Weekly forecast – Sept. 29, 2023

Forecast updates

Weekly updates:

  • Updated markets for spot – increased butter through the end of the year.
  • Raised Q1 2024 butter price outlook compared to last forecast.
  • Adjusted CME spot cheese based on lower markets at the end of September – still expect prices to lift into October and November.
  • No significant changes to dry product forecasts.

Milk Market

There was much discussion this week about sizeable dairy dispersal sales in New Mexico and Texas. On Saturday, one of the larger auction houses was selling off 10-12,000 dairy cows as a dairy closed. There are rumors that more dairies in Texas are looking to close or reduce their herd size by the end of October. Given the recent Class III milk price declines that could cause dairies that postponed herd reductions to reconsider that decision, this fall should Class III prices remain lackluster. Additionally, base plans are in flux. Some dairies report that constraints pick up in October; also, reports indicate that milk is tight regionally. That is creating a lot of market confusion.

Through August, US dairy cow culling remained higher than a year ago. USDA reported August slaughter at 275,500 animals, 3.5% more than a year ago – but a 12.8% increase compared to July. YTD slaughter is running 6% higher than the same time last year. As expected, the September weekly cow slaughter pace slowed compared to last year as prices improved.

Cheese Market

USDA started to issue annual bids last week for 39MM lbs of processed cheese, 60MM lbs of Cheddar cheese, and 64MM lbs of Mozzarella. That is typical for this time of year. The bid will proceed as scheduled since the government averted a shutdown over the weekend. That did little to alleviate the sell-side pressure that persisted throughout the week. CME blocks averaged $1.7465/lb, down 7.55¢ from the previous week. Most days ended with offers on the board, suggesting a good amount of selling interest throughout the week. Barrels averaged $1.5185/lb, down 11.25¢ – tumbling lower with prices returning to the $1.40s for the first time since mid-July. That caused the block-barrel spread to widen to 22.8¢. Barrel could see more selling pressure should rumors of slowing exports be accurate.

US cheese stocks totaled 1.5 billion pounds on August 31 – 0.5% higher than a year ago. The MoM change in stocks was a 3.5MM pounds decline – lower than the five-year average pace for July to August stock changes. American cheese stocks totaled 849 million pounds and 0.9% more than a year ago. July to August stocks increased by 8 million pounds – more than a year ago- consistent with the five-year average. Cheese, excluding American and Swiss, was 618 million pounds and 0.2% less than last year. The July to August depletion was 11 million pounds – consistent with the five-year average. That may indicate that some frozen Mozzarella is moving out of storage. It was also the lowest YoY gap since 2020.

While there were some bright spots in restaurant and foodservice demand – reports indicate that business slowed in August. Sales were up 1.5% compared to last year, but foot traffic was down 2.9%. QSR and Italian restaurants performed the best – that is good for cheese demand. Fine dining underperformed again – bad for butter. Some of the weight of less savings and more costly bills are catching up with consumers as they adjust spending. September data suggests consumers are diverting money to paying down credit card and student loans – which could constrain fall spending. The 1.5% sales growth as the lowest since July 2022.

Butter Market

Traders have detected that butter stocks are tighter than in recent weeks and that it is possible to bid markets higher with little expectation of owning too much butter. That may help explain why spot prices set new all-time highs this week – $3.335/lb. CME butter averaged $3.231/lb, up 35.6¢ compared to last week. 10 loads changed hands this week, less than the previous week. While bulk butter stocks are likely limited during the holiday build – the spot price could cause cream demand to subside as processors become concerned about holding expensive products. That could send more cream back to churns over the next few weeks. While that is possible, anecdotal reports suggest that very little cream moved to churns last week.

US butter stocks totaled 289 million pounds on August 31 – 3.9% higher than a year ago. The MoM change in stocks was a 40 million pounds decline – the largest July to August decline over the past eight years. Despite stocks above last year, the depletion seemed to kick markets into gear, sparking a new buying round. It may also indicate that stocks are well-committed and that spot products could be more difficult. That was the lowest YoY gap so far in 2023.


NDM spot prices continued a slow climb this week. CME NDM averaged $1.1675/lb, up 2.95¢ from the previous week, steadily increasing throughout September. This week, the GDT Pulse WMP auction increased 4%, suggesting there could be a follow-through at next week’s GDT. Despite the steady spot price increase, Q4 futures seem incredulous as prices are slow to follow. Spot markets seem to be working to firm 2024 prices, but 2023 futures remain lower than current spot prices. As the first GDT of October is next week, participants will likely await the results before deciding on the next moves. There are also reportedly concerns that cheese demand could slow in December, pushing more milk to driers and alleviating the current tightness. Much speculation about markets may explain the lack of clear direction.

Global milk production is slowing, with news from Europe that suggests it could speed up ahead of the January 1 deadline. Ireland and the Netherlands need to comply with EU nitrogen limits that could result in massive culling of dairy cows to become compliant. While Ireland seems to be coming to terms with the implications of the decision – the Netherlands is still defiant. In November, there is a general election in the Netherlands where a farm-backed group could win enough seats to influence compliance and fight with EU. That could mean reduced subsidies and a prolonged legal battle for dairy producers. While NL dairy producers may rank as some of the wealthiest landholders, they tend to be cash-poor (this is due to NL land values). That means a prolonged fight with the EU and no subsidies could push dairy producers over the brink.

Whey & Lactose Products

CME whey prices eased this week, moving back to the upper 20s. CME whey averaged 29.7¢, up 0.7¢ from the previous week. DMN Central mostly whey averaged 30.5¢, up 1.5¢ from the previous week. Western mostly whey averaged 33.5¢, up 1.0¢ from the previous week. Lactose prices eased this week for the first time in weeks, down 2¢ to 22.5¢. EU whey prices are reportedly steady, indicating mid-30s by Q1 2024. WPC prices were 84.25¢ this week, down 0.25¢. Some are optimistic about whey and derivative prices headed into 2024, but for now prices seem to remain rangebound.