Weekly forecast update – February 12, 2021

Forecast updates
Few, but significant changes this week. Adjusted NDM forecast for the second half of the year higher.
Based on reduced global stockpiles of milk powders.
China appears to have consumed its 2020 stockpile of milk powders.
Given steady demand that could support prices during the second half of the year.
Increased high-heat NDM price forecast. Given more milk available to the market – high heat capacity could be constrained through Q2 2021.

Fluid Milk Market
Winter weather conditions throughout the United States have resulted in more fluid milk demand from bottlers. Simultaneously, brutally cold conditions are causing milk off-the-farm to slow as cows divert energy from milk production to keeping warm. Additionally, winter weather is disrupting transportation and plant operations. Those events are working to slow milk headed to manufacturing. That is not to say that manufacturers are not busy, but circumstances helped reduce the heady supplies most have dealt with this winter. Better demand from bottlers has reduced spot milk availability; however, it is typically an $8-$10/cwt discount to Class when distressed milk pops up. Still, many anticipate spring to be difficult with milk swelling above year-ago levels.

The industry continues to grapple with the 2018 Class I formula change and the resulting impact from 2020 as dairy producers apply pressure seeking change to avoid prolonged periods of depooling. There are several causes for depooling – the Class I price is one of them. The most significant issue remains the vehicle for change – a farm bill and federal order hearing could take years to provide relief. Still, the gaps between Class III and IV milk prices remain wide, but less than 2020. While the impact could be substantially less than depooling in 2020, it is probable depooling could return this year.

Cheese Market
CME weekly cheese market averages were higher than the previous week; however, block markets declined throughout the week. CME blocks averaged $1.6025/lb, up 2.15¢ vs. the prior week. Barrels averaged $1.498/lb, up 7.05¢ vs. the previous week. News that the Biden stimulus moved out of sub-committee this week continues to lift market sentiment related to USDA’s continued purchases this year; however, the reality of slower post-Super Bowl demand and more capacity may be more than even USDA’s wallet can handle. The Agriculture Committed proposed $3.6 billion for feeding and food-boxes down from the proposed $4 billion. This time the proposal permits restaurants as eligible participants, which is a new wrinkle in the program. The request also extended the 15% increase for the SNAP and WIC programs.

All of that spending, along with Section 32, suggest that USDA could be a consistent buyer through September, the end of the current fiscal year. For those reasons, participants have been reluctant to sell markets lower despite data that suggests prices could be lower through the spring. At the same time, there is the recognition that the Dairy Revenue Protection program has removed some sell-side liquidity from markets. As a result, markets could trade in a tight range for a time, supported by USDA buying potential, but capped by new product available to the market. It may explain why markets surge on very little data but are much slower to come back down.

Butter Market
CME butter markets leaped to $1.395/lb on Friday, lifting the weekly average price to $1.3135, up 4.55¢ compared to the previous week. Traded volumes were less than the past few weeks. There were also some reports that cream sales picked up in parts of the country; in other areas, cream was still widely available, keeping multipliers near the five-year average for this time of year. Anecdotal reports suggest that export order interest is climbing, which could help reduce the amount of butter headed to storage this winter. Additionally, butter could benefit from more USDA food-box purchases. Despite the recent price surge, it remains well below cheese prices, encouraging bidders to include it in future orders.

Restaurant sales had their best performance in a year, according to the latest Black Box Intelligence report. January same-store sales were 4.91% less than year-ago levels – the smallest gap since February 2020. Foot traffic was down 12.16% – again the best performance in a year and a sizeable improvement to December. Recovering foodservice demand, USDA purchases, and exports could reduce butter holding and lift prices during the second half of the year.


CME prices slid into the end of the week, dropping to their lowest levels since the end of November 2020. CME NDM averaged $1.12/lb. down 0.2¢ from the previous week. Sixteen loads changed hands, well below the record-setting pace the last week. Over the last week, the news was lackluster, and interest is slowing as many anticipate ample supplies from the United States and Europe through the spring. Still, US powder is reasonably priced compared to other regions and should retain a steady stream of interest. However, the persistent container issues and shipping delays could be sending buyers to other areas to source product. There is some expectation that shipping could return to normal levels by spring.

Overall, economists expect the US economy to grow this year and forecast consumer spending that could lead to commodity inflation. Add to that continued recovery in Asia that could keep injecting more demand into the system. In 2020, China encouraged its citizens to consume more dairy to boost immune systems, which has sent China’s milk prices higher and imports soaring. Higher internal prices relative to world milk powder prices support elevated imports this year and higher demand.

Whey & Lactose Products
CME whey prices increased modestly this week, with prices averaging 54¢/lb, up 0.5¢ compared to the previous week. Dairy Market News (DMN) prices continue to track higher, with the Central mostly reaching 50.75¢ and western range 51.5¢. DMN lactose prices were steady this week at 41.25¢. Market data was unchanged this week, and demand from China remains supportive to prices for now.