Weekly forecast update – Apr. 1, 2022

Forecast updates

• Based on reports reflecting mounting concerns about food scarcity, China locked down Shanghai this week, resulting in empty store shelves as people stocked up on food.
  • Increased the cheese and butter forecast.
    • Higher overseas’ prices and demand could result in more significant export volumes this year.
    • With milk production well behind last year’s pace and demand still robust, that could result in markets that remain well above the five-year average for much of the year.
  • Maintained an elevated NDM outlook – raised 2023 forward – still less than this year.
    • As milk production remains off-pace, NDM and SMP output could continue to decline. Given the need for food and considering concerns from Ukraine, NDM and SMP could be in demand in the Middle East and North Africa this year.
  • Reduced the whey forecast based on recent declines.
  • Buttermilk forecast increased following butter, and NDM higher.
  • Lactose forecast increased modestly.

Fluid Milk Market

USDA announced the March 2022 Class II, III, and IV milk prices. Class III milk was $22.45/cwt – up to $1.54 from the prior month. Class IV milk was $24.82, up to $0.82 over the same period. Seasonally, milk is still climbing, but there are concerns that intake is still less than last year. That has increased competition among cooperatives and processors to attract milk. Some are worried that milk could become tight once the spring flush passes.

Internationally, there are few changes. This week USDA released the Planting Intentions report – indicating 4% fewer corn acres this season than last season. Grain markets raced higher immediately, pulling milk futures up again. Some expect markets to correct lower forecasting higher acres than reported. Shifting between crops could be less this year if farms don’t already have their fertilizer.

Cheese Market

CME spot cheese prices dipped on Tuesday, following corn markets lower. There was news of peace talks between Russia and Ukraine that caused oil prices to drop 7%. That sent other commodities down. That may have been an opportunity for buyers. By Wednesday, markets were recovering and moving higher again. CME blocks averaged $2.331/lb – 1.05¢ more than the prior week. Barrels averaged $2.211, up 3.36¢ compared to the preceding week. Reports continue to indicate that foodservice orders remain robust. There are also indications that interest in US cheese for export is high, providing processors considerable opportunity.

USDA released February cheese production at 1.19 billion pounds – 6.3% more than the previous year, a sizeable increase. Nearly all reporting states reflected higher YoY output, with Vermont as the lone state with lower production than 2021. That was the most significant YoY increase for February over the last five years. Cheddar cheese production rose 3.9% to 334.6 million pounds. California’s Cheddar production declined 4% compared to the previous year – but that was more than offset by the Upper Midwest gains. Mozzarella cheese production totaled 386.6 million pounds and 4.4% more than last year. Given the sizeable increase in production, the minimal increase in stocks suggests sales were swift.

Butter Market

CME butter market plummeted on Friday, dropping to the lowest level in a few weeks. In the end, spot butter averaged $2.7155/lb – down 7.95¢ from the previous week. Reports around cream have been mixed this week. Some indicate renewed interest ahead of the Easter holiday; however, other reports suggest the Easter build started late. There could still be labor issues that are altering plant schedules resulting in surges throughout the system. Another cheese plant will be starting this spring, converting some cream from butter to cheese. While there is butter today, bids for international products continue to provide processors with alternatives – that could result in reduced butter availability later this year.

USDA released February 2022 butter production at 183.6 million pounds –1.43% less than the previous year. That was a smaller YoY gap compared to January. There were some rumors that butter production may be unexpectedly higher than most thought – it seems to have come to fruition. Despite higher output, the gap between last years and this year’s stocks expanded – meaning there is less product on hand. Again, that seems to indicate more product moving and good sales.

NDM/SMP

Spot NDM eased into the end of the week, reaching some of the lowest levels in March. Trading volumes increased with 22 loads changing hands. CME NDM averaged $1.8415/lb – 2.35¢ less than the previous week. While reports indicate good overseas’ interest in US products – moving products through the spot market may be faster to make the sale. This week’s CME declined open the gap between the US and world prices – all of which increased this week. Still, it is spring flush, and more milk is headed to manufacturing. Overseas reports suggest that there is currently very little product on offer from Europe and New Zealand.

USDA released February 2022 NDM production at 171 million pounds and 6.9% less than the previous year. SMP output was 29.6 million pounds and 6.4% less than last year. California produced nearly 7% less NDM compared to the previous year. In part, that could be from producing more SMP, but overall that would suggest more milk moved the cheese production.

Manufacturers’ stocks of NDM totaled 288.8 million pounds on February 28 – nearly 16% less than the same period last year.  The January to February build was slightly ahead of the five-year average pace. The YoY change was the most significant decline in the previous six years.

Whey & Lactose Products

CME whey markets continued to slide this week. Prices averaged 67.15¢, 7.45¢ less than the prior week. Dairy Market News whey prices slipped also. US whey prices should find some support as prices have moved below European prices. Still, there are reports that the returns on WPC remain at issue due to the high other solids costs. Resetting the whey prices lower may help to reduce those issues. Lactose prices continue a slow climb higher.

USDA reported February 2022 whey production at 73.7 million pounds – 0.7% less than the previous year. Lactose production was 92.9 million pounds – 17.4% more than last year. WPC (25-49.9% protein) totaled 16.8 million pounds – 20.5% more than last year. WPC (50-89.9% protein) totaled 30.4 million pounds – 28.7% more than last year. More whey solids are headed to WPC.

On February 28, dry whey stocks totaled 63 million pounds – 9.9% less than last year. WPC (25-49.9% protein) stocks as of February 28 totaled 23.3 million pounds – 12.2% less than last year. WPC (50-89.9% protein) totaled 44.3 million pounds – 9.9% more than last year.