Weekly Forecast Update August 14, 2020
Forecast Updates
- CME cheese markets appear to have bottomed for now – that resulted in a slight adjustment to the outlook for barrels, no change for blocks.
- Adjusted September and October prices lower while maintaining an expectation of a lift headed into the holiday season.
- No changes 2021 forward.
- Adjusted DMN NDM prices – left CME prices unchanged through Q4 2020.
- Adjusted AUG lactose prices. Reduced DMN whey prices through 2020.
Fluid Milk Market
Lagging National Dairy Product Sales Report (NDPSR) prices could lift the September Class I price above the $20/cwt. market-making depooling less likely. This summer, there has been a considerable difference between the All-milk price and the mailbox price for dairy producers. That could keep milk production increases less than typically for times when milk prices rise above $20/cwt.
Most reports suggest that milk production is rising vs. last year, but hot weather forecasts across the country could provide some setbacks. Most expect next week’s milk production figures to show further recovery in July. The news swept through the country of storms in Iowa, capable of reducing corn crop yields from the state. That sent corn futures to highs not seen in months. Still, most believe the weather has mostly been so good that, despite the storm, the US corn crop will be record large.
Cheese Market
After another raucous week, CMEs spot blocks and barrels appear to have found some support as blocks arrest declines midweek. CME blocks reached into the upper-$1.50s before prices increased 24¢ into the end of the week. Barrels collapsed to the $140s before recouping 5.5¢ lost ground by Friday. In the end, CME blocks averaged $1.667/lb., 20.15¢ less than the prior week. Barrels averaged $1.478/lb., less than 24.95¢ last week. The declines were more than most expected, but the same could be said of the rise going higher and lasting longer than expected.
US cheese commercial disappearance jumped to the highest year-over-year gap so far in 2020 in June. During the month, domestic, commercial disappearance bettered the previous year by 4.5% on stronger exports, higher USDA orders, and better-than-expected retail sales. All of that was more than able to offset losses from foodservice. While foodservice remains below year-ago levels, it has recovered from the lows set in March and April. Markets are nervous that the spread of COVID19 could cause roll-back and foodservice demand to wane – that sentiment recently permeated markets, causing prices to plummet.
.Butter Market
After looking like butter markets would mount a recovery, prices started moving lower again. Prices averaged $1.482/lb, 4.45¢ less than the previous week. Spot trading volumes remain elevated, with 49 loads changing hands this week. Presently, CME spot markets are the lowest ahead of the holiday build season since 2013. That could encourage additional retail promotion and demand headed into the holiday season. Carry has returned to markets, making it possible for processors to store butter for later this year – the same is true of next year.
Retailers are capable of running significant ads for butter and other high-fat products compared to previous seasons. That could keep demand moving ahead. While prices have been unable to find a reason to steady, butter commercial disappearance remains 6.1% ahead of the previous year through June. That includes over 20% higher commercial removal vs. last year. In most years, 1% improvement in commercial disappearance would be remarkable, so six times that level suggests retail demand has been more than capable of offsetting losses from foodservice thus far.
NDM/SMP
Spot NDM and futures increased this week on news that Mexico may have returned to markets as a buyer. That news, along with reports that GDT would be adjusting volumes for more nearby deliveries at next week’s auction, lifted markets. While spot and futures markets improved mid-week, it did not come in time to offset declines from earlier in the week. CME NDM averaged 95.2¢, down 0.65¢ compared to the previous week.
The concern remains domestic, commercial disappearance, which is running well below prior-year levels. US NDM commercial disappearance improved in June compared to prior months, but it remains wanting versus last year. In June, NDM commercial disappearance totaled 96.4 million pounds, 16% less than the previous year. Still, that was the highest total for NDM sales domestically so far this year.
Over the last decade, US commercial disappearance has averaged 963 million pounds. At the current pace, NDM would be just 650 million pounds – nearly one-third less than usual. Given the arbitrage opportunity between Class IV and III protein, the low totals seem unusual.
Whey & Lactose Products
Spot markets slipped a bit this week, with prices dipping to the low 30s again. In the end, CME whey averaged 31.4¢ down 1¢ from the previous week. Trading volumes were limited. Dairy Market News whey prices moved lower this week. Central prices averaged 30¢, down 1.25¢ from the last week. That is consistent with anecdotal reports of a considerable amount of whey powder on hand and on offer throughout the Midwest. Western prices are edging lower, but still consistent and well above Midwest prices. The pricing seems to suggest that overseas demand for whey may be more reliable and willing to pay a higher price than domestic buyers.
China’s pork production reached record lows in 2020, according to USDA – the fallout from African swine fever (ASF) as the nation attempted to rebuild its herd. That is something that helped lift whey, permeate, and lactose demand mid-year – more animals to feed. Hog and sow inventories are projected to rise by 9% and 15% in 2020 and 2021, respectively.
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