Weekly forecast update – Jan. 13 ,2023

Forecast updates

Spot markets were surprisingly strong throughout the week – but fundamental data may not necessarily support prices at those levels for long. Toward the end of the week cheese market started to ease again. There were no significant changes to the forecast this week – some adjustments to milk and whey powders primarily.

Milk Market

It is possible widespread flooding in California’s Central Valley this week provided some support for spot market prices. While the rain and snow are helping to abate drought conditions, flooding is unlikely to help milk production in the Golden State. Reports of rain-damaged feed and waterlogged dry lots are helping stoke concerns about milk production from the nation’s largest milk-producing state. In Central states, milk is plentiful, and plants are overrun with milk. There are anecdotal reports that discounts in some regions have reached $10/cwt, but many plants cannot take advantage of the low-cost milk as they are full of their milk. Add to that some reports that plant downtime – planned and unplanned – continues to constrain processing this month. That continues to result in reports of dumped milk, but it is still unclear how widespread and how much milk is headed into lagoons.

Cheese Market

CME blocks shot higher this week, nearly reaching $2.20/lb before prices reversed and turned lower again. There was little explanation other than uncommon buyers looking to lift prices throughout the week. That kept the block barrel spread very wide this week also. Blocks averaged $2.13/lb, up 12.88¢ compared to the previous week. Barrels averaged $1.7715/lb, up 4.53¢. This week’s spot cheese markets were out-of-step with international markets and fundamental data. The cheese demand season ends in a few weeks – which could bring more extensive price corrections. That said, more interest returns once futures drop below the $2/lb level and demand remains positive.

Ceres estimates US November cheese commercial disappearance at 1.11 billion pounds and 0.9% more than the previous year. That was the most for November on record. YTD commercial disappearance is running 3.3% higher than the same period in 2021. 2022 will likely be the second consecutive year of consumption at or above one billion pounds in each month. That level of demand combined with record-setting exports indicates that cheese demand is strong and capable of absorbing more capacity in the coming years.

Butter Market

CME butter markets bucked international trends and increased this week, with prices steady throughout the week. Spot butter averaged $2.427/lb, up 4.64¢. Global prices eased with Europe reporting spot prices closer to the $2.15/lb level on an equivalent 80% butterfat level. At the same time, stocks appear to be rebuilding so that could cap a nearby run. Cream is heading to butter churns. There are some pockets of the market where demand is returning, but production still seems well ahead of demand – typical for this time of year. Given US higher prices that could result in slower overseas demand compared to last year.

Ceres estimates November 2022 US commercial butter disappearance at 374.6 million pounds – down 2.1% compared to 2021. That put YTD commercial disappearance 3.9% lower than the same period in 2021 which was the lowest demand since 2017 for November, suggesting that prices above $3/lb and reduced promotion took a toll on some demand.

NDM/SMP

Spot NDM prices experienced some support early in the week, likely due to the severe storms in California; however, prices were declining again by the end of the week, falling back to levels not seen since 2021. International prices continue to move lower. In comparison, spot decline was more modest, with CME averaging $1.2795/lb, down 2.74¢ compared to the prior week. Future’s reaction was swift, with prices dropping to $1.20s. Demand remains underwhelming with most waiting to see what next week’s GDT brings and the size of China’s lunar new year celebration that gets underway January 22.

Ceres estimates November 2022 commercial disappearance at 191.9 million pounds and 7.6% less than in 2021. That was the lowest level for November since 2019. It was still 17.9% more than in October, suggesting moderating prices may have encouraged more demand. YTD commercial disappearance is running nearly 8% behind the same pace set in 2021.

Whey & Lactose Products

CME whey prices faltered this week, and prices retreated. CME prices averaged 35.7¢, 5.18¢ less than the previous week. Futures prices declined also. Production remains elevated, stocks are building and milk powder prices are trending lower – that could be putting downward pressure on spot prices. Given new capacity coming online in Q2 this year, that could mean whey prices may be lower than over the last few years.