Weekly forecast update – Jan. 16, 2022

Forecast updates

• This week, adjusted 2022 prices for spot markets but maintained high price targets through 2022. No changes to 2023 or 2024 this week.
• Global milk production remains above the previous year; however, reports of slowing milk from New Zealand this week caused markets to jump again. At the start of 2022, demand continues to outpace supply, continuing where 2021 left off.
  • Food inflation is starting to take a toll on consumption globally, with reports that consumers react to higher prices.
  • At the same time, products that promote health like yogurt are seeing improvements.
  • This year, China is forecasting higher milk costs, which suggests prices could be modestly higher than 2021, which would support imports.
• Increased the January 2022 CME spot butter price. With half of the costs in, and CME showing signs of decline, the two could combine for a $2.60 finish.
• Adjusted the January 2022 CME spot cheese markets.
  • Reduced the block-barrel spread.
  • Reduced the FEB22 spot cheese price.
• Raised the DMN NDM prices – domestic prices are now higher than global prices – that could have implications for Q2 export booking if world prices do not rise.
• Whey prices could remain high during the first half of 2022 due to demand strength for WPC and WPI. That said, China’s whey imports slowed – that could wear on prices over a longer term.
  • Adjusted the 1H 2022 forecast higher.
• All of these changes worked to increase the milk price forecast in 2022.

Fluid Milk Market

In the United States, there are no significant changes related to milk this week compared to last week. In some parts of the country, cooperatives are loosening milk production restrictions to permit more milk now in anticipation of tighter supplies later in the year. There are reports that dairy producers are procuring more cows, willing to absorb the penalties as the current milk prices mitigate a lot of the impact of the penalties. Lastly, dairy producers and their nutritionists are working to reconfigure rations to lift dairy components. While this is in process, it could take weeks for dairy cows to begin responding to the new allocations with additional milk output.

Overseas, Fonterra, New Zealand’s largest cooperative, announced that it anticipated falling approximately 1.6% short of its 2021/22 season output forecasts this week. The weather in New Zealand is not cooperating this year. Initially, spring weather brought rain but dark skies that inhibited pasture growth. This summer, hotspots are developing that deplete soil moisture and negatively impact pasture growth. Should New Zealand dairy producers dry cows off early, that could send prices higher this spring as world buyers come to the United States to provide a stopgap for a missing product, assuming demand remains consistent for this time of year.

Cheese Market

After Fonterra’s announcement, CME cheese markets responded, moving higher. Blocks peaked mid-week and turned lower, averaging $2.0025/lb, 1.85¢ less than the previous week. Barrels rose steadily throughout the week, with prices averaging $1.8905/lb, 6.6¢ more than before. By Friday, barrels ended the week higher than blocks resulting in an inverted 4¢ spread. In 2021, barrels would stay above blocks for a few weeks; however, barrels would stay lower for a considerably extended period when blocks resumed the premium. Presently, fewer barrels could be headed to the CME as western manufacturers opted to export cheese, which temporarily reduces the number of barrels available to the market.

US retail natural cheese sales in December 2021 were 1.4% lower, with volume down 1% compared to the same period in 2020. That was a smaller YoY gap compared to November. But given that people were moving around and fewer meals were prepared at home in 2021 vs. 2020, that is a good performance and likely bettering pre-pandemic retail sales.

US cheese commercial disappearance in November 2021 totaled 1.11 billion pounds – up 2.8% compared to last year. That confirms anecdotal reports that indicated sales were robust during the fall. Solid retail sales combined with improved food service and the highest November cheese exports on record drove the results. Year-to-date commercial disappearance in 2021 was 3.45% above the same period for 2020. The data back stock declines.

Butter Market

CME butter peaked in the mid-280s before prices eased into the end of the week. Higher prices coupled with an above-average cream multiplier may be freeing up some cream. Some reports show that plants could also suffer from Omicron-related staffing shortages reducing weekly cream needs. There is a bit more cream headed to butter churns this week in either case. At the same time, those processing bulk butter do not want to store products into an inverted market – guaranteeing a hedging loss. That may explain why there has been a consistent stream of spot butter sales on and off the market this week. CME butter averaged $2.793/lb – 12.6¢ more than the previous week. More butter may continue to head to Chicago until butter markets level off; carry markets this year could be challenging given nearby demand and limited product availability.

US butter commercial disappearance totaled 224.7 million pounds in November 2021, 1.5% more than the previous year. Year-to-date through November 2021, commercial disappearance is running 1.94% ahead of the same period in 2020. The data suggests a stronger pull from a recovery foodservice channel with slower retail sales. That coupled with higher exports whittled back stocks – a figure that could result in comparable or lower 2021 carry-out stocks relative to the last three seasons.

Retail butter sales in December 2021 declined 2.5% compared to the same period in 2020, and volumes dropped 6.3% over the same span. That suggests more butter moved to exports and food service to meet the higher commercial disappearance figures. During that month, other high butterfat products like creamers and cream cheese had a lower volume performance than last year, but sour cream, whipped toppings, and desserts increased.

NDM/SMP

NDM prices slowly gained steam throughout the week, with CME prices reaching above $1.71/lb by Friday. The first Global Dairy Trade (GDT) saw unchanged WMP prices, and SMP increased 1% to achieve the highest traded price over the last five years. Along with USDA data that continued to support costs throughout the week. Additionally, the record-setting pace of exports is supportive of prices. Although, sustained increases will need further price appreciation overseas.

US NDM domestic, commercial disappearance in November 2021 was 42.8 million pounds – 40.8% less than the previous year. Year-to-date, commercial disappearance through November 2021 is running 23% behind the pace set in 2020. That data indicates all of this year’s consumption is driven by overseas sales. When considering exports – last year’s commercial disappearance is unchanged to 2020 through November. The most significant declines appear to come from dairy uses, namely yogurt, and cheese. At the same time, yogurt retail sales volumes continue to increase (attributed to gut health interest during the pandemic). That doesn’t mean fewer solids were used; instead, the solids for cheese vats and yogurt came from milk or condensed this year. Should exports slow, that could put a considerable burden on NDM/SMP prices if processors are looking to other products to source solids.

Whey & Lactose Products

CME spot whey prices moved up again this week, averaging 76.45¢, up 1.1¢ from the previous week. Dairy Market News prices continued to move up also with Central prices crossing into the 70s. That shift likely supports and pushes NDPSR whey prices to the 70s at some point -adding to the Class III value.

US Nov. 2021 whey commercial disappearance was 31.4 million pounds, nearly 6% less than in 2020. Year-to-date 2021 commercial disappearance is 12% less than the same period in 2020. When considering exports – total YTD commercial disappearance is 2.5% less than the same period in 2020. That data indicates that the strength of whey has more to do with WPC and WPI than whey as whey use slowed throughout last year. WPC’s commercial disappearance increased 1.8% on higher exports between 2021 and 2020 (through November).