Weekly Forecast Update – July 1, 2022

Forecast updates:

  • There are no significant forecast updates in 2022, excluding spot market modifications.
    • Most of the adjustments were in 2023 – increasing some price expectations.
      • Lackluster milk from Europe and New Zealand may offset late-year increases from the United States – prices direction may be more influenced by consumer demand later this year, and milk production remains supportive to prices well into 2023.
      • The confluence of consumer demand and lower milk production are keeping prices in a tight range, and that could remain through Q3 2022.
      • While prices could be modestly better than previous forecasts, concerns over consumer demand in early 2023 suggest that prices may be above the five-year average but well below current levels.
    • Increased Q3 butter prices due to solid cream demand and production remaining modestly behind last year.
      • Increased August forecast to average above $3/lb.
      • While that doesn’t mean that prices will remain above $3 the entire month, given the recent stint above $2.90s, it could suggest some runs above $3 that cause prices to stay unusually high.
    • Expect Class I prices have peaked, and that prices could ease into the end of this year with more significant declines forecast from Q1 2023 forward.
    • Forecasting NDM prices to remain in the low 180s through the fall, with prices expected to decline in the winter on slack overseas demand. That is the most significant deviation from futures forecasts.

Milk Market

USDA announced the June 2022 Class III and IV milk prices at $24.33/cwt and $25.83, respectively. Class III milk prices were $0.88/cwt less than May, suggesting that the milk price may have peaked for now as spot milk prices continue to track lower, with JUL22 futures closing at $22.42 headed into the holiday weekend. Class IV price fell a similar 84¢ below May. While JUL22 Class IV milk futures are less than June – it is much closer than the Class III price, and butter prices were moving higher ahead of the holiday weekend.

The holiday weekend means more milk headed to manufacturing as bottling slows. Things should resume standard patterns for July by mid-week. US and European milk supplies are past their peaks, with the world waiting for the start of the Southern Hemisphere season. So far this winter, New Zealand has received ample rain to recharge depleted soil moisture, with reports indicating rain has been above average. While rain is good, too much can be problematic as cows can tear up soggy pasture.

Cheese Market

Ahead of the long holiday, it appeared traders were doing some profit-taking and reducing positions. Additionally, corn markets pulled back on the news from USDA that acres increased. That has markets falling toward the $6.25/bushel level for most of the 2022 months. Corn markets pulled Class III milk and cheese futures higher last winter and spring; the converse is true this summer. While corn and milk are related, trading algorithms linked to two this year, adding to volatility. By Friday, Q3 2022, cheese futures retreated to the upper teens and mid-220s. Prices started the week dropping and spent most of the week recovering, although block prices stepped back on Friday. Cheddar blocks averaged $2.1590/lb. 6.15¢ more than the previous week; barrels averaged $2.1795/lb, up 1.51¢ compared to the previous average. Overall, cheese prices could remain volatile as markets search for a bottom.

USDA released May cheese production at 1.188 billion pounds – 2.13% higher than last year. Year-to-date US cheese production is running ahead of the same period the previous year by 2.5%. Most cheese-producing states, except Idaho and Wisconsin, increased May output compared to last year. Cheddar cheese output totaled 335.4 million pounds – 3.7% less than last year. More processors opted for other American-style cheese, with production up 10.7% compared to the previous year. Mozzarella output totaled nearly 388 million pounds – up 4.6% versus last year. While the United States produced less milk in May, processors were able to increase cheese output over the same period.

Butter Market

CME butter prices started the week on a down note and ended the week above $3 for the second time this year. The market averaged $2.9755/lb, up 2.43¢ compared to the previous week. A total of 28 loads changed hand last week. Futures followed markets up, but not at the same pace, and prices remained in the mid-290s – consistent with past weeks. Anecdotal reports indicate that churning is slowing and that cream demand is robust – that helped lift cream multipliers last week. Cream is still struggling with hauling challenges that may disrupt normal flows of the product during the summer months.

While cheese received more milk, butter and NDM plants received comparatively less in May. USDA released May butter production at 181.7 million pounds – 0.7% less than last year. California’s output fell 3.2% vs. 2021. In May, about half of the time, production can be lower than the previous year. While this may was approximately 3 million pounds less than last year – that is the first YoY decline since 2019. Butter production continues to track lower.

NDM/SMP

CME NDM prices some of the previous week’s declines. NDM averaged $1.791/lb – down 1.03¢ compared to the prior week. While NDM production and US milk remain below the last year, news of less interest from overseas seemed to weigh on markets and sentiment throughout the week.

USDA reported May 2022 NDM production of 192.7 million pounds – 6.2% less than last year. SMP production totaled 38.7 million pounds – 20.3% lower than 2021. MPC production was 22.1 million pounds – 16.5% higher than last year. In some cases, there has been a shift from NDM/SMP to MPC this year, accounting for some of the declines. Milk moving to cheese plants has accounted for the rest of the drops. As of May 31, manufacturers’ stocks of NDM totaled 316.2 million pounds, 9.3% less than last year. The April to May stock build was 17 million pounds compared to 51 million last year – it appears modestly higher than most month-to-month builds for that time of year. As of the beginning of July, US stocks may be past their peak, which could provide some price support headed into the year’s second half, but that will depend on international demand.

Whey & Lactose Products

CME whey averaged 49.05¢, up 0.03¢ from the previous week. DMN western mostly price was 55.5¢, down 2¢ from the last week. Central prices declined this week to 53.25¢ – down 3.75¢ versus the previous week. The lactose price was 45.5¢ this week, up 1¢ from the last week. European prices were mixed again this week.

US whey production for human consumption totaled 81.6 million pounds, 7.3% more than the previous year. WPC (25%-49.9% protein) production totaled nearly 16 million pounds and 13% more than last year. The production of WPC (50%-89.9% protein) totaled almost 27.7 million pounds and 5.5% more than last year. Higher whey output helps explain the recent price pullback. US whey stocks totaled 73.5 million pounds as of May 31, 8.4% more than the prior year.