Weekly forecast update – Feb. 10, 2023

Forecast updates

Improving European outlook is lifting prices this week. Adjusted the forecast for spot markets. It seems too early to suggest a full recovery – therefore, the remainder of the 2023 forecast was left unchanged this week. Milk will need to slow down or demand increase to indicate prices should increase again.

Milk Market

Milk reports remain consistent – distressed prices with some reports of dumped milk. It appears some of the dumping may be the result of plant downtime over the last few weeks. There are reports that milk is starting to pick up, and some are noticing the impact of recent farm expansions. At the same time, there are intermittent reports of herd sell-outs. There are similar reports out of Europe that milk supply continues to increase, responding to higher prices. While there are concerns that dairy producers could begin to reduce milk supply – reacting to lower prices – so far milk appears to be ticking along.

Recent dairy product price recovery has lifted futures Class IV milk price expectations back to above the $19/cwt level – Class III above $18/cwt in most months. While there are concerns that prices could turn lower – as futures continue to forecast price recovery a few months away – it is likely to encourage dairy producers to retain cows and produce more milk.

Cheese Market

CME blocks were up and down this week, with prices averaging $1.8585/lb – 1.85¢ less than the prior week. Barrels trended lower throughout the week, with prices averaging $1.58/lb, down 1.45¢ compared to the previous week. Anecdotal reports suggest that some cheese plants struggle with intermittent downtime, prompting higher spot prices. Still, Super Bowl typically marks the end of the cheese demand season, suggesting that downtime may be more manageable for markets to accommodate – somewhat reducing potential stock builds this winter but unlikely to create a near-term shortage. Markets will rely heavily on domestic demand and exports – slowdowns could push prices lower. At the same time, better-than-expected demand could support higher-than-average prices for this time of year. In part, prices stabilized over the last week as news spread that European cheese demand picked up and that exporters may have cleared excess stockpiles accumulated last year.

US December 2022 cheese imports totaled 32.2 million pounds, 1.7% more than in 2021. 2022 imports were 0.7% higher than 2021 – given cost differences, it was a strong performance as imports were more costly than domestic cheese. Imports from Europe were generally higher except for France and Ireland, which underperformed December 2021 levels. Imports from Australia fell, but cheese solids from India were higher compared to December 2021.

2022 exports were 12% higher than 2021 volumes and reached over one billion pounds for the first time. US December cheese exports totaled 79.6 million pounds, 16.2% more than the previous year. Exports to Mexico were 30% more in December 2022 than in 2021. US exports to Canada slipped. US exports to South Korea, Japan, and Australia were all more than in 2021. Exports to Bahrain shot up – 15.5X the prior year. Fresh cheese exports bettered 2021 for the first time since June. Cheddar exports were 40% more than in December 2021; YTD was up 58.5%. US 2022 fresh cheese exports were unchanged – much stronger Cheddar cheese exports carried volumes.

Butter Market

After a busy start to February, spot trading activity quieted as prices increased throughout the week. CME butter averaged $2.398/lb, up 5.35¢ – prices continue to recover after bottoming in late January. Global Dairy Trade (GDT) butter and AMF performed better than expected this week. GDT butter prices increased 6.6% compared to the previous auction to $$4,745/MT ($2.10/lb on an 80% equivalent). AMF prices were $5,586/MT, up 4.8% ($2.05/lb). Despite the higher-than-expected results, imported AMF is more cost-effective for domestic users than domestically produced AMF. That contributed to the trade reversal in December, which could cause stocks to rebuild quickly this winter and spring. Despite anecdotal reports of widely available cream and butter headed to storage – markets were more impressed by price recovery in Europe and indications that product is tight in that region.

US December 2022 butterfat exports totaled 10.7 million pounds, down 1.5% compared to the previous year. Exports to Canada were marginally higher; Mexico was up 2.5X. Exports throughout the Middle East and North Africa fell. 2022 exports were 43.5% higher than in 2021, contributing to the butter tightness throughout most of the year, leading to higher prices during the fall.

US December 2022 butterfat imports totaled 17.3 million pounds, up 29% compared to the previous year.  Imports from New Zealand were 2.3X December 2021 – which indicates of the value of imported AMF. Imports from Europe declined while imports from Argentina increased. Data suggests that US industrial butterfat users are switching from domestic to imported products.

NDM/SMP

CME NDM spot prices continued to recover this week, averaging $1.2455/lb, up 5.35¢, which also caused futures to move higher. This week there were widespread reports that European exports have cleared older products and that discounted prices are done for now. That caused global prices to lift. GDT WMP increased $3,329/MT ($1.51/lb); SMP was unchanged at $2,829/MT ($1.28/lb). Both were better-than-expected performances – SMP increased based on higher purchases from the Middle East and Europe. North Asia (China) bought less WMP than last year – which is a bit concerning. Markets continue to interpret the information positively, lifting values through 2023.

So goes Mexico, and so goes US exports. In December, US NDM/SMP exports totaled 140.2 million pounds, 8.3% more than the previous year. 2022 exports were 6.2% less than in 2021. In December, US exports to Mexico increased by 8.3% – the primary driver of growth. Surprisingly, US exports to China lifted also – up 49.5% compared to 2021 levels. US exporters made inroads throughout Central and South America. But, exporters struggled in Southeast Asia – as exports to stalwarts like the Philippines, Indonesia, Thailand, and Vietnam declined as those buyers committed to New Zealand and Europe.

US MPC exports soared 42% above 2021 in December 2022. That was the most for that month on record. Additionally, 2022 MPC exports exceeded 2021 by 15%. Exports throughout Southeast Asia and the Middle East jumped higher. Volumes to Mexico and New Zealand fell.

Whey & Lactose Products

CME whey prices peaked midweek and then slipped a bit, but the CME whey price averaged 42.5¢ and 6.3¢ more than the previous week. Dairy Market News (DMN) prices were mixed. The central mostly price was increased 1.25¢ to 37.25¢; western mostly prices were down 0.5¢ to 38¢ this week. NDPSR whey prices moved up 1.36¢ this week to 41.37¢. European whey prices stabilized also. With higher protein prices slipping – whey prices may have some support, but higher moves could be challenging.

US whey exports totaled 39.7 million pounds – 18.7% more than in December 2021. Mid-year US whey exports improved as soybean meal & lactose prices compared to whey increased in a hog ration shifting demand back to whey. While US exports got off to a very slow start due primarily to higher prices, 2022 exports ended the year unchanged to 2021. US WPC (<80%) whey exports totaled 26.7 million pounds in December 2022 – 37% more than in December 2021. 2022 exports were 22% higher than in 2021. US WPC (<80%) whey imports increased by 16.2% in December – YTD was up 3.6%.