Weekly forecast update – Feb. 17, 2023

Forecast updates

Data from Europe caused prices to bottom and lift; however, milk production continues to expand, and demand, while recovering, is still months away from levels that can absorb current milk production. There is more uncertainty surrounding New Zealand’s end of 2022/23 season due to the impacts of Typhoon Gabrielle. Just as dairies recovered from saturating rains in late January, the ground was flooded again. Some sheep and beef areas may have been more impacted by the recent round of flooding. The forecast is for warmer and sunnier weather over the next few weeks – that should sustain pasture growth and allow the North Island to dry out. At the same time, Canterbury dairies rely on irrigation as it has been dry. That makes the weather impact on the end of the New Zealand season difficult to project.

• Increased butter price forecast through Easter but lowered prices through July, expecting that weaker demand and trade reversal could cause stocks to build, reducing price expectations.
• No significant changes to cheese outside of spot price adjustments.
• Reduced some NDM prices as prices eased.
• Increased whey through Q2 2023.

Milk Market

Domestic reports remain consistent – there is plenty of milk, and distressed prices are prevalent as finding trucks to move milk is difficult. Spring-like weather conditions could cause production to pick up over the next few weeks. At the same time, IRI scan data for January 2023 indicates bottled milk volumes are down 6.8% compared to the previous year. That will tend to divert more milk to manufacturing this winter and spring – it could put some pressure on prices through the first half of the year.

Overseas, EU-27 December 2022 milk production was 1.5% more than in 2021, with Spain yet to report. December milk production for 26 of 27 reporting countries was 23.95 billion pounds. Germany and the Netherlands led the gains with both up 3.1% and 1.7%, respectively. Belgium, Ireland and Romania also added milk – Romania jumped up nearly 13% vs. the previous year. France and Italy still lagged 2021. More milk from Europe seems to undermine recent stories that markets are balanced.

Cheese Market

CME blocks and barrels moved in opposition this week. The changes were modest, but barrels moved lower throughout the week and blocks up. CME blocks averaged $1.8805/lb, up 2.2¢; barrels averaged $1.5525/lb. down 2.75¢ compared to the prior week. Barrel trading picked up with 45 loads changing hands, compared to six blocks. More barrels at the CME indicate that exports slowed as the two tend to live in opposition. NDPSR prices continue to decline. Through mid-year, CME cheese futures remain below the $2/lb mark – but that is higher than other regions, and that could result in fewer exports during the first half of the year, making more cheese available to the spot markets.

US cheese commercial disappearance in December at 1.13 billion pounds – 1.67% higher than in 2021. That would make 2022 commercial disappearance 1.36% higher than 2021. Q2 performed poorly due to skyrocketing fuel costs.  Cheese consumption recovered in Q3 and Q4 as fuel prices moderated. YTD cheese consumption totaled 13.27 billion pounds. 60% of the cheese was other than American – leaving 40% of American-style cheese consumption at 40% of the 2022 total. That was unchanged compared to 2021. That was the opposite of exports, where Cheddar drove the results. Other styles of cheese increased by 2.3%, driving domestic results.

Butter Market

For the first time in February, CME butter prices turned lower. Despite prices ending the week lower, the CME average was $2.4215/lb, up 2.2¢ compared to the prior week. Prices peaked at $2.4575/lb before turning lower. Although there are interested buyers, the fundamental data appears to be stacking up against higher prices with production up, imports up, exports down, and retail scan data lower – it suggests that the Cold Storage report due out next week could suggest stocks are actively building. That doesn’t mean prices will move lower quickly – it could take time to convince markets there are sufficient supplies for the end of the year. That may play out through the spring.

Price may have played a role in 2022 commercial butter disappearance falling below 2021 levels. In 2022 commercial disappearance was 2.0 billion pounds, 6.9% lower than in 2021. That reset demand back to 2019 levels. In December 2022, commercial butter disappearance was 171.8 million pounds, down 11.2% compared to 2021. Once prices increased above $3/lb in August, demand and consumption pulled back – evidence that consumers and industrial users slowed purchases. That erased gains since the pandemic – returning consumption to 2018-2019 levels. It marked the first downturn since 2018.

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.

US 2022 domestic commercial disappearance was 684 million pounds, 17.2% lower than in 2021 and the lowest over the last 20 years. December 2022 commercial disappearance was 82.9 million pounds and 31% more than the previous year. That was still insufficient to bring consumption above 2021 levels. Overall, higher Class IV SNF values compared to Class III protein made NDM use in cheese vats unlikely. With current NDM values relative to protein – it is more likely that NDM could be used in cheese vats this year – especially if milk becomes tighter later in the year. With such low levels of demand, more US NDM/SMP moved overseas – close to 70% of all production, making that product heavily reliant on world prices and demand moving forward.

Whey & Lactose Products

CME whey prices continued their meteoric rise this week with prices averaging 43.9¢, up 1.4¢ compared to the previous week. Dairy Market News (DMN) prices were corrected with prices moving up. The central mostly price was increased 1¢ to 38.25¢; western mostly prices were up 2.25¢ to 40.25¢ this week. NDPSR whey prices shed 1.49¢ this week to 39.88¢. European whey prices were stable and remain in the 30s. With higher protein prices holding – whey prices may have some support, but higher moves could be challenging.

US whey commercial disappearance was 33.4% lower in December, leading to 3.6% less in 2022 vs. 2021. US WPC commercial disappearance was 19.7% higher in December, leading to 123% more in 2022 vs. 2021. Higher domestic commercial disappearance and exports helped absorb product – but given lower YoY WPC output and a stock build – that suggests prices may have to decline further to entice buyers. US lactose commercial disappearance was 8.4% lower in December but 7.8% more in 2022 vs. 2021.