Weekly Forecast Update December 18, 2020
Forecast Updates
- Modest adjustments to DEC-20 and Q1 2021 prices for spot market changes.
- Increased whey prices through Q1 2021.
- No other significant changes this week.
Fluid Milk Market
USDA confirmed there is plenty of milk around the United States this fall, and it is expected to grow this winter compared to last year. At the same time, reports from Europe also expressed higher YoY output versus a year ago. Globally Northern Hemisphere milk is expanding faster with Southern Hemisphere milk slowing compared to last year – the question will focus on demand domestically and abroad over the next few months to determine whether markets remain in balance or if a surplus begins to mount.
Closer to home, surplus milk is headed to manufacturing plants as bottling slows for the next few weeks. Prices are distressed, with some reporting around $5/cwt. discount to class to move. Over the next two weeks, processors are concerned about dumped milk events and even deeper discounts to find processing. There is hope that the weekend stimulus package deal could provide nearly $10 to agriculture including food purchases and direct payments to farmers to offset what looks like lower prices at the beginning of 2021.
This week USDA released November milk production at 18.03 billion pounds and 3% more than a year ago. Texas, California, and Wisconsin topped the list of gainers, with the Lone Star state adding 110 million pounds compared to last year. That likely bolsters anecdotal reports that balancing plants throughout the region are running hard. The U.S. dairy herd reached 9.41 million head – the largest milking herd since June 2018. Ceres estimates that 80% of new milk is coming from higher output per cow. That said, USDA will recalibrate those figures in January, so there could be sizeable adjustments as many states are questioning the reported herd sizes.
Cheese Market
CME Cheddar blocks increased through mid-week and then retreated anew on Friday. The increases through the first part of the week helped lift the weekly average to $1.64/lb., up 1.15¢/lb. vs. the previous week. Cheddar barrels followed a similar plot this week with a similar result. CME barrels averaged $1.452/lb., 2.95¢/lb. higher than last week. While spot markets moved higher this week, futures turned sharply lower, with Q1 prices losing approximately 10¢/lb in February and March. Traders were enthusiastic about the prospects for 2021 prices given that a stimulus package was in the works – but after the USDA report, markets turned bearish quickly. A stimulus deal over the weekend could provide renewed enthusiasm for the food-box program headed into 2021 – but still, those odds seem fairly low given the Biden Administration could focus on more traditional feeding programs like SNAP and WIC.
Restaurant sales and foot-traffic slowed in November as states rolled back Covid-19 provisions, including limiting hours, capacity, and, in some cases, shuttering restaurants and bars. That resulted in Black-box Intelligence releasing the restaurant index with same-stores sales -10.3% and foot-traffic -16.3%. Some estimates suggest that 34% of restaurants could go out of business in the next six months. Foodservice demand has been one of the largest drivers of cheese consumption over the past few years, suggesting that a slow recovery could cause prolonged demand issues for cheese and other dairy products.
Butter Market
CME butter trading was somewhat erratic this week, resulting in a lower average than the previous week. Butter averaged $1.456/lb., down 5.8¢/lb. compared with last week. Trading volumes were elevated with 36 loads changing hands. Global Dairy Trade (GDT) butterfat prices moved higher. Data would suggest that U.S. exports are viable in early 2021 as spot and futures prices are less than other regions. Buyers see value in the futures markets, but each week that seems to run up against the reality of plentiful cream, bulk butter headed to storage, and waning foodservice demand causing the up and down trading. Next week’s Cold Storage report will likely have a significant impact on market direction.
Most of the butter data this week came from Europe. While overseas’ butter production and exports have less to do with the year-end domestic market – it provides a glimpse of whether the United States will be a net importer or exporter in the coming year. For instance, the current New Zealand butter price carries a substantial premium to CME prices – that could mean domestic AMF production next year and fewer imports.
EU-27 and U.K. butter production totaled 188,530MT (415.6 million pounds) of butter in October – that was seasonally 4.2% more than September and 2.4% greater than year-ago levels. Ireland was single-handedly responsible for the YoY gains, with output rising 14.4% above year-ago levels. Germany modestly increased output vs. last year, and France eased.
EU27 butter exports fell in September to 14,834MT, down from 15,482MT last year. The largest declines came from MENAT – with Turkey accounting for most of the losses. Exports to the United States were consistent with the previous year. The E.U. and U.K. continue to work on the Brexit related trade deal as the end of the year fast approaches.
NDM/SMP
CME NDM prices picked up toward the end of the week. That moved prices back up to the mid-teens and still comparatively lower than those reported by Europe and Oceania. GDT SMP prices increased at the December 15 event – that likely provided additional price support. NDPSR NDM prices are moving up but at a slower pace to spot prices. Anecdotal reports indicate that driers are working overtime before the bottling slowdown expected over the next two weeks. More milk is likely, for now, headed to driers, with more 2021 milk expected to head to cheese vats. For those reasons, futures have not budged despite higher spot prices – that has reduced carry, something that could send more product to Chicago over the coming weeks.
Trade deals and disputes could be numerous next year. The United States has formalized its complaint against Canada for unfairly limiting U.S. imports – that would be consistent with what over countries have experienced with Canadian dairy deals. The relationship between China and Australia continue to deteriorate. The E.U. and U.K. are still trying to work out a trade deal to avoid a hard Brexit – Ireland is taking steps to ensure it can continue to move product in and out of the U.K. post-Brexit. All of these items could have a significant impact on trade next year – not necessarily demand, meaning it could reroute product.
Whey & Lactose Products
CME whey prices eased into the end of the week – still prices are in the mid-40s. Spot whey averaged 46.25¢, down a scant 0.35¢ compared to the previous week. Trading was limited with just three loads changing hands. European whey prices are moving up this week, suggesting adequate support in the 40-cent range for the next few weeks. Additionally, German and French cheese production declined, meaning there could be a little less WPC available to the market for a time – that may provide space needed for new output from the United States. Overall, the data suggest that as long as China’s demand continues, markets could remain balanced into early 2021.