Weekly forecast update – Dec. 9, 2022

Forecast updates

There were no significant changes to the forecast this week – only modest changes related to the spot markets. Market trends discussed last week persist. Butter markets still appear poised to decline. There was more negative sentiment toward the end of the week as more news from Europe suggests the region is dropping prices quickly to find overseas’ interest.

Milk Market

Milk is picking up a bit and showing signs that holiday demand is slowing. Milk will head to manufacturing as schools start to let out starting next week. That could create a headwind for spot prices. While US domestic markets are holding up, news from Europe suggests that milk production is rising and orders are slowing faster, with several processors reporting that international interest is declining. Reports indicate that record-high European prices could begin to drop in Q1, with prices rolling back to the 40 euro-cent per liter level from the upper 50s. Europe is significant as that is the market that continues to pressure international prices that are slowly starting to have an impact on US markets – it could take until Q1 2023 for the full impact of lower prices to be realized.

Cheese Market

CME Cheddar block markets were similar; however, barrels increased. That reduced the weekly block-barrel spread to 15.5¢. Barrels averaged $1.9375/lb. up 9.15¢ from the previous week. Blocks averaged $2.0925/lb, down 0.35¢/lb. While $1.80s may have been too low for barrels currently, blocks appear to fell resistance and challenged to rise above $2.10/lb. Domestically demand remains positive, and October exports were consistent. However, European prices are dropping, likely creating a ceiling on domestic prices. Given strong demand, it is unlikely that prices will decline substantially before the end of the demand season marked by Super Bowl.

The news this week – US October trade data. US cheese exports were 4.8% more than last year – a consistent, but modestly lower, performance with previous months. October exports totaled 82.1 million pounds. Exports to Mexico increased by 12% and accounted for 24% of total volume. Higher exports to Saudi Arabia help offset sizeable declines to Malaysia. YTD exports are running 11.7% more than last year. Cheddar continues to carry the category with volumes up 8.1% compared to last year.

US cheese imports in October totaled 40.1 million pounds, which resulted in import volumes that are 1.1% higher than last year. Imports likely moderated given the stark contrast between US and European prices this year, as Europe maintained a premium for much of the year. Changes by country were modest and varied.

Butter Market

Just when it appears spot butter prices were headed lower, dropping 20.25¢ on Thursday – prices recovered 12.75¢. Spot butter prices averaged $2.837/lb, down 4¢ on the week. Eighteen loads were traded on Thursday and Friday. Despite interested buyers at the spot market, the news suggests that the end of the butter demand season is fast approaching, with two weeks of shipping left before Christmas. Cream multipliers are dropping, and cream available to churn is plentiful.

US butterfat exports totaled 19.1 million pounds – up 68.6% compared to last year. That sent YTD exports up 42.2% compared to last year’s period. Despite higher butterfat prices this fall, futures markets provided opportunities to secure sales at lower prices for months, benefitting exports. Half of US exports moved to Canada – up 111% vs. last year. US butterfat continues to supplement Canadian needs. Exports were 3.6X more to Mexico vs. last year. Exports to South Korea were up 5X.

US butterfat imports in October rose 42.7% compared to last year. Import volumes totaled 16 million pounds. Most of those increases were higher volumes from Ireland – recovering from earlier declines. Imports from New Zealand increased by 35.5%

NDM/SMP

After an improved GDT result on Dec. 6, CME spot and futures markets firmed for a short time – then it appears negative sentiment rolled through markets again, and futures and spot markets turned lower again. The sell-off caused 1H 2023 NDM futures to decline again. In the end, the weekly average was $1.372, up 0.29¢/lb compared to the previous week. Despite the higher showing, prices fell on Friday. Given reports of higher milk, more milk headed to driers, and slowing European sales, markets appear poised to head lower. At the same time, GDT results indicated that China was a significant buyer at the last auction. As the data continues to conflict, markets appear range-bound over the near term.

For the first time this year, US NDM/SMP exports bettered the same period last year. October 2021 NDM/SMP exports totaled 161.3 million pounds, 10.5% more than the previous year. YTD exports are still 7.8% less than last year, which is still related to production that lagged last year through June. Exports to Mexico accounted for half the volume, up 37% compared to last year’s period. Exports to Indonesia jumped 47% higher than last year. US exports were slower into the Philippines, nearly halved versus last year. Interestingly US exports to China were higher than last year, up 32% compared to last year on small volumes.

Whey & Lactose Products

As another week passes, US whey prices remain steady. CME whey averaged 44.45¢ this week, down 0.35¢ from the previous week. DMN Central whey prices were 43¢, 0.5¢ less than the previous week. DMN Western whey prices were 47.75¢, down 0.25¢ from the previous week. DMN lactose prices 48.5¢, unchanged from the previous week. European prices were stable. WPC and WPI prices remain unchanged to modestly lower.

US October 2022 whey exports totaled nearly 51 million pounds – up 20.1% vs. last year. Higher shipments drove volumes – China +49% and Canada 67%. US WPC (<80%) exports totaled 27.3 million pounds – +6.3% vs. last year. That was on higher exports to Ireland and Mexico. US WPI exports totaled nearly 15MM pounds – up 46% on higher volumes to Japan, China, and Canada.