Weekly forecast update – Apr. 22, 2022

Forecast updates

  • Updated Q2 outlook based on spot market fluctuations and Global Dairy Trade (GDT) results this week.
    • Cheese markets are lower, but prices, for a time, could stay elevated in the early May pricing period (final week of April). Anecdotal reports suggest the market is balanced to modestly over-supplied. Still, the impact on the spot price appears to be less consistent – meaning there could be periods of imbalance rather than consistent imbalance.
    • Still, cheese demand remains robust, and exports are performing well. That may mean the market shrug off the spring abundance as summer approaches.
    • Butter markets pulled back this week following GDT lower. More cream is headed to churns, which is expected to persist for the next few weeks. That could cause prices to ease. So far, there has been good buying support in the low to mid $2.60s. Still, low butter stocks could support the market and price push higher once ice cream season kicks into full gear. Due to erratic and winter-like spring weather patterns, that has been slow to materialize.
    • Reduced Q2 and Q3 NDM price outlook. Although the forecast is lower, it remains at or above the current spot and futures outlook. There are some temporary demand impacts from China’s zero-COVID lockdown (see below), but milk production remains lackluster and more milk is headed to cheese – which could cause milk powder prices to rise during the second half of the year.
    • No changes to the whey outlook.
    • Adjusted buttermilk powder to follow butter and NDM lower during Q2.
    • Slowed the WPC price forecast as NDM prices moderate – that could cause that product’s demand to ease for a time.

Fluid Milk Market

USDA released the Advanced milk prices for May. The Class I base price is $25.45/cwt – $1.07 more than the prior month and the highest Class I price since federal order reform. Class, I base increases may moderate through Q3 as Class III and IV prices reset lower in late April. However, if US dairy product prices approach those in Europe and New Zealand – Class I base milk prices could push higher during the second half of the year.

USDA announced US March 2022 milk production at 19.69 billion pounds, 1.43% more than February on a daily average but 0.54% less than last year. US milk output is 1% less than last year through the first quarter. USDA revised its February milk production higher. The US milking herd totaled 9.395 million head – 87,000 fewer cows versus previous year. While less than last year, there are 22,000 more than at the end of the year. Output-per-cow was 2,096 pounds – 0.35% more than last year. Few states have an output that lags previous year. Only four of the 24 reporting states had a growth that exceeded 1% – the remaining four states in positive territory were between 0 and 1% more than last year; all of the remaining reporting states fell below last year’s output.

New Zealand also reported its March milk production at 3.99 billion pounds – 1.9% less than before. That puts Q1 2022 milk 5.6% behind last year’s pace.

Cheese Market

CME cheese markets dropped mid-week only to recover some of the lost ground by Friday. In the end, blocks averaged $2.3695/lb, up 3.39¢ compared to the previous week. CME barrels averaged 2.3785/lb, down 1.03¢ versus the last week. The contrary movements resulted in the spread compressing to 0.9¢ and blocks resuming the premium after the mid-week shuffle. Likely the GDT results influenced some of the sell-side pressure. Commercially markets appear broadly balanced; however, there are some reports that the market trends toward imbalanced – meaning there is some cheese available, but most can find a home readily. There are some concerns that interest could slow in the coming weeks resulting in some price depression periodically.

USDA announced on March 31 cheese stocks were at 1.458 billion pounds – 0.74% less than the previous year. American cheese stocks were 822.2 million pounds – 1.46% less the last year. That was a sizeable month-to-month decline accounting for most of the declines and notable as February to March stocks typically expand at this time of year.

Butter Market

After the Global Trade Auction, butter and AMF prices decreased, and CME spot butter and futures markets headed lower. Spot and futures markets moved lower throughout the week, with trading volumes picking up. CME butter averaged $2.707/lb – down 6.49¢ compared to the previous week. Cream multipliers weakened also. Given more cream headed to butter churns until ice cream season gets underway, markets seem to be taking a step back to reassess supply and demand. For now, markets are taking cues from GDT – but stocks, output, or exports will need to increase to change the outlook for less butter during the second half of the year.

According to USDA’s latest Cold Storage report, US butter stocks were 283.1 million pounds on March 31. That was 20.4% less than the previous year. Stocks between February and March expanded by 20 million pounds – that was above the five-year average. Still, stocks are less than a year ago level.

Europe produced 335.5 million pounds of butter in February, 12.4% more than January on a daily average and 1.5% more than last year, with Ireland yet to report. Year-to-date production is still less than the same period the previous year by 3.4%, but if improvement continues, that deficit could quickly reverse. Interestingly Germany produced 63.6% more butter in February than last year – with a 63.6% increase driving most of the gains. Most other nations hovered near unchanged.

NDM/SMP

Spot NDM declined 3.29¢ averaging $1.789/lb – that was the lowest weekly average since early January. This week, markets fell back after the unexpected 4% decline in the GDT SMP price. Seasonally, milk production in the Northern Hemisphere is rising. Add to that reports that demand from China is easing, is starting to weigh on prices and put downward pressure on markets. Certainly, milk headed to driers could remain elevated for four to six weeks.

Most milk powder data came from overseas this week – with mixed results. China’s March SMP imports totaled 50.7 million pounds and 27% less than last year. Markets may take that news negatively as an indication of slowing demand. The performance was consistent with the five-year average pace for March. China’s March WMP imports totaled 128.1 million pounds – 29.8% less than last year but well ahead of the five-year moderate rate. Last year’s imports were the second-highest for March. While March was a strong performance, it was less likely one that could cause markets to pause for a time. China’s demand slowing at this pace could more than offset lower milk production – a factor that could pressure prices lower and currently impact price outlooks.

Whey & Lactose Products

CME and Dairy Market News (DMN) whey markets found some support this week, with CME prices averaging 62.67¢, up 0.17¢ compared to the previous week. DMN Central range whey prices averaged 64.25¢, unchanged from the last week. DMN West range whey prices averaged 65.5¢, +1¢ from the last week. Reports indicate that WPC and WPI prices and demand are holding up, which continues to support costs; however, demand from China continues to send an undercurrent of concern as imports ease.

China’s whey imports dropped by half in March. Imports totaled 83.4 million pounds – 50.1% less than last year. Imports from the United States accounted for nearly half of the total; however, volumes dropped by 44%, likely due to recent price softness.