Weekly forecast update – Apr. 15, 2022

Forecast updates

  • There was little news out this week, leaving markets at similar levels to last week.
  • Adjusted cheese markets higher.
    • Increased blocks and barrels through Q3.
    • Reduced the block-barrel spread through November.
  • Adjusted whey prices modestly higher through Q3.
  • Adjusted NDM prices in Q2 lower.
    • Recalibrated some NDM prices based on current markets.

Fluid Milk Market

Weather was wild, with winter-like conditions in the west that eventually spread across the week. Spring looks like it may make a reappearance next week. Still, some anecdotal reports suggest milk is starting to increase seasonally – and, in a few instances, beginning to create a wider gap compared to last year. While some cows are available, most producers are looking for those milking as the cost is $2,000/cow or higher. That is making some reluctant to add new animals out of concern that prices could drop within the next 12 months making the cows expensive and challenging to achieve a positive return over their lifetime.

Milk headed to bottling should pick back up after the Easter holiday; however, within weeks, bottling could experience slowdowns as institutional uses from universities and colleges begin to retreat as schools head into the summer break. That will be followed by elementary and high schools letting out starting at the end of May through mid-June. That could push more milk to manufacturing plants over the next six to eight weeks.

Cheese Market

This week the block-barrel spread flip flop continued. On Wednesday, barrels surged ahead of blocks. By Thursday, blocks recaptured the top position, with markets rising 11-cents. As of late, the recent run appears to be traders taking advantage of tighter markets. Still, reports indicate that there is a lot of cheese trading off-market and that demand remains robust. This is the first foray into the $2.40s since the fall of 2020. This week’s blocks averaged $2.3525/lb – 5.95¢/lb. Barrels were $2.3719/lb and 7.04¢ higher than the prior week. The block-barrel spread has narrowed considerably compared to recent years, with barrels equal to blocks so far in April. The tighter spread makes it more costly as the cheese milk value could be higher than the prevailing spot markets.

US domestic cheese commercial disappearance accelerated in February compared to last year. Commercial disappearance at 1.11 million pounds – up 6.8% compared to the previous year. American style cheese commercial disappearance was up 7.2%; other cheese 6.5%. That was the first time February crossed the billion-pound mark. While IRI scan data indicates that cheese sales in the dairy case are moving slowly – those in the deli case continue to push ahead. It seems a lot of this use could be foodservice and institutional uses. That lines up with reports that orders remained elevated, and the typical February slowdown was absent this year.

Butter Market

CME butter markets were subdued and eased headed into the holiday but maintained a higher price than the previous week. CME butter markets averaged $2.7719/lb – 2.89¢ more than the last week. There were reports of more cream headed to butter churns the previous week, which is expected to continue next week. Cream multipliers eased with western multiplier retreating to the teens. Between now and the beginning of ice cream season, more cream should move to churns helping to build the supply for the end of the year. While the cream is headed to churns, anecdotal reports indicate that overseas and domestic demand remains elevated, which could keep the butter from headed to storage uncommitted.

US domestic butter commercial disappearance slowed considerably in February compared to last year. Commercial disappearance at 145.5 million pounds – down more than 13% compared to the previous year. That would be the slowest consumption of butter in February since 2017. The data may represent fewer sales at home or a different type of product like AMF, which likely would not be picked up and represented. That could be a significant percentage of production. AMF doesn’t show up in production data – but it probably shows up in some cold storage reporting. This year, the data mismatch could provide buyers with a false sense of security related to butter availability.

NDM/SMP

Spot NDM prices were stable this week. Data continues to conflict this week. European prices moderated slightly. Reports indicate that Mexican demand remains limited, which seems to be troublesome for US milk powder manufacturers. At the same time, reports from Europe suggest that sales slowed headed into Easter but that manufacturers were not concerned or motivated to sell the products as they are well committed. At the same time, China finally released its stocks of WMP and SMP – both are higher than year-ago levels, and there are reports of more milk headed to drying as the nation grapples with widespread lockdowns due to the latest Covid-19 variant outbreak. Spot NDM plotted a steady course with prices averaging $1.8219/lb – 0.71¢ lower than the previous week.

US commercial disappearance was 32.5 million pounds – minimal, but 78% higher this February than last year. That helped offset the export market’s decline in February, taking total commercial disappearance to 172.3 million pounds – compared to 176.1 million last year. While behind, it was not as extreme as the export data would suggest. Additionally, the gaps could be related to fewer products available to market this year than last year.

Whey & Lactose Products

This week, CME and Dairy Market News (DMN) were mixed as the market sorted out the latest news impacting prices. CME averaged 63.5¢, 2.15¢ more than the previous week. Markets remained unchanged throughout the week, with just two loads changing hands. DMN western mostly prices averaged 64.5¢, down 1.75¢ versus the prior week; Central mostly prices were 64.25¢, down 0.25¢ compared to last week. It appears markets have found a level of support and could turn higher. Futures are forecasting a return to the upper 60s – through Q3 2022. Given reports that WPC and WPI prices remain supported and higher European prices, it seems reasonable to expect a modest increase.

In February, whey commercial disappearance increased 12.5% compared to last year. WPC (combined) rose to 20.1 million pounds and 53% more than last year – that, combined with exports, pushed demand higher. Reports of infant formula shortages in the United States could be lifting domestic demand as processors look to return the product to store shelves. Recent recalls are blamed for the shortages – causing a two-fold shortage – the product was destroyed and the product to replace. Currently, retailers are rationing customer purchases.