Weekly forecast update – Apr. 8, 2022

Forecast updates

• No significant modifications from last week.
• Updated for spot market activity.

Fluid Milk Market

Very little changed in markets this week. Winter still has a grip on a large section of the country, but spring weather conditions make inroads each week. Milk supply is seasonally increasing; however, there are still reports that some are concerned about supply later in the year.

US dairy producers have added new barns and can add new cows, although many are slow to fill barns with expensive cows. There is a notable difference in the cost of cows and original budgets. Some are slowly adding new animals, but many report the ramp-up could take much longer than usual. That could mean the YoY gap in cows could persist well into Q3 2022.

Similarly, reports from Europe indicate that milk prices, while high, are insufficient to encourage dairy producers to expand supply. There are mounting worries that feed, fertilizer, and the like could be scarce. At the same time, cooperatives are looking to keep cow numbers in check due to the Green Deal that is set to go into effect on January 1, 2023.

Cheese Market

CME blocks and barrels continue to flip flop, with barrels ending the week premium to blocks. Reports show barrels remain limited as more cheese heads to the export markets. Cheddar blocks averaged $2.293/lb – up 6.2¢ compared to the prior week. Cheddar barrels averaged $2.3015/lb – up 9.05¢ compared to the previous week. That left the block-barrel spread at -0.85¢. Trading volumes remain consistent with prior weeks. During the April 5 Global Dairy Trade (GDT) event, Cheddar cheese prices increased to $6,472/MT ($2.936/lb) – a record price. That helped lift cheese prices sentiment and likely sent spot Cheddar and futures contracts higher this week.

US cheese imports in February were 1.5% less than last year. Imports totaled 24.6 million pounds. Imports from Italy, Switzerland, and Ireland dropped. Those declines were offset mainly by increases in France, Spain, and the United Kingdom. Generally, there are reports that it is getting harder to move hard Italian cheese – that may account for some of the declines from Italy. Similarly, buyers could be swapping Irish cheese for British cheese.

US cheese exports in February totaled 73 million pounds – 9.2% more than the same period last year. Better exports and robust domestic demand absorbed a considerable amount of the new production. Exports to Mexico and South Korea were higher; however, they were much larger volumes to Japan (accounting for half of the YoY increase), pushing US export volumes up compared to last year.  US exports performed well in South America also. US exports to Oceania, UAE, and China slowed vs. the previous year. Cheddar and Mozzarella exports increased – that would account for recent tightness.

Butter Market

CME butter markets were lower throughout most of the week; however, prices surged to $2.7825/lb on Friday. That helped lift the weekly average to $2.743/lb and 2.75¢ more than the prior week. Trading volumes moderated a bit. GDT results for butter and AMF were lower by 0.6% and 2.5%, respectively – that result likely cast a negative sentiment over markets. Ahead of the Easter holiday, less cream moved to butter churns, and multipliers were steady to higher with some extremely high spot prices reports. Still, there was a significant sentiment shift this week, resulting in a downturn.

Exports continue to absorb more products, providing a good alternative for western butter processors. US February 2022 butterfat exports totaled 14.96 million pounds – 75.3% more than the prior year. Canada remains the top destination for US butterfat exports – 116% more than the previous year. The following three destinations accounted for about 50% of the YoY increase – Mexico, Bahrain, and the Dominican Republic. The most significant declines were in Egypt and Saudi Arabia.

US butterfat imports totaled 7.4 million pounds in February – 3.2% less than last year. Imports from Ireland, the United Kingdom, and New Zealand slowed, accounting for most YoY declines. France offset approximately half of those declines as imports increased. The United States made smaller inroads to several different destinations.

NDM/SMP

Spot NDM continued to track lower this week, with prices averaging $1.829/lb – down 1.25¢ compared to the previous week. Traded volumes were consistent with past weeks. US markets lost ground despite a higher April 5 GDT SMP performance, $4,599/MT ($2.086/lb). GDT WMP fell 1.5% – mainly due to the absence of Chinese buyers. European prices were higher again, but there were reports that Poland may be offering products below reported prices – that, along with spring flush, could temper additional runs higher. That news, combined with fewer US exports in February, precipitated a spot and futures markets sell-off. By mid-week, futures markets recovered nearly all lost ground.

Fewer exports in February shook markets on Tuesday, with a sell-off gaining momentum on Wednesday. In February, US NDM/SMP exports totaled 139.8 million pounds and 11.5% less than last year. That caused a significant sell-off of CME spot NDM and futures markets this week. Fewer exports to Mexico, Indonesia, Egypt, Singapore, and Vietnam drove the YoY declines. The United States exported less product to New Zealand – which was likely to backfill exporters’ needs in New Zealand. More volume to China partially offset some of these losses.

Whey & Lactose Products

CME and Dairy Market News (DMN) whey markets had another lower performance this week. CME whey averaged 61.35¢, down 5.8¢ compared to the previous week. Prices dropped below 60-cents on Wednesday, only for markets to mount a recovery into the end of the week. DMN Central range whey prices averaged 66.25¢, down 6.5¢ from the previous week. There are reports that whey in the mid-60s is getting more challenging to move. While WPC and WPI prices and demand are holding up – there are some reports of new whey powder capacity coming online – that, along with slower exports, may pressure markets lower.

US whey exports in February totaled 32.5 million pounds – 20.4% less than the previous year on significantly lower volumes to China. US WPC (<80%) exports in February totaled 29.5 million pounds – 1.3% less than the last year. US WPI (>80%) exports in February totaled 12 million pounds – 5.7% less than the previous year.