Weekly forecast – Sept. 8 2023
Forecast updates
Weekly updates:
- No significant changes this week – updated for spot markets, some adjustments to whey.
Milk Market
Milk remains tight as bottlers pulled more milk post-holiday. The school milk system is nearly resupplied, but less milk off the farm has processors looking for milk to backfill shortfalls. Markets have flipped from the July 4 holiday as milk premiums were higher post-Labor Day, and some processors reportedly struggled to find additional supply. Further, cream and condensed were also reported tight this week. Unseasonably warm weather continues to take a toll on milk intake – similar reports surfaced in Europe this week as French milk intake dropped due to heat. That seems to support prices this fall as the demand outlook remains consistent and supply contracts.
Futures are forecasting higher Class III and IV milk prices, but those will likely be closer compared to recent months. While prices ended the week below $19/cwt – they were just below that level.
Cheese Market
In shortened holiday week trading with blocks and barrels falling into Friday. Barrels were stable throughout the week but pulled back on Friday, with prices dropping 4¢ from Thursday; blocks had a similar fate, easing 3.75¢ from Thursday’s close. In the end, CME blocks averaged $1.95/lb, down 2.45¢ from the previous week; barrels were $1.8575/lb, up 0.75¢. That caused the block-barrel spread to tighten to 4.25¢ this week. Reports this week indicate that bottlers are pulling more milk and that intake to most cheese plants (those east of the Rockies) may be affecting output. That could cause some cheesemakers to look to NDM to standardize cheese vats. USDA reported that labor remains a persistent issue for East Coast cheese makers. If demand continues to perform well and supply, especially of fresh cheese, is limited, that could cause prices to lift this fall.
This was a busy week of reporting. US July cheese production was 1.16 billion pounds and 0.7% less than a year ago. YTD production is up 0.4% – marginally higher than a year ago, indicating the new cheese capacity in July has had minimal impact on markets. California’s cheese production dropped nearly 4% behind last year’s pace – South Dakota, Illinois, and likely Texas experienced YoY declines. Idaho, New Mexico, New York, and Upper Midwest states offset those declines. Cheddar production was 331.5 million pounds and 2.6% less than last year, suggesting the increase in American cheese production (+0.25%) indicates more Monterrey Jack, Colby, etc. Mozzarella production totaled 382.2 million pounds, 2.6% lower than last year. That was the first YoY decline in July since 2016.
US cheese imports increased in July, with volumes totaling 34.1 million pounds – 11.3% more than last year. That was a good-sized recovery from June. Still, YTD volumes are running 0.3% less than last year. US imports from Europe increased – Italy (+29%), Netherlands (+28%), Spain (+140%). Volumes from Ireland were lower – down 43% vs. last year – similar performance for Norway (-68%). US cheese exports got back on track in July, with volumes totaling 81.3 million pounds – 1.4% less than last year. That was a sizeable improvement from Q2 and helped to slow the cheese headed to Chicago. US exports to Mexico were still higher than last year (+5.3%). Volumes to Japan improved (+29%) compared to last year. But, volumes to South Korea were still off compared to last year (-23%). While US exports to China are small, they were 5X last year’s volumes. Cheddar exports lagged last year – down 18%. Grated cheese (incl. pizza cheese) increased 52%.
Butter Market
CME spot markets were up and down this week. Spot markets started a slow climb through Thursday to reach $2.73/lb. before tumbling on Friday, falling to $2.68/lb. Trade volumes reached 61 loads – elevated, which has been common for the past few weeks. Spot butter averaged $2.71/lb, up 6.7¢ compared to the prior week. While more cream was headed into the holiday weekend, most reports suggested that cream to churns slowed quickly this week. Anecdotal reports suggest that cream demand is prevalent and that spot cream to churns is somewhat limited. That seems to pull more butter from cold storage for microfixing to meet nearby needs. USDA reports of weekly retail ads indicated lower prices and a higher percentage of ads – that could be similar to last year. Elevated demand could keep stocks limited at the end of the year – given recent production data. Global Dairy Trade (GDT) butter and AMF lifted 2.7% and 1.1%, respectively at the Sept. 5, event compared to the previous event.
US July butter production was 157 million pounds and 3.5% more than a year ago. YTD production is up 4%, which continues to indicate a possible YoY switch from AMF to butter earlier this year. California’s butter production dropped 6% – a sizeable decline. The YoY increase was modest and consistent with the five-year average. Seasonally, US butter production is headed to its low point in August.
US butterfat imports decreased in July, with volumes totaling 14.5 million pounds – 15.2% less than last year. That performance was a good-sized pick-up from June, but the trend of slowing imports continues. Still, YTD volumes are running 17% more than last year. US imports from Ireland dropped, down 57% vs. last year. Higher prices could be taking a toll on demand. Imports from New Zealand continued to improve vs. last year; India was comparable to last year. US butterfat exports remain muted, with volumes totaling 7.6 million pounds and 54.2% less than last year. Given the US premium to world prices, the performance was not surprising. Exports to Canada were consistent vs. last year. Volumes to Mexico dropped. Exports to South Korea and Bahrain were negligible and a complete reversal from last year.
NDM/SMP
NDM spot prices were somewhat stable, considering this week’s futures market volatility. The week started with GDT SMP falling 1.2% below the previous event; WMP lifted 5.3% – a split result. Despite the mixed result, CME NDM futures dropped in response. A few hours later, the US Dairy Products report had some sizeable surprises, causing futures to arrest declines and turn higher. Prices continued to tack on more increases, clawing back lost ground on expectations of less NDM this fall and consistent exports. CME averaged $1.0869/lb, down 0.69¢ from the previous week. Some brokers are starting to look more seriously at purchases. Given the limited milk supply – NDM may be viable in cheese vats – especially considering spot milk premiums. Markets now believe prices could lift headed into the fall.
US July NDM production was 134.9 million pounds and a whopping 18.6% less than a year ago. YTD production is up 1.9%. SMP production was 62.6 million pounds and 2.6% higher than last year, suggesting some of the lower NDM production was 1) picked up by SMP and 2) there may be better demand prospects from SEA. MPC production was 16.3 million pounds and 5.7% higher than last year – another indicator that processors are slowing NDM for higher protein products. California’s NDM production dropped 33.6%; Pennsylvania dropped 5%. Those were sizeable declines and likely caused prices to recoup earlier losses. The YoY decline was the largest since 2016 – by double the 2021 decline. That could be supportive of prices. Seasonally, US butter production is headed to its low point in August.
US manufacturers’ NDM stocks decreased in July, with volumes totaling 283.3 million pounds – 5.2% lower than in June and 15% less than last year. That decline was only the second June to July stock decline since 2016 – 2021 was the last time stocks dropped. Production declines caused day on hand to jump to 65, suggesting there are still stocks that the market needs to work through before prices can pick up faster. That said, the significantly lower production from California, likely New Mexico, Texas, and Pennsylvania could cause stocks to drop quickly into the fall. Output in other western states increased 3.8% in July, offsetting some of the declines elsewhere (ID, AZ, WA)
US NDM/SMP exports were consistent, with volumes totaling 144.5 million pounds and 2.8% more than last year. YTD exports are trailing last year by 0.2%. Exports to Mexico and the Philippines were comparable to last year. Volumes to Indonesia dropped. Exports to Vietnam are up nearly 3X.
Whey & Lactose Products
CME whey prices increased through mid-week but pulled back after news of disappointed whey exports and lower volumes to China surfaced. CME whey averaged 31.31¢, up 2.01¢ from the previous week. DMN Central mostly whey averaged 28¢, up 1¢ from the previous week. Western mostly whey averaged 33¢, down 1¢ from the previous week. Lactose continues to appreciate, up 0.5¢ to 23¢ this week.
While there are some reasons to be optimistic whey prices – like rising EU-27 prices and tighter WPC80 markets, lackluster exports weighed on markets this week.
US dry whey production was 87.2 million pounds in July 3.4% more than last year. US WPC (25-49.9%) production was 13.5 million pounds and 13.4% more than last year. US WPC (50-89.9%) production was 26.8 million pounds and 9.3% more than last year. US WPI production was 9.2 million pounds and 19.3% less than last year.
US whey stocks were 86.9 million pounds on July 31, up 20.6% vs. last year. US WPC (50-89.9%) stocks were 48.4 million pounds and 8.5% less than last year. More stocks on moderating production may have weighed on prices this week.
Trade data likely cool market enthusiasm this week. US July 2023 whey exports were 25.5 million pounds and 41.8% less than last year on lower volumes to China, Canada and throughout SEA. US July 2023 WPC/WPI were 12.6 million pounds and 2.6% less than last year.