Weekly forecast update – January 29, 2021

Forecast updates
Reduced 1H 2021 CME block and barrel forecasts.
There could be upticks related to the USDA Section 32 and food-box programs; however, it seems that widely available cheese and milk could keep upward price movement limited and with spikes that do not rise as far and do not last as long.
USDA will likely provide a level of support for cheese through the spring.
Ceres still assumes supply line restocking and foodservice improvements in late spring/early summer.
Reduced 1H 2021 butter forecast.
There is a growing amount of butter in warehouses, and cream is widely available.
There could be less cream in the spring given the Michigan cheese plant ramp-up; however, lackluster foodservice demand and healthy production could more than offset those potential shortfalls.
Ceres does have a “new crop” bump in the forecast – but markets could retreat in the spring given the amount of product still in the market place.
Adjusted NDM forecast – kept Q1 elevated, but expect prices to retreat in spring. For similar reasons, ample milk supplies are keeping powder driers flush with product months ahead of the spring flush. Additionally, weaker news from China and New Zealand in December could temper further price runs.
Lower whey forecast Q2 forward. Traders are reporting mixed sales and some pushback at current price levels. Additionally, the new Michigan whey plant should be producing products – that could result in more sweet whey powder.

Fluid Milk Market
Production disruptions throughout the country resulted in widespread milk dumped this week. Additionally, there are discussions that some cooperatives are increasing discounts on milk from $10 to $15/cwt. – that is a sizeable disincentive to production later this year. That said, there is a lot of milk floating around the country. It could take months to slow down output; additionally, USDA conditioned dairy producers in 2020 that modest price depressions were followed by tremendous upside, suggesting that downturns will need to endure to cause a noticeable supply slowdown. Futures are forecasting that markets recover after reaching a low-point in February. That may be more a reflection of reluctance to sell than a level of support.

This week USDA announced US milk production in December 2020, 3.1% more than the previous year – a report that was only surprising the year-over-year gaps, not the news of more milk. Anecdotal reports indicated more milk in the system for weeks ahead of the announcement. Milk output totaled 18.9 billion pounds in December 2020. Additionally, USDA revised November milk production 0.5% higher. Most of the milk production growth is coming from Mid-east states and South Dakota. Florida fell 5% below the previous year’s levels.

Cheese Market
CME weekly cheese prices were stable this week – but Block prices did decline through the end of the week with no volume traded. Barrel trading volumes increased to 21 loads this week. In the end, blocks averaged $1.5890/lb., down 10.91¢/lb. compared to the previous week. Barrels averaged $1.3945/lb., 5.11¢/lb. less than the prior week. Reports suggest there is widely available cheese and that natural cheese was less prevalent than processed cheese in round 5 of the food-box program. Markets took widespread production disruption this week in stride, with prices barely recognizing several plants that went off-line for a matter of hours. Limited, if any shipping disruptions, seemed to confirm for markets cheese is mounting and able to absorb new demand or supply interruptions easily.

USDA reported 2020 US ending stocks – a figure that reflected a counter-seasonal increase likely caused by the new production from the Michigan plant. Stocks totaled 1.398 billion pounds, 5.7% more than the previous year levels – the second-largest YoY gap last year – with April the only month edging out December. American cheese stocks rose 5.1% compared to 2019, to total 801.2 million pounds. The newest American cheese plant continues to add more products to the market, and USDA orders slowed, likely causing the lift. Most of the stocks grew in the Upper Midwest and Mideast states in December. While total stocks were the highest in 2020, that was driven by other than American style cheeses.

Butter Market
CME butter markets retreated to the $1.20s this week. Still, futures are projecting a formidable rise for new crop butter back to the upper $1.40s and rising from that point forward. Futures and spot markets reconciled this week as fundamental data was undeniably bearish as reports confirmed abundant dairy products and expectations of more substantial milk supplies through the spring. While cream multipliers lifted after the USDA food-box awards, cream multipliers were lower this week as more product continues to search for capacity. There appears to be some export interest picking up – but it remains limited. At the same time, domestic AMF interest is rising – given the disparity between US and NZ butter prices – it is likely the United States produces more AMF than in recent years.

US butter stocks totaled 273.8 million pounds – the highest carry-out supplies since 1992 and 44.4% more than December 2019. That news sent Q1 butter futures and spot markets lower ahead of the announcement. With foodservice demand remaining low and the CDC advising people to stay out of restaurants – butter stocks could continue to build into spring.

CME NDM prices were up and down this week, with markets dropping to $1.1375 before recovering to $1.1725 on Friday. News remains in opposition this week – but there was a raft of information that suggests that a demand slowdown could be in the works this spring. While spot and futures markets remain upbeat – few are booking orders at those levels, which seems to be nagging at participants. Prices are trying to move higher on robust overseas demand, but considerable amounts of powder are still able to head to the CME with 37 loads changing hands just this week. CME NDM averaged $1.1620/lb., down 3.05¢/lb. this week.

New Zealand exported 87.9 million pounds of SMP in December 2020 – the lowest volumes for that month since 2010. That may indicate, or even confirm, buying is slowing at the start of 2021 – a situation that could weigh on prices this year. Exports to China increased by 9.9%, accounting for 62% of total export volumes. The more significant declines came from Malaysia, Myanmar, the Philippines, and Singapore. New Zealand shipped SMP to Algeria for the first time in December over the last three years – that is typically a signal that things are slowing down elsewhere.

Whey & Lactose Products
Like milk powder, whey powder markets are ringing discord as traders wade through what often appears as conflicting data. There are reports that Mexico and China are pushing back on higher price quotes. At the same time, most processors and brokers can commit powder on hand without issue. For these reasons, the market is wary about the prospects for further price appreciation this spring – especially given the Michigan whey plant ramp-up. CME prices eased to 52.25¢/lb. this week, down 1.5¢ from last week.