Weekly forecast – May 26, 2023

Forecast updates

Very little changes in markets this week – most adjustments were to account for spot market changes.

  1. No change to the butter forecast
  2. Reduced June and July cheese.
  3. Modest adjustments to the whey forecast.
  4. No significant changes to this week’s NDM forecast.

Milk Market

Milk output is rising faster as the weather is seasonally ideal for producing more milk. At the same time, the long weekend and school letting out are putting pressure on processors as milk continues to move to manufacturing. There has been planned and unplanned downtime recently that limits capacity and increases reports of dumped milk. Discounts are massive right now, as many processors have been unable to buy even the most distressed milk. Milk has not yet hit its peak, and that could still be a few weeks off or if heat were to materialize. Warmer weather is expected to spread across the country next week – that could be enough to cap milk off the farm within weeks.

Class III milk prices remain lower as cheese markets struggle to find balance (see comments below). That has opened a sizeable gap between the Class III and IV milk prices, with futures indicating Class IV will be considerably higher than Class III throughout Q3 2023. Prices are low enough that dairy producers will reevaluate their herds here shortly – that could raise cull rates late spring-early summer. Higher YoY weekly slaughter rates seem to confirm that sentiment.

Cheese Market

CME spot trading volumes are high – 29 barrels and 22 blocks changed hands this week. Since the start of May, 172 barrels and 111 blocks have changed hands –a sizeable amount of cheese and one on pace to rival or eclipse April. More spot cheese is available to the markets based on reports of modest slowdowns in foodservice and fewer export opportunities. Markets are still recalibrating since the unusually high price run-up at the end of March – a run that may have cost US exporters volumes. CME barrels averaged $1.507, 4.9¢ more this week than the previous week. Cheddar blocks averaged $1.5655/lb, 5.55¢ more than the previous week. While barrel markets continued to recover into the latter half of the week, blocks faltered on Friday, resulting in barrels premium to blocks again. Until and unless more exports or foodservice demand are resulting from the official kick-off to summer this weekend – cheese could remain lower and in a tight trading range. Most reports indicate above-average travel this Memorial Day weekend that should help lift cheese demand.

US cheese stocks totaled 1.46 billion pounds on April 30 – 1.2% less than last year. There was minimal change between March and April. American cheese stocks were 838.2 million pounds and 0.3% higher than last year. The March to April build was more than the last two years but not unmanageable.

From overseas, China’s April cheese imports totaled 28.7 million pounds and 18.7% more than the previous year. YTD, China’s cheese imports are 7% more than last year.  Imports were higher from several countries, with volumes from the United States 3.7X more than last year. That, combined with higher imports from New Zealand, drove results.

Butter Market

Spot butter prices continue to trade sideways, moving modestly lower over the last week. Ice cream is starting slowly, but with warm weather in the forecast, demand may get a kick-start. Butter churns report ample cream available ahead of the holiday weekend, with some indicating more cream than over the last few Memorial Day weekends. CME spot butter prices averaged $2.4345/lb, down 1.65¢. Despite CME butter futures forecasting lower NDPSR prices – CME spot prices increased into the end of the week. That said, NDPSR butter prices remain sub $2.40 through mid-May. Cream multipliers are under pressure as the cream is widely available, and some planned downtime out west is causing more products to float around over the long weekend.

US butter stocks totaled 327.7 million pounds as of April 30 – 9.8% more than the previous year. That was consistent with the YoY gap from March. The build from March to April was consistent with that time frame for the last few years.

NDM/SMP

CME spot NDM prices were mostly stable to begin the week, with prices rising at the end of the week. 13 loads changed hand this week, and CME NDM averaged $1.162/lb up 0.2¢ compared to the previous week. News remains mixed for NDM sales – interest from Mexico, but domestic sales continue to compete with heavily discounted condensed skim and raw milk. It’s difficult to get bullish on NDM when cheese markets languish domestically. That said, most reports indicate that at current levels, there is demand, and overseas prices are steady to higher this week, providing some support to the domestic markets.

More news came in from overseas this week. New Zealand exported 97.8 million pounds of SMP in April – 75% more than last year after revising March lower. Higher volumes to China, Algeria, and SEA drove the results. Despite China taking less WMP, New Zealand exported 320.7 million pounds in April – 35.7% more on higher exports to Algeria than last year. China imported 78.2 million pounds of SMP in April – 46% more than last year. All of that volume came from New Zealand, Australia, and Germany. China imported 90.5 million pounds of WMP in April, 31.8% less than the previous year. Higher SMP is offsetting WMP declines – but the YoY gap is still large.

Whey & Lactose Products

Domestic whey prices continue to decline with no end in sight. CME price averaged 26.85¢, down 1.6¢ this week. DMN Central prices were 32.5¢, down 2.5¢. DMN Western prices were 36.5¢, down 1.5¢. NDPSR prices were 38.01¢, down 1.04¢. Spot markets are moving lower as deeply discounted products are available to buyers. At the same time, product with specific attributes continues to trade in the 30s. This market correction is typical following a year with above-average prices like last year. Until exports return or the higher-end whey markets demand resumes, whey prices could gain limited traction this year.

China’s April whey imports were 13.4% more than last year – but the year-over-year gap closed compared to earlier months. Imports from the United States were up 1.6% vs. last year – most of the imports came from Poland in April – up a whopping 8.8X the previous year. US volumes still account for over half of China’s whey imports, but some other regions are making bigger inroads this spring.