Weekly forecast update – July 22, 2022

Forecast updates

  • Spot cheese markets dropped again this week with cheese prices falling to the low 190s for the first time since February.
  • Revised the CME forecast to reflect the potential for lower markets, but still an additional price recovery before the end of the year.
    • Still forecasting a modest recovery into the fall, but the improvement is less than last week.
    • No revisions to 2023 forward.
  • Butter prices retreated, but remained near expectations, with no significant adjustments to the forecast.
  • Continued to expect a modest fall price recovery for NDM – but again reduce the price trajectory.
    • As of late, lower prices appear to be sparking interest in products and sales have improved.
    •  It appears prices near the mid-160s have brought some buyers back to the market as of late.
  • Updated for the August Announced Class I for the actual price.
  • These adjustments reduced milk prices.

Milk Market

There were several informational releases this week that impacted markets. USDA announced the August 2022 Class I milk price at $25.13/cwt – 74 cent/cwt less than July, most of the decline was on the skim side. The Class II skim price is $15.53/cwt. If futures are correct, the Class I price may have peaked this year with prices expected to ease into 2023.

US June 2022 milk production ticked higher than the previous year for the first time since October 2021. Output totaled 18.98 billion pounds – 0.17% higher than last year. It remains a similar story – the milking herd at 9.423 million head is less than last year by 78,000 head. Albeit a smaller gap than prior months. Higher output-per-cow drove the improved results. Output-per-cow was 2014 pounds – 1% more than last year. Should output-per-cow continue to improve that may continue to mitigate fewer animals and suggest if that gap closes production begins to push much higher than last year. There were several states in the bubble with unchanged output and only New Mexico lagged last year. States with higher milk production compared to last year have improved output-per-cow and have added to their milking herds. They continue to be predominantly cheese-producing states.

Cheese Market

CME cheese markets continued to track lower with prices erasing all gains made so far this year and returning to levels last experienced in February. Reports indicate that sales have slowed somewhat – that combined with higher spring output appears to be putting additional pressure on prices. The growing gap between US and global prices may help to attract additional interest in exports. CME blocks averaged $1.9490/lb – 12.75¢ less than the previous week. CME barrels averaged $1.99/lb – 14.75¢ lower than the prior week.

USDA released the June 2022 Cold Storage report on Friday. US cheese stocks totaled 1.506 billion pounds – 4.94% more than the previous year. That reflected a 7 million pound decline between May and June – smaller than the past two years, but comparable to pre-pandemic levels. This June reflected the largest YoY gap for stocks since 2018. American cheese stocks totaled 847.7 million pounds on June 30th – 4.7% more than the previous year. That was the largest YoY gap for June since 2017. The May to June drawdown was 10.2 million pounds – again less than the last two years, but consistent with pre-pandemic levels.

Butter Market

CME butter prices averaged $2.9305/lb – down 1.65¢/lb. While butter prices declined, they were modest. Still, prices moved to the low $2.90s by week’s end. At the same time, the lows started to edge lower. Friday traded below $2.90 before recovering. Futures continue to forecast a sizeable discount and expectation that prices will drift lower through the end of the year. Cream demand remains positive and multipliers continue to strengthen each week. Butter remains the one product that internationally, continues to have good demand.

US butter stocks were 331.8 million pounds on June 30 – 19.98% less than the previous year. Stocks increased 10.2 million pounds between May and June the first MoM increase for those months since 2019. The YoY gap is 82.6 million pounds – sizeable and sufficient to continue to support prices ahead of the holiday build.

NDM/SMP

The CME average NDM prices dropped to the $160s for the first time since the end of last year. NDM averaged $1.6735/lb – down 2.65¢ compared to the previous week. Dairy Market News (DMN) price average dropped with the Central price falling 7¢/lb. Markets were generally weak and a much lower Global Dairy Trade (GDT) performance on July 19 did little to ease market concerns. GDT SMP prices dropped 8.6% to $3,709/MT – $1.682/lb of SMP ($1.73/lb on an NDM equivalent) – WMP prices dropped 5.1% to $3,757/MT ($1.704/lb). Overall, markets are weaker as trade slowed. That said, recent price declines reported are helping lift interest.

China’s June SMP imports totaled 52.9 million pounds 30% less than last year, but consistent with 2020. Persistent spring Covid 19 lockdowns continue to limit movement within the country and hamper foodservice activity. It seems reasonable to expect that China’s imports will track 2020 which suggests that YoY gaps moderate in the second half of the year when 2021 vs. 2020 gaps closed also. The bigger concern may be for early 2023 imports – should those fade compared to this year that could leave a glut of milk on the market as milk production begins to recover in New Zealand and the United States.

Whey & Lactose Products

CME whey averaged 46.3¢, down 0.6¢ from the previous week. DMN western mostly price was 51¢ down 3¢ from the previous week. Central prices declined this week to 49.75¢ – down 2.75¢ vs the previous week. The lactose price was 45.5¢ this week, unchanged from the previous week. European prices started to level out this week. Spot prices could remain in a tight range for now with prices prone to move lower.

China imported 113.1 million pounds of whey powder in June – 6.94% less than last year. While a YoY gap remains, imports are starting to follow seasonal patterns and the gaps have closed from 30-50% lower than last year to less than 10%. If China’s imports are steady that could provide price support for whey near current levels.