Weekly forecast update, Jan. 7, 2022

Forecast updates

• Given the raucous start to 2022 – Ceres increased the forecast for nearly all dairy product prices – resulting in substantially higher milk prices for 2022.
  • Those prices will be subject to continued consumer acceptance of higher prices with few changes to purchases.
  • It is likely prices could ease into 2023, but with no new capacity on the horizon through 2023, price resets could be modest, with many dairy products still showing higher annual averages.
• Global milk production remains above the previous year, barely. However, given current demand levels, that is supporting year-end prices well above average.
• During the final weeks of the year, slower churning has translated into widespread concern about availability throughout 2022. That caused spot butter prices to rise.
  • There is likely less butter available to the CME spot market – which could keep prices elevated. While prices could ease from current levels on reports of some product availability – many are under committed and with higher exports and less churning expected in Q1 that could set the stage for substantially higher prices this year compared to the runs in 2014 and 2015.
  • Cream multipliers could remain elevated as there is a lot of competition, especially in the east.
  • These forecasts are compatible with world prices. Exports could slow, but that could take months longer for that to show up and may not be able to dull the impact of higher prices through 2022.
  • Increased the 2022 forecast to reflect that sentiment.
• Cheese prices turned higher during the final trading days of 2021, with CME blocks rising above $2/lb to start 2022. While prices could ease after the seasonal demand period passes, it appears there could be more robust overseas demand, and that could lift domestic prices.
  • Because the Michigan cheese plant will no longer be incremental, cheese prices could remain higher than last year.
  • The 2022 block-barrel spread could remain wide; however, if more cheese heads overseas, that could reduce barrel production.
• 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.
• No significant changes to milk powder forecasts.
• All of these changes worked to increase the milk price forecast in 2022.

Fluid Milk Market

Milk production is slowly rising, and dairy producers are starting to take notice of higher prices – especially butter. That could mean more milk in a matter of months if producers change their herds’ rations. In addition, most producers will look to increase components due to ongoing cooperative base programs as that sidesteps the penalties. However, some may also consider adding cows if prices remain above $20/cwt through this year. So while 10-15% of milk could suffer from penalties ranging from $3-$10 – the rest would be at prevailing market prices. Still, dairy producers are slow to respond to higher prices, and the gains are likely to be far less than responses in 2008 and 2014 – especially those from Europe and New Zealand.

Cheese Market

CME barrel prices increased throughout the first week of 2022 trading; blocks peaked and started to decline. By Friday, the block-barrel spread narrowed to 13¢. In the end, CME barrels averaged $1.8245/lb, up 14.1¢ compared to the previous week. Blocks averaged $2.021/lb, 7.1¢ more than the prior week. There were few trades. While prices are elevated, anecdotal reports suggest that sales slowed a bit during the year’s final week and that cheese was readily available. Still, the latest production data and other reports suggest that export interest and volumes remain positive. While futures slowed from their breathtaking pace earlier in the week, price forecasts stay above average for 2022.

US November 2021 cheese production totaled 1.12 billion pounds, 1.6% more than 2020. Output was mixed throughout the country, with the Midwest continuing to push production higher than 2020. Except for Minnesota, American cheese production fell 2.7% to 438 million pounds, with all reporting states falling below 2020. Cheddar cheese production was 307 million pounds – 4.4% less than 2020. Mozzarella output totaled 374 million pounds – 4.2% more than 2020. It appears Wisconsin, California, and Pennsylvania opted for Italian vs. American style cheese, which may indicate cheese continuing to head overseas.

US November 2021 cheese exports totaled 74.8 million pounds – 40.7% more than 2020. Exports to Mexico, Australia, and South Korea surged – given the disparity between the US and world Q4 cheese prices, it makes sense. Japan was the only top-five trade partner to experience a YoY decline. That removed an incremental 20 million pounds of cheese in November 2021 compared to 2020. That said, 2020 US prices were record high and hindered exports.

Butter Market

CME butter pushed to its highest levels since mid-2017. While futures are higher this week, they still expect to moderate into February. That said, it sounds like it would take buyers slowing versus sellers selling more spot products. There were 26 trades this week, with the CME butter price averaging $2.667/lb – 25.95¢ higher than the prior week. Prices are uncharacteristically high for a point in the market when the product is expected to head to warehouses. This year, buyers are concerned about limited availability and high winter cream multipliers. Given the strong start to winter prices, CME butter may revisit highs throughout the year with periods of temporary reset. Still, as dairy producers look to capitalize on the costs by increasing butterfat in milk and consumers look to manage purchases – that could combine to slow demand. But, overseas’ markets could pull more products from the domestic markets – at least through Q1 based on reports of several processors that committed product to exports through Q1.

US November 2021 butter production totaled 156.3 million pounds, down 9.6% compared to the previous year. That was with the three reporting states showing lower YoY output. New York was down a whopping 41% compared to 2021. That is consistent with reports that indicated that cream demand remained elevated and that churning all but stopped. Anecdotal reports suggest that churning was limited throughout the country over the holiday week – especially in the Midwest and East. The current production level is below the five-year average for November at 159.23 pounds.

US butterfat exports totaled 10.5 million pounds in November 2021 – nearly double 2020. Exports to Canada, Mexico, and South Korea drove the results. Surprisingly exports to France registered 163% more than 2021 – a viable product to replace French butter elsewhere globally. Exports to Canada were 63%; Mexico was three times higher, and South Korea up 162%. Reports indicate that Q1 2022 exports could be elevated.

US November 2021 butterfat imports totaled 12.3 million pounds, up 48% compared to 2020 on higher imports from Ireland, New Zealand, and India.

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 prices throughout the week. Additionally, the record-setting pace of exports is supportive of prices. Although, sustained increases will need further price appreciation overseas.

US November 2021 NDM output totaled 132.2 million pounds and was down 15% compared to last year. California fell 1.8%; Pennsylvania down 2.7%. That production level was below the five-year average pace of 140.6 million pounds. SMP output totaled 49.1 million pounds – 25% less than 2020 levels.

Manufacturers’ stocks of NDM were 196.5million pounds on November 30, 2021 – that was 21% below the previous year and well below the five-year average levels of 255 million pounds. That was the most significant MoM drawdown between October and November since 2016 – over the last four seasons represented a build. Lower stocks will likely support prices.

US NDM/SMP November 2021 exports totaled 168.7 million pounds – 23% more than 2020. Exports to Mexico improved by nearly 6% compared to 2020. The most significant gains were throughout SE Asia. Given the limited availability of European SMP and high NZ prices, US NDM/SMP made inroads in November. For example, exports to Vietnam were up nearly three times compared to 2020.

Whey & Lactose Products

After a steady week, CME whey futures moved up slowly. Prices averaged 75.35¢, 0.35¢ more than the previous week. CME prices are the highest in the world. Dairy Market News Central prices are below the 70-cent mark while western prices are above 72¢/lb. European prices are elevated. The strength of the WPC and WPI markets continues to support prices near the 70-cent level.

China’s November 2021 whey powder imports fell 20.14% compared to the same period last year. In total, China imported 107.3 million pounds of whey. Imports from the United States were down 27% vs. the previous year – still, that seems to have little impact on US prices for now.

US Nov. 2021 whey production totaled 72.6 million pounds – 8.6% more than 2020. The US Nov. 2021 WPC (25-49.9%) protein production totaled 16.8 million pounds – 21% more than 2020. US Nov. 2021 WPC (50-89.9%) totaled 29.5 million pounds – 16% more than 2020. US Nov. 2021 WPI production totaled 10.6 million pounds – 27.4% more than 2020. Although production was higher than a year ago, stocks were not. US Nov. 2021 whey stocks totaled 59.7 million pounds – 10.1% less than last year. US Nov. 2021 WPI stocks totaled 11.9 million pounds – 16.9% less than last year.

US November 2021 whey exports totaled nearly 40 million pounds – up 8.5% compared to 2020. Exports were lower to China, but they increased throughout SE Asia.