Weekly Forecast Update August 21, 2020

Forecast Updates

Reduced nearby block and barrel cheese forecast from last week. Ceres is still forecasting a recovery in prices during the fall.
Lowered butter forecast, but still forecasting a price lift as the holiday season approaches.
Adjusted AUG NDM lower.

Fluid Milk Market

USDA announced the advanced September Class I base price at $18.44/cwt. that was $1.34/cwt. less than August, but $0.59/cwt. more than a year ago. That price and the current trajectory for September prices should reduce depooling next month.

US milk production in July reflected a robust recovery from the spring. Year-over-year, July milk better the previous year, +1.5%. In total, milk production was 18.7 billion pounds. On a percentage basis, South Dakota was the only state to post double-digits increase versus last year. In absolute pounds, Texas added 51 million pounds compared to the previous year, followed by Pennsylvania (+33 million) and Idaho (+31 million). The US milking herd was 9.35 million head, 37,000 more than last year. Output per cow drove the gains in July with production increased 1.1% ahead of the previous year at 1,930 pounds/cow.

Cheese Market

Support for spot block and barrel markets evaporated again this week. After Monday’s trade, it appeared block and barrel markets could be stable for a bit – but that thought vanished by Tuesday and midweek prices were headed lower again. Cheddar barrels fell back to the low-$130s this week and blocks to the $160s. In the end, CME blocks averaged $1.7265/lb., 5.95¢ more than last week on just nine trades. Cheddar barrels averaged $1.366/lb., down 11.2¢ from the prior week on 28 trades. That cause the block barrel spread to widen to 36.05¢. Reports suggest cheese is more available across all varieties. Additionally, milk intake to cheese plants over the next week could be disrupted as Class III prices are significantly higher than the spot return for selling cheese. But, the outlook for lower cheese prices the futures market is forecasting is promising for those looking to age cheese in the coming months. While US spot prices are competitive for exports, futures are still on the high side – that could be a factor for more cheese headed to the CME.

Restaurant foot traffic and same-store sales improved in July, but many are concerned the recovery is starting to stagnate according to Black Box Intelligence. Same-store sales were 15.1% less than last year, and foot-traffic was 19.9% lower. Those were improvements from June. That said, the progress is starting to level-off suggesting there could, for a prolonged time, be a sizeable gap of lost business. That implies there could be product available to the market that exports or the government will need to absorb.

Butter Market

CME butter markets were mostly flat this week with some movement in the mid-$150s. The weekly average this week was $1.52/lb, up 3.8¢ from a week ago. Cream is reportedly in high demand, with multipliers remaining elevated. But, bulk butter continues to head to Chicago at a steady pace with 79 loads changing hands this week alone. With one week left to go in August, 191 loads of butter have already traded – that compares to 85 loads in July and 141 in August 2019. By all accounts, that is a lot of transactions that seem to suggest at current price levels sellers are comfortable parting with butter while buyers are willing to own at these price levels. Given the carry opportunities in the market, there are several opportunities for both buyers and sellers this fall.

NDM/SMP

Spot NDM prices improved this week as the Global Dairy Trade (GDT) SMP index increased at the final auction in August – bettering the prior event by 1.1%. September 2020 deliveries jumped 11.1% higher than the previous event. GDT SMP prices have declined since the start of the year, but they remained higher than last year and the most recent lows. That news helped to lift spot CME trading back above the $1/lb. level for a few days. In the end, the CME spot markets averaged $1.005/lb., up 4.85¢ compared to the previous week. Reports suggest that domestic demand for NDM has increased modestly over the past week, but several still suggest demand is wanting.

As European traders return from holiday reports are suggesting that prices are stable to higher with good sales reported through the first half of the year. Some are suggesting that buyers still have a good amount to commit for the end of the year, but uncertainty surrounding demand this fall have many waiting to place orders. Weather, including heat in Europe and the United States as well as a La Niña watch for Q4 forward, could still wreak havoc on markets.

Whey & Lactose Products

Spot whey markets recovered this week with prices continuing to trade in a somewhat tight range between 30¢ and 35¢ with little to suggest change over the coming weeks. CME spot whey averaged 33.9¢, up 2.5¢ compared to last week. The news on whey markets remains mostly unchanged and unremarkable. There is some news that exports have picked up a bit in August, providing an outlet for western whey. Still, that did little to settle WPC and WPI markets.

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Ceres Dairy Risk Management LLC
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Sun Valley, ID 83353-2440