Weekly forecast update, August 13, 2021

Forecast updates
• Adjusted AUG/SEP prices based on spot markets.
o Adjusted Western Mostly NDM prices lower – more adjustments through 2021.
o Adjusted CME spot prices for AUG – reduced barrel prices causing a wider spread; left blocks at previous values.
o Adjusted AUG butter, but no further adjustments.
o No changes to whey, CBM, or HH NDM.

Fluid Milk Market
Finally, widespread heat and humidity appear to be taking a toll on milk production throughout the country. Anecdotal reports suggest that cheese plants are looking for milk near class value and that powder plants are seeing intake fall rapidly. Additionally, milk from northern states and Texas is headed to the Southeast to offset seasonal declines. The school milk pipeline is still filling, and compared to last year, there is more milk directed to bottling. For now, less milk off the farm and seasonally higher bottling are working to slow milk headed to manufacturing. With changes in spot markets, that could mean a lower September Class I milk price, but, should prices hold, a higher October price.

Cheese Market
CME blocks continued to lift this week, with prices reaching over $1.80/lb for the first time since mid-May. Barrels picked up on Friday but could not keep pace with the block increases resulting in a 36.25¢ spread. In the end, blocks averaged $1.754/lb – that was 11.9¢ higher than the previous week. Cheddar barrels averaged $1.4115 – up 10.15¢ compared to the prior week. Block futures did not keep up with the higher spot price resulting in losing carry from the markets. That suggests a current sale is superior to a deferred deal. Although, the recent increase in the futures markets, albeit at a slower pace than spot blocks, may reflect an over-sold futures market resulting in a short-covering rally.
Ceres estimates US June domestic cheese commercial disappearance totaled 1.11 billion pounds. That was 1.25% more than last year. Given fewer government orders than last year, lower export volumes, and lower retail sales – these increases from foodservice – reflect a robust recovery. In July, IRI reported that retail cheese sales were 5.0% on a volume basis and 3.1% less on a value basis. That was similar to but better than June, down 7.2% vs. 2020 levels. It is possible with the spread of the Delta variant that people may be more inclined to stay home a bit more as the fall approaches and the cold and flu season approaches. That demonstrates that demand is strong but that supply is stronger and that it will take additional government or export sales to balance markets.

Butter Market
After a good-sized drop the previous week, CME butter recovered on Monday and mostly maintained a steady course throughout the week. The spot butter averaged $1.6740/lb, up 2.85¢ compared to the prior week on fewer trades. Dairy markets have arrived and gained the interest of outside money to markets. But, with that interest comes algorithms that create bids and offers in the markets. Inexplicably last week, butter futures lurched higher on very little fundamental change to markets. That said, cream is notably tighter this week, components are lower in the on-farm milk, and processors have started to micro-fix in earnest for the holiday season. Still, the jump through 2022 was somewhat puzzling. It appears some algorithms may detect USDA orders, etc., and that causes bids to increase. There are still other algorithms that generate bids to better those in the market. That may explain the unexpected and rather aggressive market increase last week.
Ceres estimates US June butter commercial disappearance at 163.5 million pounds; that is 7.7% less than last year, but the second-highest volume for that month over the last decade. While lower than 2020, the YoY gap closed compared to April and May. US imports were down, exports were up, and government sales are off compared to last year. According to IRI, retail sales fell 12.6% behind the pace set in 2020 but still higher than 2019. Scan data indicates that July was 11.1% less than last year – another slight improvement. Overall, that data suggests foodservice demand is improving, but not sufficient to offset the declines in retail. That would explain why the market has been challenged to reducing the stockpile of butter put away in 2020 and how it could remain difficult to do so during this holiday season. Still, better foodservice demand and higher retail sales due to celebrations this year could help pull stocks down a bit.

Week-to-week, CME NDM markets were somewhat steady, but daily prices varied. This week markets reached a low of $1.255/lb and a high, on Friday, at $1.27. That may reflect the varied news on NDM markets this week. Demand from China remains strong, SE Asia may be a little lighter, and rumors of lower-priced sales headed into Mexico are vexing market participants. Still, school milk draw and less milk off the farms are starting to slow milk intake by milk powder plants. Early estimates suggest that New Zealand and Australia could have strong starts to the 2021/22 season as cows, pasture, and soil moisture are all in an excellent position as spring approaches. As a result, it seems that most will await the August 17 GDT auction to make further hedging, sales, or pricing decision for the rest of Q3 2021. CME NDM averaged $1.2605/lb – that was 0.05¢ less on equivalent trades. For Class I and II milk users, for now, markets suggest prices could hover near current levels through the end of the year. Again it will be news from overseas that could likely cause prices to course correct.
Ceres estimates US June NDM commercial disappearance at 36.4 million pounds – 65% less than last year and the lowest over the last decade. It is a deficient number for domestic demand and puts 100MM pounds behind the previous year. That would easily explain the stock increase, suggesting that if demand was closer to “normal” for that time, stocks would have been much lower than last year and supportive of prices. However, typically domestic consumption is near 400MM by mid-year – this year, it is just 286MM. That may question what product demand is off significantly or if there is some substitution to cause the sharp NDM demand declines.

Whey & Lactose Products
CME whey prices declined throughout the week. For weeks, that has been the pattern – one week with higher prices, followed by a week with lower prices. Overall, prices are mostly steady. Dairy Market News WPC34 and lactose prices held again this week. CME averaged 52.75¢, up 2.05¢ from the previous week on fewer sales.

There are no significant market changes this week. The story continues to be that Chinese pork producer margins cannot afford current US and EU whey powder prices. As a result, there is more deproteinize whey, lactose, and whey from Belarus and Turkey. But, for now, strong demand for WPC70-WPC80 and superior pricing could entice whey solids from whey powder to WPC – for those that can make those substitutions.