Weekly forecast update – Jan. 27, 2023

Forecast updates

Reduced most product prices this week, dropping powder prices as those markets show more weakness than other markets. While milk output gains slowed compared to last year, there is still sufficient milk to meet current demand and the cheese demand season ends in a few weeks.

Reduced the CME block and barrel prices. There are reports of lower European cheese prices that could slow exports and pressure spot markets nearby – presently, CME barrel volumes are rising, suggesting exports could be slower this year.
Decreased NDM, but not as much as recent spot declines. NDPSR tends to drop slower than CME as there is are fewer sales based on CME pricing.
Dropped whey prices through the end of the year – EU prices are reported in the low to mid-30s – given new capacity in Q2 that could further weigh on prices this year. That impacted the Class III and I prices.
Adjusted WPC and CBM lower – they will trend with NDM prices.
Reduced lactose – more capacity and lower whey prices could cause prices to trend lower this year.

Milk Market

USDA released the December 2022 milk production this week and production was 18.9 billion pounds, up 0.65% compared to November and 0.77% compared to 2021. Gains moderated that month as several states’ output slowed compared to 2021. Since August, subsequent gains have slowed. Growth continues in western and central, predominantly cheese-producing states and Georgia. In 2022, Florida produced 10.9% less milk than in 2021 – that is leading the decline, followed by New Mexico (-8.48%), Washington (-4.01%), Virginia (-3.19%), and Utah (-2.03). At the opposite end of the spectrum, South Dakota led the 2022 gainers, up 15.58% compared to 2021, followed by Georgia (+12.68%), Texas (+5.94%), Iowa (+4.21%), and Kansas (1.15%). The US milking herd stood at 9.4 million head, up 27,000 cows, 0.29% more than the previous year. Those cows were added in states that added milk in December. Output-per-cow was 1,949 pounds, up 0.46% compared to 2021. While Texas and South Dakota surpassed December 2021 production levels, it was done with more cows as output slowed.

Cheese Market

CME blocks were somewhat stable over the last week while barrel prices dropped. Barrel trading activity picked up this week, with 35 loads trading compared to 12 loads the previous week. CME blocks averaged $1.963/lb, up 0.61¢ compared to the previous week. CME barrels averaged $1.61/lb, down 4.81¢ from the previous week. That caused the block-barrel spread to widen to 35.3¢. Reports consistently indicate plentiful EU-27 cheese in global markets – which could put some pressure on US export prices. The end of the demand season is fast approaching with the Super Bowl – the level of promotion for pizzas and retail could be a bellwether for demand this year.

US cheese stocks were 1.45 billion pounds at the end of 2022 – nearly 1% higher than in November and just 0.24% higher than in 2021. That reflected a modest November to December build – up 14MM pounds, well below the 48MM pounds in 2020 and 19MM pounds in 2021. The modest build is consistent with anecdotal reports earlier in the year and previous years. American cheese stocks totaled 825MM pounds, up 1.1% vs. November 2022 but down 2.1% compared to the prior year – again, that may reflect strong demand as cheese prices moderated, domestically and overseas. Again, the American cheese stock growth was consistent with previous year trends from November to December.

Butter Market

CME butter prices dropped on Monday and Tuesday, and prices leveled off. CME butter averaged $2.2715/lb, down 8.66¢ compared to the previous week. EU-27 and NZ prices are still substantially lower than US prices – which could slow international demand. The anecdotal reports suggest cream is plentiful and butter stocks are building. Cream multipliers remain low, and demand is seasonally low. That could keep a steady supply of cream headed to butter churns for weeks.

US 2022 butter carry-out stocks totaled 216.3 million pounds, 8.7% higher than last year. Since August, when prices increased above $3/lb, stocks have been building. That suggests a pullback in demand, indicating that the early 2023 build could be substantial. The month-to-month gain from November to December was 17 million pounds, somewhat moderate but a considerable shift from the 2021 11 MM pound decline. Except for the 2020 pandemic year, US carry-out stocks continue to increase year-over-year. The stock build in December modestly broke the trend with stocks rising.

NDM/SMP

CME NDM prices continue to slide this week – prices averaged $1.164/lb, down 3.79¢ compared to the prior week. Other NDM price series are also declining, but not as quickly. DMN western mostly was $1.28/lb, down 5¢; central was $1.23/lb, down 4¢. NDPSR NDM prices were $1.3981/lb, down 0.05¢ from the previous week. European prices are still tracking lower, suggesting the market has yet to find a bottom. Prices could continue to ease through the spring or until milk production slows.

New Zealand milk production in December was 2.59 million metric tons, 0.6% less than the previous year. While a YoY decline – it was the lowest so far this season. During the 2022 calendar year, New Zealand milk production lagged 2021 by 3.8%. While there has been plenty of rain at the start of the 22/23 season – it may be too much of a good thing as the cold and wet weather appears to hamper production. That said, as summer is underway, that may provide some relief as the rains slow, and the weather on the North Island turns nice. As of the January 26 soil moisture report, soil moisture is much improved from last year and the long-term historical average. That may mean a strong end to the season, opening up gaps to 2022.

Whey & Lactose Products

CME whey prices trended lower this week, averaging 32.45¢/lb, down 0.55¢ compared to the prior week. Reports indicate that European prices are still dropping. Central whey prices average 36¢ this week, down 1.75¢ compared to the preceding week; western mostly whey prices averaged 40.5¢, down 1¢ compared to the prior week. Reports indicate that WPC and WPI continue to drop and that some processors may opt for whey powder to manage prices. European prices are also easing, putting more pressure on US prices.