Weekly forecast update – Apr. 29, 2022
Forecast updates
- Performed a monthly recalibration of the model based on actual price releases and the April averages.
- Adjusted cheese.
- Reduced the Q2 forecast remains above-average but less as more cheese may be available to the spot markets during Q2.
- Increased the Q3/Q4 outlook slightly and reduced the block-barrel spread.
- The block-barrel spread remains limited – it could widen by Q4.
- Demand for cheese domestically and exports remains robust, leading to higher prices during the second half of the year.
- Adjusted the cheese 2023 and 2025 prices higher. Given the current inflationary pressures, Ceres expects prices to be less than the 2022 average, but they could remain elevated compared to the five-year average.
- Milk prices could be higher due to soaring on-farm costs.
- The cost of processing remains elevated.
- Price hikes at retail are unlikely to retract.
- The higher 2022 cheese forecast could be at risk should Europe opt to make more cheese vs. SMP, given the cost of natural gas in Q3.
- Adjusted butter lower.
- While Ceres still expects prices to reach $3/lb this year – that has been pushed until Q3 2022.
- Reduced the Q2 forecast. Fundamental data is little changed, but sentiment, for now, could result in lower prices through the spring. World prices are taking a slight step back – that could reduce the ceiling for a time.
- Adjusted NDM and whey lower.
- Like cheese, the SMP forecast could be subject to risk should the EU curtail SMP production due to higher natural gas costs this summer.
- Reduced whey – China has been reformulating away from whey to permeate and lactose – which has helped lift the lactose outlook slightly and reduce whey to the mid-to-upper 60s through most of 2022.
- Reduced NDM for Q2 and into Q3. Ceres increased late Q3 into Q4 prices. Given current weather patterns, New Zealand could have another slow start with a third consecutive La Nina weather pattern later this year.
Fluid Milk Market
Milk price announcements and news were quiet this week. While European milk production lifted in February, the European Commission forecast lower output this year. At this week’s ADPI Annual Meeting, Mary Ledman with Rabobank suggested that Europe could experience a 0.5% decline for the foreseeable future. It makes sense given European policies targeting significant reductions for animal agriculture, including dairy. That could present opportunities for US exporters as New Zealand and Europe grows milk production slower through the decade. That also implies more competition for US milk and the potential for higher milk and dairy product prices moving forward. That may also indicate using the five-year average for budgeting may not be advisable for the next budget cycle as the last five years may not be indicative of the following five.
Cheese Market
CME cheese markets remain elevated, but prices took a step back this week, with barrels moving lower and blocks ending the week nearly unchanged. Blocks averaged $2.3695/lb – unchanged. Barrels averaged $2.354/lb – 2.45¢ less than the previous week. That put blocks ahead of barrels and the spread at 1.19¢ – below historical averages. Market sentiment remains consistent mainly with Cheddar cheese – markets are mostly balanced, but most believe there could be periods when a bit more cheese heads to Chicago throughout the spring. Futures are still in the upper $2.30 through Q3 but hesitant to move above the $2.40 mark.
Most of the anecdotal reports indicate that foodservice demand this spring remained well above expectations and did not suffer from typical downturns. Blackbox Intelligence reported March sales up 7.2% and foot traffic down 1.7% compared to last year. Inflation and higher labor costs are driving tickets higher, foot traffic, while less than last year, remains an improvement to February. February experienced significant declines due to reports of slower in-restaurant dining caused by the uptick of Omicron. Those reports are consistent with earlier reports that foodservice demand remains elevated.
Butter Market
Butter spot and futures took a sizeable step back this week. Futures markets shed 10-15 cents this week, with prices averaging mid-$2.60s. CME butter averaged $2.6465 – down 6.05¢ from the previous week. Cream continues to move to churns reliably this spring, with some western cream finding its way to the Midwest for processing. Although transportation costs are high, some report they stepped back recently, permitting cream to travel further distances. That said, most are reporting that butter continues to move easily, and cream can sometimes be spotty headed to churns. Essentially, market fundamentals are unchanged, but it is spring and butter churning that should reach a peak over the next four to six weeks.
There was little domestic news this week – most came from overseas. New Zealand exported 105.4 million pounds of butterfat in March – 2.5% more than the previous year and 9.8% higher than February on a daily average basis. That also outpaced the five-year average of 90.6 million pounds for the month. Exports to China were up 6%, suggesting that China’s demand into Q2 could remain higher than last year. Given the increase in China’s bakery industry and demand, it could keep moving up. Exports throughout Southeast Asia were mostly higher. Export to the Middle East slowed – given the cost of New Zealand butterfat, that comes as little surprise.
NDM/SMP
Spot NDM declined on Monday, with the sell-off continuing through most of the week. While most reports at the ADPI conference provided a measured review of NDM/SMP – even bullish through the end of the year, futures markets started to sell off on Monday, and that continued through most of the week. That said, markets eventually found support with buyers returning. CME NDM prices were $1.737/lb – 5.2¢ less than the previous week. After tumbling to $1.70, prices ended Friday at the same level as Monday. NDM futures traded in the upper $1.60s for a short time, but prices quickly found support and returned to the mid-to-upper $1.70s by Friday.
Most milk powder data came from overseas this week – New Zealand exported 92.2 million pounds of SMP in March – 30.3% more than last year and the highest for that month during the previous ten years. That surpassed the five-year average of 72.8 million pounds. Exports to China fell 9.5% behind last year’s pace – which suggests that the slowdown from China will seep into Q2. Exports throughout Southeast Asia soared. Most volumes were higher -, and the data is somewhat consistent with the GDT results suggesting other regions are restocking and picking up more products; however, New Zealand is moving more products commercially, given the recent price declines and slower movement of products through GDT.
Whey & Lactose Products
CME and Dairy Market News (DMN) whey markets turned lower again this week. CME whey averaged 58.9¢, down 4.8¢ from the previous week. DMN western mostly remained unchanged at 65.5¢; Central prices fell 1¢ to average 63.5¢. Reports at ADPI were mostly pessimistic, with many indicating China was actively reformulating hog rations away from whey and toward permeate as margins remain low. At the same time, most anecdotal reports suggest that WPC and WPI markets are steady. The recent run to 80¢ whey created issues for those processors. A return to the 50-60 cents per pound should return margins for WPC and WPI.