Weekly forecast update – Aug. 12, 2022

Forecast updates

·        No significant changes to forecast this week – updated for spot markets.

Milk Market

Milk reports were muted this week. The most significant reports included that drought may negatively impact EU milk output this summer; despite forecasts for reduced output, most expect that demand could slow to offset lower supply prospects.

Cheese Market

Sell-side pressure eased this week and CME blocks and barrels increased. Barrels recovered back to the $1.90s for a day, the block recovery was more modest. Over the past few weeks, sellers have been relentlessly taking prices lower. At issue, the products on offer are remote and have a steep transportation cost well in excess of the CME allowance or the product meets CME specifications, but remains largely unqualified as it is from a new production facility. That caused buyers to back away from the markets and for prices to drop more than fundamental data and commercial markets would have otherwise suggested. CME blocks averaged $1.822/lb, down 0.5¢/lb; barrels averaged $1.874/lb up 5.5¢/lb. That has left barrels 5.2¢ more than blocks this week. More stable and recovering spot markets lifted futures price expectations throughout the week.

Ceres estimates June US domestic cheese commercial disappearance at 0.9% less than the previous year – an improvement compared to other Q2 months. Commercial disappearance was 1.1 billion pounds in June and the second highest for that month over the last few years. YTD commercial disappearance is still 1.34% ahead of last year despite Q2 falling behind last year’s pace. It will be interesting to see if Q3 pulls ahead of last year despite higher prices and inflationary pressures. A year ago, markets cooled again as Covid-19 outbreaks cropped up, slowing travel, some states returning kids to full-time classes, etc. That, combined with higher exports, has kept cheese stocks higher but can absorb 100 million pounds of additional cheese output through the first half of the year compared to last year.

Butter Market

Spot butter prices were mostly steady until Friday – prices fell back 4¢ that day. CME butter averaged $2.9625/lb, down 6.55¢ from the previous week; however, prices were largely consistent with recent weeks. Trading volume increased to 34 loads -returning levels experienced in July. Butter futures ended the week mixed. While SEP22 futures increased, they are still expecting a 10-cent decline from current prices. Another round of bottling plant shutdowns has rerouted cream sales and that may have caused pockets of tightness. Add to that, seasonal heat has caused components to retreat leading to more cream to fulfill the current demand. Cream multipliers were consistent this week – but the market remains marred by intermittent outages in certain regions of the country. That could get worse as plants look to consolidate operations into the fall.

Ceres estimates US June butter commercial disappearance was 147.2 million pounds – 9% lower than the previous year. That broke the trend in Q2 with the first month to report a YoY decline. YTD commercial disappearance is running 4.5% less than the same period last year. Through June, US commercial disappearance consumed 42.5 million pounds less than the same period last year. Net trade removed an additional 57 million pounds of butter during the first half of the ear. That combined with 30 million pounds lower output helps explain why butter prices remain persistently high this year.

NDM/SMP

Like other dairy products, CME NDM prices recovered somewhat this week with prices returning to the low $1.50s. That caused futures to turn higher and erase much of last week’s losses. Still, prices remain below competitive overseas prices and futures continue to forecast substantial declines. Commercial disappearance remains below last year and there are widespread reports that milk is widely available, but just starting to tighten. There is still product available to the market, but slowing raw milk production here and abroad may begin to shift more milk to cheese vats and away from driers.

US NDM commercial disappearance in June totaled 62.8 million pounds – 2.6% less than the previous year. It appears some domestic buyers restocked on milk powders mid-year. That is generally the consensus globally – milk powders caught in the supply chain arrived at buyers’ plants, creating a temporary backlog for groups to work through. Add to that, many are trying to guess where demand will land at the end of the year or beginning of next year – that has worked to carve back some demand over the near term, which may explain the sudden and sharp price downturn in recent weeks. By mid-year, NDM commercial disappearance is running 61 million pounds behind last year. Given the protein value in Class III vs. Class IV, that gap could expand into the end of the year. A year ago, milk was tight, and cheese processors used NDM to standardize cheese vats – an event unlikely to reoccur this year. Exports removed 104 million pounds less than the same period last year through June. At the same time, US production is down nearly 150 million pounds vs. last year over the same time – that has kept the market largely in balance.

Whey & Lactose Products

CME whey averaged 44.2¢, up 1¢ from the previous week. DMN central mostly price was 45¢ down 0.5¢ from the previous week. Western prices were 48.5¢ this week, down 2.5¢. The lactose price was 45.5¢ this week, unchanged from the previous week. European prices lifted off the bottom with prices modestly higher, but unchanged from the previous week. Futures are forecasting prices above the current spot prices – in part that means that prices tend to drop slower than spot, in part they may expect a modest recovery.

Ceres estimates June whey commercial disappearance retreated 5.2% below last year’s levels. In total, commercial disappearance was 40.8 million pounds. YTD commercial disappearance was 19.2% more than last year. June reflects the second month with a YoY decline compared to last year.