quieted more this week. While prices are less than recent highs, prices appear supported near current levels. Despite lower spot trade, futures ended Friday on an uptick. Markets will be closed on Monday for the Juneteenth holiday. Anecdotal reports indicated cream multipliers are rising, and less cream moved to churns this week, suggesting peak production passed. USDA reported that East and Central cream prices were higher, while Western multipliers dropped.

April butter commercial disappearance at 182.9 million pounds – the highest for that month on record by a sizeable margin. It was also 11.6% more compared to the previous year. With April 2023 YTD commercial disappearance running 6.3% more than the previous year. Higher commercial disappearance quickly explains why US butter prices remained higher in the winter and spring months. Should that pace of consumption continue, the current production rate of 3.3% appears insufficient to keep pace, suggesting that stocks could deplete at a faster pace during the holiday season. That could set up higher prices at the start of next year.

NDM/SMP

CME spot NDM prices were mostly stable this week – but toward the bottom of the spring price range. International prices were much the same as reports indicate more sellers than buyers this week. As spring milk passes and cheese operations start up, that could slow milk to driers. This week, several reports of severe drought were expected in China this summer. That could be problematic for that nation’s dairy producers, reducing margins further. While it impacts feed markets today, dairy markets will keep a close eye on whether China’s milk production is reduced further, creating an opportunity for exporters. NDM will likely remain near current levels of $1.159/lb this week, down 0.35¢ from last week, until weather causes milk to slow off the farm.

April 2023 commercial disappearance at 90.9 million pounds, 34% higher than last year – a good-sized recovery from last year’s performance. That put YTD volumes unchanged from last year. For now, modestly lower domestic commercial disappearance and lower exports pushed more products to the warehouses. But lackluster production and a pick-up in 2H exports could keep stocks in check. If exports remain ho-hum, that could result in higher stocks during the second half of the year.

Whey & Lactose Products

Domestic whey prices were mixed this week. CME spot improved a bit, averaging 27.6¢, up 0.3¢. DMN Central prices were 30¢, down 1.0¢. DMN Western prices were 33.5¢, unchanged. NDPSR prices were 31.86¢, down 1.68¢. Prices appear somewhat supported near current levels, but there is little reason to expect prices to increase soon. Futures don’t anticipate NDPSR averaging sub-30 until August.

US April 2023 whey commercial disappearance at 34.6 million pounds, 10.9% less than last year. YTD +3.1% . US April 2023 WPC commercial disappearance at 17.4 million pounds, 97% more than last year. YTD +50%. Demand is improved, which is likely the result of substantially lower prices compared to last year – which may provide some of the support markets need to halt nearby declines.