Weekly forecast update – Apr. 2, 2021

Forecast updates
Adjust prices for spot markets.
Reduced Q2 cheese and butter prices – expect higher milk supplies and restocked foodservice channels could temporarily reduce demand.
Increased 2H 2021 prices for most dairy products.
Increased whey and whey derivative forecasts – stronger demand could result in higher prices.
All modifications resulted in changes to milk prices.

Fluid Milk Market
USDA announced the March 2021 Class III and IV this week at $16.15/cwt. and $14.18, respectively, that was $0.40/cwt. and $0.99/cwt. more than February. Higher spot cheese, butter, and whey markets helped to lift prices. Futures are forecasting even higher prices in Q2 forward. That said, spring flush is just beginning, and milk production is starting to pick up. USDA has placed several Section 32 orders, but food-box deliveries will reach their final weeks this month. More milk and moderating government demand could create some modest imbalance. Still, markets expect more demand in the second half of the year.

On Wednesday, USDA shocked markets when it announced planting acres well below market expectations. That sent corn and soybean markets to their daily limits higher. The JUL21 corn contract set a new high this week – that could pressure farm margins this summer for those that did not secure contracts. That same day, CME dairy futures moved up also.

Cheese Market
In shortened holiday trading week, blocks and barrels ended the week on an uptick. CME blocks averaged $1.7519/lb, which was 3.89¢ more than the previous week. Trading was a bit higher, with 11 loads changing hands. Cheddar barrels averaged $1.488, 4¢ more than the prior week. While prices are still lower than those in mid-March, they appear to be recovering from recent lows. Reports suggest that demand remains positive with Section 32, food-box and retail orders with some pick-up in foodservice business. The restocking of foodservice supply lines may explain recent price strength.

The USDA released February cheese production this week. Cheese output totaled 1.04 billion pounds – that was 1.7% more than January, on a daily average basis and 4.7% more than last year after adjusting for leap day. That wider YoY gap is likely to persist and even widen throughout the year as the Michigan cheese plant continues to ramp up. American cheese production was 425.4 million pounds and 5.25% more than last year. Cheddar cheese accounted for 301.6 million pounds of that output – it was also 3.3% more than last year. Italian cheese was up 2.7% compared to the previous year, with production reaching 444.3 million pounds – which broke a lower output trend. Mozzarella production was 347.5 million pounds and 1.9% more.

Butter Market
Butter markets continued to surge this week, ending at $1.845/lb. In the end, CME spot butter averaged $1.8194 with 19 loads trading. That was the highest weekly average since June 20, 2020. Prices are moving higher quickly on expectations that stronger foodservice and USDA orders could put a significant dent in the 350 million pounds of butter in warehouses this spring. Still, many are wondering whether markets maintain their current trajectory after the Easter Holiday.

USDA released February butter production at 185.6 million pounds in February – that was 2.2% above last year, but 1.97% less than January on a daily average basis. Given the slowdown in production and increase in MTM stocks, that may suggest demand eased. Seasonally, that is consistent with past trends but somewhat incompatible with the recent surge suggesting the price rise is predicated on forecasted demand vs. actual demand. Western states produced 1.3% more butter compared to February 2020 after adjusting to leap day. Central states increased 4.3% while Atlantic states were 1.3.% less than last year.


CME NDM prices pushed higher with the shortened holiday week trading ending at $1.19/lb. NDM averaged $1.1825/lb. with eight loads trading – that was 2.65¢ more than the prior week. The recent surge could result from more interest in US milk powder, and European shipping could remain jammed as the world unravels the Suez Canal mess. Additionally, some reports of a small Algerian tender with US and Turkish suppliers receiving the bulk of the award. Higher NDM prices could raise Class I and II skim prices this year compared to last year.

Manufacturers produced more NDM vs. SMP in February – that could reflect high milk intake or continued struggles to obtain shipping equipment causing manufacturers to seek safer products. In February, the United States produced 186.3 million pounds of NDM – that was 4.14% more than January on a daily average basis and 21.2% more than last year after adjusting for leap day. SMP production totaled 29.6 million pounds – that was nearly 9% less than January and 20.3% lower than year-ago levels. California produced a whopping 34% more NDM than last year due to lower SMP and generally higher output.

Manufacturer held stocks expanded to 345.61 million pounds –13.3% more than January, representing a typical seasonal build and 8.6% more than last year. As a percentage of production, total stocks are less than the past two years, but in absolute terms, current stockpiles are the highest privately held stocks for February on record. This likely reflects the shipping issue with stocks rising in the United States and falling elsewhere.

Whey & Lactose Products
CME whey pushed even higher this week, topping out at 66¢/lb – that resulted in a weekly average of 64.44¢, 2.29¢ more than the previous week. China’s demand is keeping markets undersupplied for now, and that is lifting pricing higher. Elevated whey prices are contributing to higher Class III skim prices this year compared to last year.

US sweet whey production totaled 75.9 million pounds in February – that was 4.9% more than last year. Stocks were 70.4 million pounds – 5.5% less than last year. That suggests a lot of product is moving off-shore. Lactose had a similar performance, with production up 0.3% vs. the previous year and stocks nearly 17% higher, but 6.8% less than January. WPC combined production totaled 39.4 million pounds, 8.9% more than last year –stocks are marginally higher 0.2% – suggesting good demand.