Weekly forecast update, August 27, 2021

Forecast updates

  • Reduced CME prices for butter, Cheddar barrels through Q1 2022.
    • No change to whey prices this week.
    • Adjusted CME barrels for 2021 lower.
    • Adjusted CME and DMN for current markets and price relationships (decreased Central and increased West).
    • No significant changes to CME blocks.
    • Spot adjustments for butter.

Fluid Milk Market

The story remains re-stocking of school milk supply lines this week. As schools resume in-person learning across the country bottlers’ milk demand is rising. Additionally, trucking issues (lack of drivers) are rerouting milk and creating temporary disruptions in some markets. That is reportedly drawing milk away from manufacturing and lifting spot bids for milk premium to class pricing. The Labor Day holiday is a week away and that could send a bit more milk back to manufacturing. At the same time, preparation for named storm Ida and its potential impact may have also lifted bottling demand temporarily as storms tend to do. After Labor Day, schools will be in session throughout the country, and supply lines are expected to normalize.

Seasonally, Oceania and South American milk supplies are rising as spring approaches. Through June EU-27 milk output remains 0.5% ahead of the same period last year. At the current rate of demand and global milk, expansion markets should be able to balance supply and keep stocks in check. There are a lot of concerns about travel bans (EU may prevent US travel) and some European countries are looking at lockdowns to slow the spread of the Delta-variant this fall. That has markets concerned about dairy demand later this year.

Cheese Market

CME spot barrel markets continue to follow a well-established pattern this August – higher at the start of the week with prices retreating toward the end of the week – the largest drop occurring on Friday. In the end, blocks were similar to last week with pricing averaging $1.752/lb, up 0.15¢. Barrels declined with pricing averaging $1.466/lb, down 2.7¢ compared to last week on fewer trades.

At the start of the week, USDA  released July 31 cheese stocks at 1.45 billion pounds, 1% higher than June and 4.15% more than last year. American cheese stocks totaled 818.9 million pounds, 1% higher than June and 4.16% – the clear driver of the YoY increases. The cheese increase in July was counter-seasonal but still slight. East-Central warehouses expanded Amerian cheese holdings by 30MM pounds likely reflecting the new Michigan cheese plant. But Midwest and Pacific warehouse holdings fell. That was an interesting change. That may be that Pacific processors are holding more Mozzarella for export.

For the first time this year, China’s cheese imports slowed compared to last year. In July, China imported 34.6 million pounds of cheese – that was 3% more than June, but still 2.6% less than last year. However, that was the second-highest for that month on record.

Despite competitive prices, the United States lost ground with China importing one-third the volume of last year (1.1MM pounds).

Butter Market

CME butter markets increased on fewer trades; that said, Tuesday experienced the biggest increase with 10 loads trading – prices faded toward the end of the week. In the end, CME butter averaged $1.701/lb, up 1.9¢/lb compared to the previous week on fewer trades. Prices are holding as ice cream demand for cream remains elevated and it may be that some cheese processors are standardizing cheese vats with NDM – retaining cream versus selling it. Western cream multipliers are slightly higher than the last two years, while Central/East are comparable. Demand is rising and processors are working on ramping up production for the upcoming holiday season.

US butter holdings remain large, but the YoY gap closed a bit in July. On July 31, US butter stocks totaled 397.4 million pounds, -4.2% less than June but 7% higher than last year. That is one of the smallest gaps so far this year and indicative that the seasonal peak is passed. While the gap is still there it is now 26MM pounds – about half of what it was in June and far less than the peak of 85MM pounds in January. That suggests that foodservice and exports sales are working to trim back stocks. At the same time, with +300MM of product on hand in July that typically indicates prices should not need to increase much as there is sufficient product to meet holiday demand.

NDM/SMP

After markets received China and New Zealand’s trade data this week, NDM spot and futures markets started to lift. Prices reached $1.2925/lb on Friday – the highest price since mid-June. Prices averaged $1.2755/lb – up 2.1¢ compared to the previous week. Volumes were limited. Domestically, less milk is moving to driers as bottling seasonally pulls milk away from manufacturing. At the same time, milk off-the-farm is declining and that has cheese makers outbidding NDM processors for available supplies. Similarly, some cheese plants are opting to standardize cheese vats with NDM versus buying Class III-based milk creating some domestic demand for products. Ocean freight remains an issue and is forecast to get worse before the end of the year – that could factor into pricing yet this year.

China continues to import more and more SMP and WMP compared to past years – July was no different. In July, China imported 162.3 million pounds of WMP – that was 5.1% more than June on a daily average basis and 98.4% more than last year making it the most ever for July on record. SMP imports totaled 101.7 million pounds, up 30% vs. June and 33% higher than last year. Another record for July. New Zealand exported more WMP to China in July. Typically, New Zealand’s July exports become China’s August imports – if the pattern holds it could mean more milk powder headed to the world’s largest dairy importer – a data point that is supportive to exports yet this year.

Whey & Lactose Products

CME whey prices slipped this week despite positive news from China. CME whey averaged 51.2¢, down 1.3¢ compared to the prior week. DMN lactose prices remain unchanged. For the first time since January, DMN Central’s Mostly slipped below the 50¢ with a midpoint of 49.75¢ this week. The Western Mostly was slightly lower but still averaging 55.25¢ this week.

China’s whey imports totaled 143.5MM pounds in July 2021 – that was 14.3% more than June on a daily average basis and 1.8% higher than last year. This was the largest import volumes for July on record. Most of the whey came from the United States with imports totaling 66.9MM pounds, up 40% compared to last year That may explain why western whey prices continue to maintain a premium to the Central States.