Weekly forecast update, Dec. 31, 2021

Weekly Forecast Update

For the week ending December 31, 2021

Forecast updates

  • Global milk production remains above the previous year, barely. Given current levels of demand, that is supporting year-end prices well above average.
  • Slower churning, during the final weeks of the year has translated into widespread concern about availability throughout 2022. That cause spot butter prices to rise.
    • It is likely there is less butter available to the CME spot market – that could keep prices elevated.
    • Increased the 2022 forecast to reflect that sentiment.
  • Cheese prices turned higher during the final trading days of 2021 – while prices could ease after the seasonal demand period passes, it appears there could be stronger overseas demand and that could lift domestic prices.
    • Because the Michigan cheese plant will no longer be incremental, cheese prices could remain higher than last year.
    • The 2022 block-barrel spread could remain wide; however, if more cheese heads overseas that could reduce barrel production.
  • Whey prices could remain high during the first half of 2022 due to demand strength for WPC and WPI. That said, China’s whey imports slowed – that could wear on prices over a longer term.
    • Adjusted the 1H 2022 forecast higher.
  • All of these changes worked to increase the milk price forecast in 2022.

Fluid Milk Market

During the week between the holidays, anecdotal reports continue to report that balancing needs were less than the past few seasons; some stated it may have been the lowest they recall. In part, the holidays fell over the weekend so that would have reduced needs by causing fewer down days than a mid-week occurrence.

US November 2021 milk production totaled 18.04 billion pounds – that was 0.4% less than last year. USDA revised its October production higher -moving milk production from lower to 0.1% more. The US milking herd stood at  9.39 million head – 47,000 fewer animals compared to 2020.

Cheese Market

Barrels started the holiday week a bit lower, but turned higher by the end of the week, narrowing the block-barrel spread. Blocks ended the full week of trading just below the $2/lb mark. Cheddar blocks averaged $1.95/lb, 8.37¢ more than the previous week. Barrels averaged $1.6835/lb, up 4.6¢.

US natural cheese stocks on November 30, 2021, totaled 1.42 billion pounds – 5.6% more than the previous year. Given the consistent days on hand, that would suggest that the YoY gap is working inventory for the new production facility. The stock drawdown between October and November of 27 million pounds was the largest for that period since 2016. Still, 2021 carry-out stocks are tracking the highest over the past five years. American cheese stocks totaled 835.2 million pounds – 9.6% higher than last year. Stocks declined 8 million pounds between October and November – consistent with past performance. Stocks appear to be tracking normal carry-out levels for now.

Butter Market

CME butter ended the year at $2.4525/lb – the highest price for 2021 and the highest price since the advent of the pandemic. That caused futures prices to set new contract highs. Despite the demand season that has passed, butter churns are not sending much butter to the warehouses. Anecdotal reports suggest that western manufacturers are well committed through Q1 with exports – casting an eerily similar pattern to 2013 into 2014. CME butter averaged $2.4075 last week up 23.87¢ compared to the previous week. While prices could ease headed into 2022, it is doubtful, at least for now, that there is plenty of old crop butter sitting in reserve to meet potential needs.

US butter stocks totaled 211.8 million pounds on Nov. 30, 2021 – which was nearly 16% lower than the same period last year. That was likely the catalyst to higher prices in December 2021. The stock drawdown between October and November was 67 million pounds for that period and above the five-year average. At the rate of decline, December carry-out stocks will be less than last year and possibly lower than the past few years. All indicators that prices could remain supported and higher than the last two seasons.

NDM/SMP

NDM prices retreated last week. Prices averaged $1.6575, down 1.25¢ from the previous week. While prices remained supported, markets could be due for some down trends as the US NDM/SMP price is just below that of Europe. It would take new news to lift prices – something that traders will watch closely at the January 4 GDT.

During the holiday week, China and New Zealand released November 2022 milk powder trade data. China’s WMP imports were 91.3 million pounds, 44.8% more than a year ago levels in November. China’s SMP imports were 68.4 million pounds, 5% more than a year ago – in all cases the volume increases benefited New Zealand.

Over the same span, New Zealand’s WMP exports were 579 million pounds and nearly 2% lower than 2020; SMP exports were 87.4 million pounds and 13.7% below 2020 levels. Exports to China were higher, but volumes to Southeast Asia and the Middle East fell. That does not necessarily mean lower global trade – but that New Zealand is an expensive product.

Whey & Lactose Products

With few bids during the holiday week, the CME markets closed unchanged all week. The market averaged 75¢/lb, up 1.5¢ compared to the previous week. Little has changed in the world of whey with Dairy Market News and NDPSR prices playing catch up during the holidays. Given the current WPC80 and WPI90 prices – whey is supported in the low to mid-70s for now.

China’s November 2021 whey powder imports fell 20.14% compared to the same period last year. In total, China imported 107.3 million pounds of whey. Imports from the United States were down 27% vs. last year – still that seems to have little impact on US prices for now.