Weekly Forecast Update August 28, 2020

Forecast Updates

  • No significant changes other than spot prices this week.

Fluid Milk Market

Heat and humidity slowed milk output in various parts of the country. That said, relative to last year’s meager growth rate, output in August could still surpass year ago levels. The impact has been varied across the country and within regions according to several reports.

New Zealand reported higher milk production in July. While that is one of the lowest month’s of the year, it is still an indication that milk in the new 2020/21 season has started higher than the same period last year. European milk production is also on the rise with June production outpacing last year by 1%. The data suggests that milk production from the top producing regions is increasing relative to one year ago as demand remains somewhat uncertain headed into the fall.

School has started to return to session across the country with varying impacts. Some regions are reporting stronger demand from bottlers while others indicate that sales are less than year ago levels. The mixed results could keep milk headed to manufacturing.

Cheese Market

CME spot markets increased through mid-week before sellers returned to the market causing prices to ease. News that President Trump pledged another one-billion for the food basket program. That helped to lift spot and future markets throughout the week. Cheddar blocks averaged $1.825/lb., 9.85¢ higher than a week ago. Barrels averaged $1.4145/lb., 4.85¢ more than the previous week. The block-barrel spread remains wide as blocks have appreciated faster than barrels – something that could continue into the fall.

While the government purchase news was positive, markets were somewhat conflicts about the overall impact. Compared to the spring, there is more cheese and milk available to the markets. As a result, the announcements impact was somewhat short-lived. Prices could still turn higher this year, but the impact could be a bit less in terms of market appreciation and duration compared to the run this summer. That is causing extremely wide daily trading ranges as well as increased volality. So far this year futures and spot have not always agreed, but it seems that futures have been more correct suggesting that prices would not go as high as spot indicated in July or as low as spot did in August. Still, after last year’s run and the recordsetting summer, buyers are wary that should blocks become scarce, prices could take another run yet this year.

USDA cheese stocks totaled 1.39 billion pounds on July 31, 1.7% less than June but 2.4% more than last year. That reflected a return to trend and provides a clear explanation of why prices soared last month. American cheese stocks totaled 785 million pounds.

Butter Market

CME butter markets continued to languish this week as the weekly average price fell to $1.49/lb, down 3¢ from the previous week. A significant 43 loads traded during the week. This is the lowest price level for CME butter headed into a holiday season since 2013. While futures continues to project a lift in markets this holiday season, so far sellers continue to want to move product at current levels and buyers are willing to own – that seems to suggest prices could remain here until or unless something changes. For butter retailers these prices provide a tremendous opportunity for the holiday promotion period. Current prices would be very close to permitting retailers to promote butter at two-for-three or two-for-four with few issues. That could bode well for demand.

USDA reported July butter stocks at 372.8 million pounds, 3.1% higher than July and 13.1% more than a year ago. That reflects the largest holdings for a July on record, surpassing the latest record for the month set back in 2016. This was only the fifth time on record that July stocks increased to June (it was also the largest growth). Overall, markets viewed that information pessimistically.

NDM/SMP

Spot NDM prices improved this week with prices averaging $1.0125/lb., up 0.75¢ compared to last week. 18 loads changed hands this week. Market participants suggest that overseas demand has picked up and that brokers are doing a bit more tire-kicking this week. Interest seems to hover near $1/lb. Reports indicate that Mexico is back in the market, but due to a weaker economy the largest buyer Liconsa tends to be price sensitive with buying slowing when prices rise above $1.03/lb. That could help explalin why US prices have maintained a much larger gap compared to Europe and New Zealand so far this year.

New Zealand SMP exports collapsed in July compared to past years. In total, New Zealand’s SMP exports totaled 45.8 million pounds – that was 40.2% less than last year and the lowest performance since 2008. That does not bode well for markets later this year. Volumes to the top five destinations fell double-digits. New Zealand WMP exports totaled 234 million pounds in July and 9.8% higher than a year ago. That was nearly enough to offset losses in SMP and may provide an explanation for the decline. Higher exports to China and Bangladesh drove the results.

While New Zealand’s exports fell, China’s SMP imports totaled 76.3 million pounds, 3% higher than a year ago. That is the largest volume for July on record and noteworthy given the impact of Intervention stock purchases a year ago. The United States experienced a 2900% increase. WMP imports fell by 11.3% in July vs. last year. The higher demand from China seemed to trump the lower Kiwi exports as markets lifted throughout the week.

Whey & Lactose Products

Spot whey were 33.2¢/lb. this week 0.07¢ less than last week. Prices have been very consistent and anecdotal reports suggest that the whey and lactose markets are well balanced presently. While lactose remains premium to whey powder, the market appears willing to clear product between 30-35 cents. Overall most believe markets are comfortable in this range and could remain that way well into the fall. Higher whey protein powders are continuing to experience distruption.

China’s whey imports totaled 140.9 million pounds reflecting a 64.3% increase vs. last year. Imports from the United States increased 45%. That is a primary driver behind balancing the US whey market.