Weekly forecast update – Feb. 18, 2022

Forecast updates

• No significant changes to the forecast this week – adjustments to FEB and MAR for spot markets.
  • A higher GDT this week lifted prices across the board, but by the end of the week, markets settled off of recent highs.
  • Cheese is still reported as available to the markets and not indicative of current price levels – suggesting there could be a pullback.
  • Whey prices have pulled back at the CME, but DMN prices are still tracking higher.
• Adjusted 1H 2022 buttermilk powder prices higher.
• Made some adjustments higher for 1H 2022 spot cheese prices – prices are still less than futures market projections.
• Adjusted MAR22 butter prices higher.

Fluid Milk Market

Springlike weather conditions are helping to seasonally lift milk intake. Still, many processors are reporting that milk feels tight and is not keeping up with current demand. That has kept discounts to a minimum. After winter storms rolled through, it sounds like bottlers are back to regular schedules – demand could be a bit lower over the next week due to mid-winter break reducing school schedules.

European milk remains well behind the pace set in 2020. With all countries, except Spain reporting, EU-27 December 2021 milk was 1.6% less than the same period in 2020. Germany, France, and the Netherlands remain the laggards; however, growth from Ireland and Poland has slowed to a point those nations’ output is no longer offsetting the declines. Europe is actively working on its Common Agricultural Policy (CAP). The changes could be significant with proposals including herd retirements, supply management, changes to direct payments to producers, and diversification away from livestock agriculture. All of those items suggest that the current slowing of milk production from the region could be a permanent offering opportunity for US exports in the coming years, but also indicative of higher prices on the horizon.

Cheese Market

CME spot cheese markets were elevated throughout last week, but much like previous weeks as prices approached $2/lb there was more selling interest. Blocks averaged $1.9725/lb with seven loads changing hands – up 7.1¢ from the previous week. Barrels averaged $1.9380 – 5.3¢ more than the previous week. The block-barrel spread remains narrow with blocks and barrels continuing to trade the top spot. Overall, reports have not changed and very few are suggesting that markets are tight – balanced to long would be a more apt description this week. Some cheese is headed to warehouses and processors are being offered products. Demand, domestic and export, is positive; however, supply is seasonally rising with no one reporting that cheese is scarce. Still, that has little sway over spot and futures markets presently. MAR22 futures are forecasting $2.049/lb; although the pricing period is underway – that would suggest a surge is necessary for weekly NDPSR prices to reach the current futures forecast.

In early 2022 Covid took a toll on restaurant visits with January reflecting the first same-store-sales declines since February 2021; foot traffic tumbled suggesting more people accepted delivery or take-out and that comparably better same-store sales could indicate that menu items are more expensive compared to last year as companies push through cost increases.

ERS released US cheese domestic commercial disappearance for 2021 at 13 billion pounds and 2.95% more than 2020 after adjusting for leap day. December 2021 domestic commercial disappearance was 1.09 billion pounds and 1.1% higher than the previous year. Combined with exports – that was strong demand in 2021.

Butter Market

CME spot butter markets turned about this week with prices moving swiftly lower throughout the week. Prices peaked at $2.86/lb after a stronger Global Dairy Trade (GDT) performance on Feb. 15. After that prices turned lower ending Friday at $2.69/lb. In the end, CME butter averaged $2.765/lb 18.3¢ higher than the previous week. Butter volatility is expected to remain throughout this year – with expectations that markets could become more active once the new crop year starts in March. For now, the cream is available at reasonable prices to butter churns. While processors are actively churning there are few reports, if any, of processors offering considerable amounts of butter suggesting that most are comfortably committed. There are some offers, but that appears to be market-driven as few want to put butter into cold storage above $2.80 given current futures markets. After 2022 butter futures jumped above the $2.50 mark in most months, prices eased into the end of the week. That said, 2H 2022 futures are modestly higher than the past few weeks.

ERS released US butter domestic commercial disappearance for 2021 at 2.14 billion pounds and 2.66% more than 2020 after adjusting for leap day. December 2021 domestic commercial disappearance was 193.8 billion pounds and 6.3% higher than the previous year. Those were the remarkable end-of-year gains compared to the previous year suggesting some foodservice improvements could be helping.

EU27 December 2021 butter production, excluding Spain, totaled 365 million pounds and 5.8% less than the previous year, but 3.7% more than November 2021. Belgium and the Netherlands led the declines – dropping 70% and 46%, respectively. Performance for other nations was mixed and hovering near unchanged Given butter/SMP returns compared to WMP it makes sense processors are switching product mix. That could permit US butterfat exports to continue throughout 2022 as there is less supply coming from Europe – a factor that could influence 2022 prices.

NDM/SMP

After the higher GDT performance for SMP and WMP on February 15, CME spot NDM prices lifted to $1.90/lb for the first time since 2014. Prices settled back by the end of the week with NDM averaging $1.8820/lb up 1.6¢ compared to the previous week. US spot prices closed the gap on EU and NZ prices this week – a position that makes US milk powder comparatively more expensive once adjusting for currency and shipping costs. Presently, there is still good demand from the Middle East and Southeast Asia that is helping to offset slower sales to China. At the same time, most nations are making less NDM/SMP opting to make cheese with limited milk supplies. Seasonally, Northern Hemisphere production should increase, but there is no guarantee that NDM/SMP production could be more than a year ago. Class IV and NDM futures appear to reflect that reality suggesting the Class II and IV skim-solids could be extremely high for most of the year and nearly double the last five years.

US NDM domestic commercial disappearance was 665.5 million pounds – 23.8% less than the previous year after adjusting for leap day. Most of the declines would come from the dairy use category. That data suggests that a slowdown in exports could cause products to back up quickly. Given the higher value of Class IV SNF, cheese processors are unlikely to standardize cheese vats with NDM this year as it would cost more than Class III skim milk.

Whey & Lactose Products

CME whey markets reached a level that has brought sellers to the market. This week 13 loads traded, higher than the 10 the previous week. The increased selling interest seems to be moderating markets somewhat. CME whey averaged 81.7¢, 1.6¢ less than the previous week. Still, Dairy Market News (DMN) prices are still rising. Central mostly whey prices averaged 80.1¢ this week – 0.85¢ higher than the prior week. Central mostly whey prices drive most of Class III other solids value suggesting for now that NDPSR whey prices could continue to track higher. WPC80 and WPI90 demand has been driving markets higher and keeping whey production somewhat limited – but given spot whey above 80¢ the WPC80 markets are compressing. That could incentivize some processors to temporarily shift whey solids to sweet whey powder production to 1) take advantage of the higher spot prices and 2) slow the upward trajectory of WPC80 costs.