Weekly forecast update- April 16, 2021

Forecast updates
Adjust prices for spot markets.
Made slight modifications to Q2 prices based on markets that are higher, but reflecting a slowdown increases and periods of decline that could cause prices to be modestly less than last week’s forecast.
Maintained Q3 forward forecast.
Fluid Milk Market
The weather is mixed, and it is having some impact on milk intake this week. In regions where the weather has warmed, like the Southwest and Southeast, milk is rising, and some spot product is available. In the Midwest, the variable weather may have temporarily slowed output as cows adjust to conditions. In the West, weather is above-normal that could cause intake to increase. Overall, marketers report that sales to bottlers slowed – but that may replacement versus lower demand as some of the plants sourcing from different groups. Distressed prices are still present, but some are reporting that the discounts were less this week than in previous weeks.

This week was the first of two reporting periods for the May Advanced milk prices. Presently, the May Class I advanced is forecast to be $1.50/cwt. higher than last month, with most of the increase coming from the butterfat price, some gain is attributable to the skim price. Rising butter and NDM prices could cause the Class I and II prices to increase.

Cheese Market
For most of the week, CME spot cheese markets were under pressure as sellers offered more cheese. After two weeks of market increases, prices succumb to sell-side pressure. Buyers returned on Friday, recovering some lost ground at the end of the week. CME blocks averaged $1.789/lb., down 1.05¢ compared to last week. While barrel prices slipped, they were still higher than previous weeks as news of more demand related to food-boxes, exports, and Section 32 purchases circulate. Barrels averaged $1.7025/lb. that was 11.9¢ more than last week. The block-barrel spread narrowed to 8.65¢ this week. Market news has not changed this week, order flow remains good, but supplies are available, leaving the markets tipped toward modest excess to balanced for now.

This week traders sought a press release from USDA about extending the food-box program. There were rumors on Monday that USDA quietly extended Round 5 boxes for those awarded contracts. On Wednesday, the market received the USDA press release. Still, to the chagrin of traders, USDA announced the termination of the Trump Administration food-box program next month after confirming that orders were extended through May. As expected, USDA intends to rely on more traditional programs like the Supplemental Nutrition Assistance Program (SNAP) and Women, Infants, and Children (WIC). That caused cheese and milk futures to retreat.

Butter Market
After pushing to $1.90/lb. CME spot butter markets eased again with just 13 loads changing hands. Q2 and Q3 cash-settled butter futures retreated, but all contracts are still trading around 10-cents more than the 90-day rolling average for those contracts. CME butter averaged $1.8810/lb, which was still 3.9¢ more than the previous week. While USDA is still reporting considerable amounts of butter in warehouses, market participants struggle to find processors willing to commit for extended periods.

Additionally, cream remains tight with multipliers above the five-year average in the Midwest and East. That is causing micro-fixing to start earlier than usual. For those reasons, it may be difficult for futures markets to fall without news from USDA about higher production or stocks, as buyers may feel they have missed the market. Higher futures could support the spot market – that could keep prices from falling substantially this spring.

The March 2021 restaurant performance confirmed widespread improvements relative to last year. Sales were +1.8%, and foot traffic was -9.41% vs. the previous year – lower, but by the lowest margin since the beginning of the pandemic and likely impacted by indoor seating restrictions. That translated into same-store sales up 62.3% vs. last year – making the 1.8% growth rate impressive. Some industry groups are positing that one-year after the pandemic, those restaurants that remained closed at this point are likely permanently shuttered. That is a loss of nearly one-third of the nation’s restaurants – something that could impact demand.

CME NDM prices are steadily marching higher. There could be some ups and downs this spring but based on current demand levels from Asia, those that can export products could see better prices. Still, some are reporting that containers are difficult to come by – that said, exports in February demonstrated that exporters were able to secure containers. CME NDM averaged $1.2105/lb. up 1.75¢. Still, some are reporting that there is some price resistance at current price levels. Dairy Market News mostly prices jumped this week to the $1.19 level – the was a 2-3 cent increase compared to the previous week. That was the highest weekly average since early 2020.

Domestic NDM commercial disappearance dropped to 17.2 million pounds in February – that was 54% less than the prior year after adjusting for leap year and the lowest shipments for February since 2010. The higher exports may be the result of a backlog, so that it could be altering the calculations. It is unusual for exports and stocks to increase in the same period – it is something that doesn’t happen often.

Whey & Lactose Products
CME whey prices returned to 66¢ this week, and that lifted the weekly average to 66.1¢, up 1.1¢ from the previous week on five trades. Dairy Market News central and western mostly prices increased this week, averaging 61¢ and 61.5¢, respectively. Lactose is once again moving up, rising to 45¢, up 0.5¢ from the previous week. News about China’s demand remains unchanged, and that is providing considerable support to markets.

The United States is not the only group benefiting from China’s demand for whey products. EU-27 and UK whey powder and WPC exports totaled nearly 130 million pounds in January – that was 21.4% more than last year and 8.4% more than December.