Weekly forecast update – April 9, 2021

Forecast updates
Adjust prices for spot markets.
Increased Q2 cheese and butter prices, but still expect prices to retreat from current spot price levels. There are reports that product is available to the market and that more cheese will come from Michigan over the next few weeks that could go to the CME.
Adjusted NDM prices higher given more robust exports despite port delays.
Increased 2H 2021 prices for most dairy products.
Adjusted whey prices – in some cases lower.
All modifications resulted in changes to milk prices.
Class I is higher due to higher cheese prices, but mostly from higher Class IV expectations.
Class II is higher due to higher Class IV price expectations caused by rising NDM and butter prices.

Fluid Milk Market
Futures markets increased throughout the week, with most contracts reaching new highs. Since the end of March, Q2 Class III milk futures appreciated around 10% or $2/cwt. Class IV futures prices are also improving as butter and NDM prices increase. Simultaneously, there are reports of dumped milk and milk traveling longer distances to find processing. Given the rapid appreciation of spot prices, the distressed price discounts could become larger when capacity is limited. The weather is warming, and each week, milk is expanding, resulting in more dairy products and more reports of distressed and even dumped milk. While it took most of the year to get schools back into session – they will be winding down beginning in May – that will likely send more milk to manufacturing.

Internationally, New Zealand and Australia are winding down their seasons. Milk production is seasonally expanding in Europe, but milk remains near last year’s levels. Given current demand from Asia and the Middle East, that could continue to provide a floor for dairy product prices.

Cheese Market
Cheese markets rose to the highest level since mid-January on greater trading volumes. On Friday, 16 blocks and six barrels changed hands, and prices improved. Those increases have helped lift the futures markets and expectations of price for the rest of the year. Blocks averaged $1.7995/lb, +4.76¢/lb and barrels averaged $1.5835, up 9.47¢/lb. Foodservice orders are picking up; retail sales reportedly remain consistent, there are also reports of good export bookings and USDA order fulfillment all happening. Still, cheese output is rising, and there are no reports that cheese is difficult to obtain.

Despite issues at the port, the United States exported nearly 67 million pounds of cheese in February – that was 1% more than year-ago levels after adjusting for leap day. That was also more than the five-year average pace of 62.6 million pounds for February. Most of the cheese went to Mexico 28.35% – that was less than last year and likely still impacted by Covid-19. Exports to South Korea, Japan, and Australia were all higher than year-ago levels. Fresh cheese exports, including Mozzarella, totaled 26 million pounds and 19% less than last year’s volumes – that may explain some of the contraction in production. Cheddar cheese exports increased by 28%.

US cheese imports totaled nearly 25 million pounds. That was 25.3% less than year-ago levels – that is well below the five-year average pace of 31.3 million pounds for that month.

Butter Market
While some expected spot CME butter prices would decline in post-holiday trading, markets took a slight pause before advancing again by the end of the week reaching new highs for this year and the highest price since last June. CME butter averaged $1.8420/lb this week, which was 2.26¢ more than the previous week. Reports suggest that butter churns had to compete for spot cream this holiday weekend and that cream multiplier remains elevated – a complete reversal from a year ago. The East Coast may be starting to feel the new American-style cheese plant’s impact as butterfat gets converted to cheese. That has increased competition for the remaining cream along with its price. Less eastern cream, more exports, and higher food service and government orders could be causing capacity to remain limited. It may also get micro-fixing started early – a factor that could moderate current butter stockpiles.

The United States exported 8.5 million pounds of butterfat in February – that was nearly 89% more than last year, after adjusting for leap day and consistent with the previous year and well above the five-year average pace of 6.6 million pounds. While volumes to Canada and Mexico picked up – the increases were due to more product moving to the Middle East. This year US exports to Egypt were 858MT compared to less than 1MT last year. More butter moved into the Caribbean as well.

US butterfat imports declined in February to 7.6 million pounds – that was 26% less than last year, but 21% more than January on a daily average basis. That was less than the five-year average pace of 10.1 million pounds for that month. Imports from Ireland and New Zealand were consistent with last year’s volumes, but imports from Mexico, India, and Bangladesh declined, resulting in the year-over-year gap. That suggests less butterfat for processing (AMF) entered this year, indicating there is likely more domestic production and is a factor that could reduce stocks.

CME NDM has been mostly stable over the last week, but news of substantially higher US NDM/SMP exports, despite the container issues at the ports, cause spot and futures prices to move higher toward the end of the week. In the end, CME NDM averaged $1.1930/lb – that was 1.05¢ more than the previous week. While NDM/SMP output will rise seasonally and more milk will be available to driers, more robust overseas demand could support and even lift prices through Q2 and into the second half of the year. That higher milk powder price could push Class I and II skim values up later this year.

US exporter had a record-setting February by moving 158 million pounds of SMP overseas –35% above the previous year and well above the five-year average pace of 119 million pounds for that month. The price gaps between the United States and EU, and Oceania are helping to move product. That said, most did not expect a double-digits higher performance given the news about the ports. Still, a year ago, Asia was reeling from Covid-19, so improvement would not be difficult. Most of the milk powder moved to Mexico, and volumes were higher than last year. In total, exporters shipped 57.2 million pounds – that was 31.2% more than last year. Exports throughout Asia, including China, increased. Volumes to China jumped up from 209MT to 2457MT – 10X previous year’s volumes. US exports also shipped 1061MT to Algeria, confirming rumors of exporters secured smaller tenders.


Whey & Lactose Products
CME whey prices peaked at 66¢ this week, and then prices eased into the end of the week. Prices averaged 65¢ this week, up 0.56¢ from the previous week on a couple of 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. Furthermore, it appears China’s imports are helping to lift markets, which has added a considerable amount to the Class I and III milk prices this year.

US sweet whey exports totaled 40.8 million pounds in February – that was 26.5% more than last year and recovery back to 2018 levels. Those improvements were based on 2X whey headed to China – pre-African swine fever (ASF) levels. USDA still expects that China’s hog herd will expand further and peak some time next year – that provides quite a bit of price support for whey, lactose, and permeate. Whey has a new sub-category of deproteinized whey. Lactose exports totaled 55.6 million pounds – that was 16.6% less than a year, but 6.5% more than January on a daily average basis.