Weekly forecast update – Jan. 28, 2022
Forecast updates
- This week, adjusted 2022 prices for spot markets but maintained high price targets through 2022.
- Reduced 2023 forecast for most products in response to higher-than-normal prices anticipated for 2022.
- Increased 1H 2022 prices for whey, WPC, and NDM.
- Modest adjustments to cheese and butter prices.
- All adjustments resulted in corresponding milk price changes.
Fluid Milk Market
Processors are starting to notice milk increase seasonally – but many caution it is a slight increase compared to last year. Weekly slaughter continues to decline compared to last year – that is working to increase the dairy herd. Cows that were unprofitable under lower milk prices are remaining in the herd under current price levels. Class III milk prices tumbled toward the end of the week as cheese markets sold off. Since then, price found support and has started to recover.
USDA released December 2021 milk production this week. US December 2021 milk production totaled 18.8 billion pounds – that was 0.14% below the previous year. USDA revised November 2021 to 0.44% below the previous year. Q4 2021 declines were the first quarterly decline since Q1 2019. Texas and the Upper Midwest continue to expand while most eastern states, except for Georgia are in decline. Western states are starting to increase output. Output per cow offset declines from fewer cows and reached 0.1% more than the prior year. The US milking herd was 9.375 million head – 0.5% less than the previous year.
Cheese Market
Markets pressed reset on CME blocks and barrels this week with prices falling to $1.73/lb and $1.6625/lb, respectively before mounting a recovery on Friday. Still, milk declines over the past two weeks wiped out most of the increases from the start of the month. Despite the reset, Class III milk futures are still forecasting near $21/cwt. In the end, CME blocks averaged $1.761/lb – 8.34¢ than the previous week; Cheddar barrels were $1.7125/lb, down 16¢. Anecdotal reports suggested that cheese was available – especially barrels and that markets seemed high. Additionally, most of the cheese build ahead of the Superbowl is complete signaling the end of the cheese season.
US 2021 carry cheese stocks totaled 1.45 billion pounds – 3.5% more than 2020. American cheese stocks were 846 million pounds and 5.6% higher than the previous year. Stocks have expanded at the end of the year compared to earlier suggesting a modest slowdown. Still, the Dec-2021 stock build was far less than the previous year and comparable to the five-year average. Other than American and Swiss cheese total 577 million pounds – just 0.4% higher than the previous year – that stock build was greater than the five-year average and the highest carryout stocks.
Butter Market
On Wednesday, CME spot butter prices plummeted 21¢ with prices recovering some lost ground on Friday. That ended with the week averaging $2.6135/lb – down 26.46¢ compared to the previous week. 19 loads changed hands on Friday. There are rumblings that more “old crop” butter is available at the market and that may have caused the reset. In recent weeks, anecdotal reports indicated that sellers were offering current butter. Futures have reset – but the sentiment seems to have shifted from one that markets will head lower to one that believes prices could be consistently high for the rest of the year. Buyers and sellers met for the first time in years at the IDFA Dairy Forum in Palm Springs this week – the message that butter and cream are tight seemed to be transmitted.
US 2021 carryout stocks totaled 199 million pounds, 27.3% lower than 2020. Stocks returned to “normal” levels by the end of the year. This was the first time over the last six years, that stocks between November and December declined. Stronger exports, recovering foodservice demand, and falling output pulled stocks lower. Fewer stocks could result in higher prices throughout 2022 as there is no buffer for supply and demand imbalances.
NDM/SMP
CME NDM prices eased through mid-week and then prices turned around – ending the week near where it began. Prices averaged $1.794/lb – 3.73¢ lower than the previous week. Discussions about NDM varied – some saying more products could become available by Q2 causing prices to head lower; some suggesting domestic demand was rising and that they were well committed through Q1. Markets appear to reflect that sentiment with prices moving in all directions this week. The easing does make sense given the strength of the US dollar. Given the Feds’ indication, it would be raising rates by March the greenback continues to increase. As a result, US NDM/SMP needs to decline to maintain its delivered cost compared to EU and NZ prices.
Rabobank reports that China’s milk price slowdown in December – could herald a 1H 2022 slowdown that could pressure 2H 2022 global dairy product prices lower. The report indicates that strong production growth could result in fewer imports throughout this year to keep markets balanced. Like other countries, China’s lockdowns continue to disrupt the supply chain. Further, China’s employment situation and economic growth have markets worried. Additionally, consumer sentiment is waning – which could result in less demand.
Like other dairy production countries, New Zealand is struggling to find dairy farmworkers. That lead the NZ government to adjust approval for 200 international workers to relieve the current situation. While positive news, the industry is looking for approvals of up to 1500 workers. That suggests that labor costs on New Zealand dairies are on the rise.
Whey & Lactose Products
CME spot whey prices were again contrarian with prices rising this week. Spot prices averaged 78.35¢/lb, 3.2¢ more than the previous week. NDPSR and Dairy Market News (DMN) are above 70-cents/lb. Most discussions this week – how will markets address 80-cent whey for an extended time as it seems more likely. CME whey futures markets pushed higher this week – that helped Class III milk prices recover. Despite the lofty focus – futures are still discount to spot prices – that could mean more upside for Class III milk prices this year. Lactose remains steady at 40.5¢ – prices maintained for weeks.
China imports in December 2021 fell to 87 million pounds, down 32% compared to last year and the lowest monthly volume for December since 2016. Imports from the United States were 28% lower than the previous year.