Weekly forecast update – Aug. 19, 2022

Forecast updates

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

·        Continue to maintain a similar outlook for fall markets – a modest recovery before a more significant decline possible at the end of the year.

Milk Market

AMS released the September Advanced prices this week. Class I milk is $23.62/cwt – down $1.51 from August. That is the lowest Class I skim value this year, combined with the highest butterfat price. Still, it is the first time Class I milk has been below $24/cwt since April. The Class II skim price is $14.52/cwt – down $1.01/cwt and the lowest since February 2022. Lower milk and dairy product prices are providing consumers some relief, as it appears the peak prices have passed. That said, current demand levels and uncertain supply conditions could cause prices to lift from current futures market forecasts.

On Friday, Russia announced that it would shut down the Nord Pipeline again for three days at the end of the month. This was unplanned and heightened concerns that Russia may again reduce capacity.

Cheese Market

CME spot markets started the week on an up note, but blocks began to fade by mid-week with barrels following toward the end of the week. Blocks remained below $1.90/lb throughout the week with prices averaging $1.871/lb, up 4.9¢ from the previous week. Barrels slipped below $1.90/lb on Friday with prices averaging $1.937/lb, up 6.3¢. That left barrels premium to blocks – where they have been for a while. The block barrel spread was 6.6¢ last week – implying that the NDPSR price could be higher than commercial prices given the 3 cents added to barrels. After the weaker end to trading on Friday, CME cash-settled cheese futures dropped.

Domestic cheese news was quiet this week with most news coming from Europe. EU cheese prices are starting to firm – something that could keep US cheese exports flowing through the end of the year given the price disparity between the two regions.

EU27 June cheese production was 1.6 billion pounds for reporting countries (Ireland, Spain, and Sweden yet to report). That was 0.4% more than the previous year, which is likely the reason prices remain stable to support. France and Germany reduced output by 3.2% and 5.1%, respectively. Those declines were offset by higher output from Italy and Poland, up 6.8% and 2.4%, respectively.

Butter Market

Spot butter prices peaked mid-week at $2.99/lb before easing into the end of the week. Spot butter averaged $2.9665/lb , up 0.4¢ compared to the prior week. Trading volume picked up again this week, with 21 loads trading on Tuesday and 48 for the entire week – the largest trading week in August. Butter markets remain largely balanced, and that continues to explain why prices are trading in a tight range and are expected to do so for the foreseeable future. Despite lower spot trading at the end of the week, futures ended the week higher – with SEP22 closing the gap on AUG22. GDT butter prices ended $5,204/MT ($2.30/lb 80% bfat equivalent) +0.2% vs. the previous event. AMF prices slipped 9.8% to $4,990/MT ($1.83/lb – 80% bfat equivalent). That may support some reports that US AMF users are booking NZ imports for Q4 2022. Higher butterfat imports could cause markets to shift quickly toward the end of the year.

EU27 June butter production totaled 381.2 million pounds, 0.7% less than last year (Spain and Sweden yet to report). Higher Polish production, up 14.3%, was offset by lower production from Ireland, down 7.1%. Belgium was a tiebreaker down 13.5% compared to last year. Over the last two months, European butter output is closer to unchanged, but that has done little to erase the losses experienced in March 2022. Year-to-date EU butter output is 4.3% less than last year through June.

NDM/SMP

CME NDM prices were somewhat stable this week with prices averaging $1.5223/lb, up 2.78¢ from the previous week. Despite the spot market recovery, Dairy Market News reported $1.49 western mostly midpoint this week – down 9.5¢. That price drop appears to confirm that western manufacturers reduced prices significantly to move larger volumes of product. DMN central mostly was down 7¢ to $1.555 – but more in line with spot markets. That is keeping CME futures price projections in the mid-140s for most future months. European prices slipped last week – a modest decline. GDT SMP prices lifted 0.1% at the August 16 event with prices ending at $3,524/MT ($1.598/lb). That will likely keep a lid on US spot NDM prices. WMP prices dropped to $3,417/MT($1.5499/lb). Overall, that may provide skim users some relief compared to earlier this year.

EU27 June 2022 SMP produced 306.6 million pounds, 5.8% more than the previous year, with Spain and Sweden yet to report. Most of the increases came from Ireland, with an output of 32.7% ahead of last year. Despite that change, Irish butter output was down. Lithuania also increased output by a significant amount compared to last year. France and Poland’s output fell compared to last year by modest amounts. Higher output may explain recent pressure on prices – it may also indicate processors getting ahead should natural gas get curtailed later this year.

Droughts are spreading in the French and Swiss Alps. Heat and dry conditions are causing pasture and feed crops to wither. While expectations indicate that less milk may offset demand declines, most find milk could swing from driers to cheese vats this fall.

Whey & Lactose Products

CME whey averaged 44.9¢, up 0.7¢ from the previous week. DMN central mostly price was 45¢ unchanged from the previous week. Western prices were 49¢ this week, up 0.5¢. The lactose price was 45.5¢ this week, unchanged from the previous week. European prices were unchanged from the previous week. Futures are forecasting prices approximating current spot prices – given lower output from the Northern Hemisphere there is a greater likelihood prices could maintain current price levels.

EU27 cheese production is headed to seasonal lows, which means whey is headed to seasonal lows. The same is true for US whey and derivative production. Factors that could help support and modestly lift prices headed into the fall.