Weekly forecast update – Aug. 26, 2022

Forecast updates

·        Updated for spot markets – the most significant increase was butter through 2023.

·        Reduced the block-barrel spread by increasing the barrel price through the end of the year.

·        Increased NDM slightly through year-end and into Q1 2023.

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

Milk Market

Bottling demand continued to increase this week as the nation’s schools returned to session. That is drawing milk away from manufacturing and erasing price discounts. Most are waiting to see the impact of the lapse in the free school meals program since the onset of the pandemic. Milk off the farm is seasonally declining, causing shortfalls in the Southeast. Trucking remains a persistent issue this year and continues to create issues for those looking to move milk.

US milk production totaled 19.1 billion pounds in July, 0.2% more than last year. USDA significantly revised June’s estimate lower – moving it from higher to 0.6% less on fewer cows and lower output per cow. Growth from Wisconsin and Arizona slowed compared to previous months. The US milking herd was 9.42 million head – compared to 9.48 million last year – a 67,000 head gap. Output per cow was 2,033 pounds and 0.9% more than last year. Output is mitigating fewer cows. Flat milk output continues to support nearby prices.

Internationally, Oceania is getting off to a slow start in the 2022/23 season. Australia’s June milk production was 9.2% less than last year, and New Zealand’s July output fell 5.6% behind last year’s pace.

Cheese Market

The same issues continue to plague the CME spot block market – sellers with few alternatives continue to employ the CME as an outlet. That has weighed disproportionately on the block market for weeks. Barrels remain mostly balanced – but trading volume did pick up last week with 18 loads changing hands. Cheddar blocks averaged $1.77/lb – down 10.1¢ from the prior week. Cheddar barrels averaged $1.879/lb – down 5.8¢ compared to the previous week. That left the block-barrel spread inverted with barrels 10.9¢ higher than blocks.

US cheese stocks totaled 1.52 billion pounds on July 31, up 1.1% vs. June and 5.1% vs. last year. Inventories increased 17MM pounds from June to July – consistent with the previous year. American cheese stocks totaled 860 million pounds – 5.2% more than last year. Month-over-month American cheese stocks grew 13MM pounds – higher than the last three years but consistent with pre-pandemic levels.

Internationally, New Zealand July 2022 cheese exports declined 16.1% compared to last year. Exports totaled 70.7 million pounds, less than the five-year average for the month. Exports fell to China. Losses to Chile and Japan were greater than declines to China. The other significant loss was to Indonesia. The widespread and somewhat even drops suggest a broader slowdown than earlier in the year. China’s July 2022 cheese imports total 25.5 million pounds – up 16.3% from June but 26.4% less than last year.

Butter Market

After the release of the July Cold Storage report, CME spot markets lifted and continue to do so. Butter stocks remain below the previous year, which has supported prices. That said, the recent run in US prices and decline for NZ butter may have cooled interest in domestic anhydrous milkfat (AMF) and sparked import interest. It could take until the end of the year for the shift to affect spot markets, but it appears the transition is underway. CME spot markets traded 43 loads this week – consistent with the previous week. Spot markets averaged $3.0386/lb – 7.21¢ higher than the last week. The spot market run helped to erase futures discounts through the fall. 2023 butter futures prices are higher also as some view prices closer to $2.50 as sustainable in the coming year.

As of July 31, US butter stocks totaled 314.4 million pounds – above the 300-million-pound target that generally tempers price into the fall, but still 20.7% less than year-ago levels. This is a pivotal butter report that indicates the sufficiency of supply to meet holiday needs. While it could periodically get tight, US stocks should be able to meet demand. The month-to-month drawdown was 16 million pounds – slightly less than last year but within range for June to July.

Internationally, New Zealand butterfat exports totaled 114.8 million pounds in July 2022 – 53.8% more than the previous year and the highest for July since 2018. That made this July the second-highest exports for that month on record. Butterfat exports to China increased 80% over the previous year. Exports to Mexico were up 272% – that may be product eventually destined for the United States through re-export. European processors are still buying NZ butterfat – likely to replace the remaining EU volumes in the region.

NDM/SMP

CME NDM prices picked up throughout the week on better overseas’ news. While China imported less SMP in July, New Zealand’s exports improved. This week futures were bid at $1.50/lb as some reported buyers believing these may be some of the best prices that could be available for 2023. More robust futures markets seemed to translate into higher spot prices. There is still a lot of uncertainty about milk and powder production this fall. CME NDM averaged $1.5445/lb – 2.22¢ higher than the previous week. Dairy Market News NDM prices increased this week, also.

Most of the news this week came in from overseas. New Zealand July SMP exports, were 64.9 million pounds and 28.7% more than the previous year. That was the most SMP exported since 2019. Exports to China jumped by 62% compared to last year. Exports to Indonesia and Vietnam were also higher. Exports to Kuwait fell, partially offsetting the increases.

China’s July 2022 SMP imports were 60.4 million pounds and 41% less vs. last year. That was the slowest for July since 2018. The United States suffered the most significant YoY declines, followed by New Zealand and Germany. With few exceptions, Australia and Finland, China bought significantly less SMP from all regions.

Whey & Lactose Products

CME whey averaged 46.1¢, up 1.2¢ from the previous week. DMN central mostly price was 45.25¢ up 0.25¢ from the last week. Western prices were 49¢ this week, unchanged from the previous week. The lactose price was 45.5¢ this week, unchanged from the previous week. European prices were unchanged to modestly higher from the previous week. Futures are forecasting prices to maintain the 50s well into the fall – given lower output from the Northern Hemisphere there is a greater likelihood prices could maintain current price levels.

China imported 119.5 million pounds of whey in July -16.7% less than last year. YTD whey imports are 34.2% less than last year, consistent with 2020. China imported 6% more from the United States and considerably less from the EU and Turkey.