Weekly forecast update – Dec. 16, 2022

Forecast updates

Most spot markets moved lower this week as milk supply continues to lift and worries over a global recession in early 2023 mount. CME butter markets remained unusually high this week, given that demand is nearly complete and cream is widely available to churn.

  • Reduced the near-term butter markets expecting prices to overcorrect in the coming weeks.
  • Cheese prices are turning lower – widened the block-barrel spread.
  • Reduced most dry product prices as NDM slips lower.
  • Lower the whey and lactose forecasts modestly.

Milk Market

It appears bottling demand is reducing ahead of the holidays as schools let out for the next few weeks. That is pushing more milk to manufacturing. Some report unchanged milk, while others notice a pick-up in production and modest expansion. European milk production is on the rise and that is causing markets to ease.

Cheese Market

By the end of the week, CME blocks and barrels were headed lower. The spread remained wide as both products dropped below $2/lb. CME barrels averaged $1.8135/lb., down 12.4¢ compared to the previous week on seven trades. CME blocks averaged $2.063/lb, down 2.95¢ versus the prior week on six trades. Anecdotal reports indicate that foodservice and possibly exports are slowing – that could cause cheese to build headed into the end of the year. Prices typically drop after Super Bowl – that could be the case again in 2023.

October’s US domestic cheese commercial disappearance at 2.2% more than last year. That was another monthly record – the highest for October at 1.14 billion pounds. YTD cheese domestic, commercial disappearance is up 1.4% compared to last year. That, combined with a stellar export performance, explains how cheese consumption continues to clear new production. That may slow as the Dumas cheese plant starts Q2 2023; however, slowing milk supplies globally could keep pressure on international demand for cheese. At retail, cheese promotion was aggressive -with AMS reporting Dec. 9 ads at $2.76 for 8oz shreds and 11,547 store ads compared to 11,945 ads last year for $2.49 – an 11% increase – but small compared to those from the butter category.

Butter Market

Unexpectedly CME butter markets increased into the end of the week. Typically spot butter prices get weaker as more product looks to head to warehouses as bulk churning picks up. This week spot butter averaged $2.786/lb, down 5.1¢/lb. – down from the previous week, on 23 trades. Reports indicate more cream is headed to churns. Next week is the final push ahead of the Christmas and New Year holiday. After that butter stockpiling begins. Churning is particularly heavy between the Christmas and New Year holiday – this year should be no different.

October’s US butter commercial disappearance slowed to 184.2 million pounds, down 11.3% compared to last year. That was a better performance than September, seasonally rising 18.5%. Year-to-date butter commercial disappearance is running 6% less than the previous period. The lower YoY trend began in August when spot prices increased above $3/lb. While some retailers are promoting butter – others are less so. For the week ending Dec. 9, AMS reported 8781 stores with adds at $4.45 – compared to 12254 stores at $3.04 a year ago. The 46% price increase on ads likely impacted demand. At the same time, white tablecloth restaurants were underperforming last year, indicating foodservice demand remains off.

NDM/SMP

Spot NDM prices had a mixed showing this week. CME NDM averaged $1.352/lb, down 2.1¢ compared to the previous week. Dairy Market News central prices were down 3¢/lb to $1.39/lb. Western mostly prices were down 2.3¢ to $1.4325/lb and NDPSR prices ended up $1.478/lb, up 2.3¢. International prices, led by Europe, are lower. News from Algeria indicated that Poland was awarded most of this month’s tender, at $1.373/lb. – that could help stabilize markets. That said, there are more concerns that next week’s GDT could bring a new round of declines.

While US October NDM/SMP exports performed well, US domestic, commercial disappearance of NDM collapsed. October domestic commercial disappearance at 47.2 million pounds, down 49.4% compared to last year. That put YTD commercial disappearance down 19.8% compared to the same period last year. That was lower than the five-year average pace for October. The higher Class IV SNF value has made substitution in cheese uses limited. The US is on pace for its lowest commercial disappearance of NDM over the last 20 years. That could put additional pressure on exports – with demand halting overseas that could spell a price correction in Q1 2023. It appears like international buyers, US buyers are hand-to-mouth, hoping for lower prices in 2023.

Whey & Lactose Products

US whey prices remain within the recent ranges – this week on the high end. CME whey averaged 45.3¢ this week, up 0.85¢ from the previous week. DMN Central whey prices were 41.5¢, 1.5¢ less than the previous week. DMN Western whey prices were 47.75¢, unchanged from the previous week. DMN lactose prices 47.5¢, down 1¢  from the previous week. European prices were stable. WPC and WPI prices remain unchanged to modestly lower.

US October 2022 whey commercial disappearance totaled 24 million pounds in October – down 27% compared to last year and the lowest since November 2016. WPC commercial disappearance dropped 10.3% compared to last year. – YTD it is running 16.3% behind.

Ceres estimates WPI commercial disappearance dropped 57.6% compared to last year. – YTD it is running 1.8% ahead.