Weekly forecast update – Feb. 11, 2022
Forecast updates
- Despite higher markets – no significant changes to the forecast this week.
- Reports suggest futures markets lifted on outside money running to commodity markets – including a spillover into dairy.
- That activity drove markets higher throughout the week with few changes in fundamental data.
- CME NDM has taken the top spot for pricing – absent a commensurate move from EU and NZ next week – the United States is not typically capable of maintaining that sort of premium.
- Expect if spot markets do not sustain a higher move, futures could begin to sell-off.
- Adjusted 1H 2022 lactose prices to 40.5-cents given stockpiles it seems unlikely prices move up, but also, they seem well supported at current levels given better exports.
Fluid Milk Market
There are not many changes this week. With winter storms passed, bottling operations and milk flows are returning to normal. Many are worried about the spring and the prospects for hauler shortages and the implications for milk movement. Western weather is turning to spring quickly with snow and rainfall all but stopping in January and early February. Absent some late winter storms, above-average temperatures could bring on the spring flush a little earlier than normal. While drought maps are improved from the December snowfall – an early start to spring and lack of precipitation could undo some of the positive impacts.
On the farm, feed and fertilizer costs are rising. Corn and soybean meal surged last week as outside money piled into commodity markets. While most dairy producers have at least some of their feed purchased for this season – anything that has yet to be committed could be costly. Additionally, for next season prices are elevated and expectations are milk prices could ease – that could create profitability issues.
Cheese Market
Just as it appeared cheese markets could ease this week, prices stabilized and turned higher by Friday. Cheddar blocks averaged $1.9015/lb – 3.2¢ more than the previous week. Cheddar barrels averaged $$1.885/lb – 5.25¢ higher than the prior week. Little changed in the world of cheese. There were some reports of good-sized quantities of cheese exports booked for Q2 2022 – that was somewhat expected. Exports were key to keeping markets balanced last year and a factor that helped to absorb new cheese from the Michigan cheese plant. Slowing exports could put considerable pressure on domestic prices.
US cheese imports in December 2021 totaled 31.6 million pounds – 12.1% less than 2020. US importers brought in less cheese from the Netherlands (-29%), Canada (-64%), Nicaragua (-50%), and Lithuania (-48%) – accounting for all of the declines. US imports from Switzerland and Mexico increased – the rest were mixed. 2021 US cheese imports were 13.7% more than 2020 after adjusting for leap day – the first double-digit increase since 2016. That reflects a sizeable pandemic recovery – suggesting foodservice recovery. The improvements from Europe also suggest improvements from reducing tariffs.
US December 2021 cheese exports were 69.1 million pounds – 11% less than November 2021 on a daily average basis, but 20.3% higher than 2020. In total 2021 exports were 897.5 million pounds of cheese 14.1% higher than 2020 and the most cheese exported on record. That was a sizeable recovery and one that returned US cheese exports to trend. 26% of 2021 cheese moved to Mexico, followed by South Korea (17%), Japan (10%), Australia (6%), and Canada (4%) – the top five destinations accounted for 63% of all exports last year.
Butter Market
CME spot butter markets surged on Friday suggesting the old crop-new crop buying may be starting early this year. CME butter averaged $2.582/lb – up 9.65¢ compared to the previous week. As of the first day of March trading only butter made on or after Dec. 1, 2021, is eligible for trade at the CME (“new crop”). Butter made before that date can be moved commercially but is no longer eligible for sale at the CME (“old crop”). Annually, traders tend to sell old crop butter ahead of the cut-off. This year there has been some of that activity; however, it has been somewhat limited as old crop butter appears to be limited. Once the cut-off passes traders are assured, they will have butter that is eligible for trade through the end of the year. Typically, new crop butter can hold a 7-10 cent premium to old crop butter.
US December 2021 butterfat imports totaled 13.5 million pounds 5.8% higher than November 2021 and 5.2% more compared to 2020. That left 2021 butterfat imports 139 million pounds and 8% below the previous year. That was the first YoY decline since 2016. Imports from Ireland and New Zealand were higher in 2021 compared to 2020.
Imports from India (AMF) dropped compared to 2020 levels. Imports from Mexico and Canada declined 78% from last year’s levels – that reflects less AMF. Fewer AMF imports likely mean more domestic AMF production – a draw for cream.
US December 2021 butterfat exports totaled 10.6 million pounds – 1.9% less than November, but 28.4% higher than December 2020. 2021 butterfat exports eclipsed 2020 – totaling 128.1 million pounds and 116% more than 2020 after adjusting for leap day.
In December, Canada was the largest destination for US butterfat and those exports were 67% more than the previous year. While US butter prices seem high, zero-tariff allotments of cream and butter, as well as over-quota butter, could continue to move butter to Canada this year given the $5.20/lb equivalent butter support price. Last year over 30 million pounds of butter were exported to Canada.
NDM/SMP
Once again, CME NDM ended with a premium to the Rest of the World (ROW). Typically, US NDM/SMP prices are discounted to New Zealand and Europe. GDT may increase next week – making the CME move a little early; however, recent data has started to provide a headwind to further milk powder increases. CME NDM averaged $1.866/lb – 5¢ higher than the previous week. While production remains stunted – it will seasonally increase. There are some reports that Mexico’s milk production could reduce some spring needs from the United States. As China slows purchases from New Zealand – that could put both groups competing throughout Southeast Asia and Middle East-North Africa for sales. That tends to temper price increases.
US December 2021 NDM/SMP exported nearly 127 million pounds – 27% below November 2021 and 4.8% less than 2020. 2021 NDM/SMP exports were 1.97 billion pounds the most on record and 10% higher than last year. Mexico remains the US’s largest trade partner in this category. Exports in December 2021 fell to 54.9 million pounds – 4.8% behind the pace set in 2020. Exports to China improved in December 2021 – up 85% compared to 2020. Declines to Colombia and Pakistan offset improvement throughout Southeast Asia – that may reflect those higher costs are starting to negatively impact the demand from some nations. At the same time, with US 2021 commercial disappearance dropping 24-25% below prior-year levels, that implies a slowdown in exports could return powder that would take time to absorb – something that could pressure prices lower.
Whey & Lactose Products
For the first time in months, CME whey prices moved decisively lower. The weekly average was 83.3¢/lb, down 2.2¢. The downturn was short-lived as prices recovered on Friday – following other commodities higher. There are concerns that whey at 80-cents could be compressing margins for value-added whey products, creating an incentive for processors to produce more whey powder destined for spot markets. The temporary spot sell-off caused futures to turn red for days. The price increase on Friday is helping futures recover some lost ground. Whey prices could be volatile this spring.
US whey exports totaled 31.9 million pounds in December 2021 – that was 16.6% less than the previous year. 2021 whey exports were 498 million pounds and 5.7% higher than 2020. The United States shipped less whey to China – that will be key to keeping markets balanced. US WPC (<80%) exports in December 2021 were 18.2 million pounds and 47% less than 2020. US WPC (<80%) imports in December 2021 were 4.35 million pounds and 13.8% more than 2020. US WPI imports in December 2021 were 3.1 million pounds and 76% more than 2020. While WPC exports were lower, it appears domestic demand was capable of absorbing the additional product suggesting the lower exports were due to higher internal demand.