Weekly forecast update – July 29, 2022

Forecast updates

·        Reduced near-term cheese forecast. Markets appear poised to decline for a few more weeks. There is a chance for some price recovery; however, the factors causing pockets of excess cheese will need to be resolved.

·        Increased August and September butter forecast – left other periods unchanged.

·        Decreased NDM forecast through November.

·        Adjusted whey forecasts lower.

·        Resulting forecast adjustments lowered milk price forecasts through the end of the year.

·        While prices are headed lower, the recent reset may create additional demand, which could cause prices to lift one additional time before the end of the year. If prices retreat further, there may eventually be a milk production response (likely in 2023).

Milk Market

Milk reports were limited this week. Most of the stories start and end with the weather. Heat and humidity have slowed milk off farms, helping to reduce discounts on spot milk sales. Still, widespread reports that plants are running less than capacity remain an issue for milk processing this year. At the same time, corn crop conditions are deteriorating in several regions of the country. That is a concern for dairy producers as yields may decline, and some may be faced with buying a larger share of corn for the new season – a problem because prices are at multiple-year highs as milk prices are declining. Nationally, the corn crop is expected to improve on last year; however, crop conditions in some states are deteriorating.

With the herd expanding compared to one that was contracting last year, the US milk supply will likely continue to make advances – something that could weigh on market sentiment. That could put a lid on prices or cause 2023 prices to decay – especially with the recession looming. Lower milk prices and higher prices could eventually cause a supply correction.

Cheese Market

CME cheese markets unexpectedly dropped into the $1.80s this week. There are reports of a few pockets of spot cheese headed to the CME to help clear inventories. Prices recovered some lost ground on Friday, but prices remain in the $1.80s. Blocks averaged $1.924/lb – down 2.5¢ from the previous week. Barrels averaged $1.9235/lb – down 6.65¢ from the prior week. Block trading picked up this week with 12 loads changing hands. Barrels and blocks were nearly equal this week. The volatile spot market translated into the futures markets, with prices pulling back throughout the week. Futures still expect a price recovery before the end of the year.

Most of the news this week was from overseas. New Zealand’s June cheese exports fell 16.8% compared to last year. Exports totaled 58.9 million pounds. China, Australia, South Korea, and Chile accounted for the majority of the declines during the month. There were declines to most trade partners; however, the losses were moderate compared to the other four nations. Next, Japan, the world’s largest cheese importing country, increased purchases in June, up 0.7% compared to last year. In June, imports totaled 53.6 million pounds. Volumes imported from New Zealand increased by 28% compared to last year. Imports from the United States were 9% higher. Imports from Australia and Europe were overall lower.

Butter Market

CME butter prices averaged $2.965/lb – up 3.45¢/lb. compared to the previous week. CME butter futures forecast a substantial price decline headed into August. But, with July winding up this week and the first week of August pricing, futures last the started to lift. Futures traded in the upper $2.80s, erasing some sizeable discounts. For most of the year, futures herald price declines just weeks away; however, for most of the year, futures have been wrong as prices increased. Reports indicate that cream demand is strong and that very little spot cream is headed to butter churns right now – many processors are switching over to micro-fixing for the duration of the season. While retail scan data has been slower, commercial disappearance remains higher than last year, making a price decline at the height of the holiday build season less likely.

New Zealand butterfat exports totaled 88.5 million pounds, 3.8% more than the previous year and 8.3% higher than May on average. New Zealand butterfat exports to China were 17% more than the previous year. Exports to Saudi Arabia and Indonesia were double the volumes from last year. Volumes to Japan were 8.5X higher. Exports to the United States were 6% higher than last year. Overall, butterfat remains well traded and supportive to prices into the fall.

NDM/SMP

CME spot NDM prices continued to retreat this week on reports some western milk powder processors were seeking sizeable Q4 2022 export commitments. The level of sales activity may be weighing on markets. Additionally, next week’s Global Dairy Trade WMP and SMP volumes are considerably higher than the last event suggesting prices could come under pressure. CME NDM averaged $1.662/lb – down 1.155¢ compared to the previous week. Dairy Market News (DMN) price average dropped again for both Central and Western prices. Typical this time of year, milk powder prices are under pressure – that is likely to last until some sizeable lots of powder get committed.

New Zealand WMP exports totaled 239.9 million pounds in June, nearly 33% less than last year. New Zealand increased volumes to Algeria by 2.3X, partially offsetting China’s decline. Exports to China fell 64% – which suggests that China’s imports in July will continue to be lackluster and indicative of weaker demand this year. Exports to MENA and SEA were mixed with several offsets. Still, New Zealand was able to locate other markets for the milk powder. Despite the increases, none could offset the 55,700MT hole China created.

New Zealand June SMP exports totaled nearly 62 million pounds – down 3.3% compared to last year – a more consistent performance. Exports to China fell by 21% compared to the previous year, but higher exports to Indonesia offset most of those declines. Exports throughout SEA and MENA remain mixed. That said, some exports to Libyan Arab Jamahiriya, Kuwait, and Oman did not occur last year – these are countries that source from Europe primarily.

Whey & Lactose Products

CME whey averaged 45.15¢, down 1.15¢ from the previous week. DMN western mostly price was 51¢ unchanged from the last week. Central prices declined this week to 48.5¢, down 1.25¢, compared to the previous week. The lactose price was 45.5¢ this week, unchanged from the last week. European prices started to move lower – which could become an anchor for US export prices – especially given the strength of the dollars.

News on whey was limited this week. New Zealand WPC/WPI exports totaled 3.1 million pounds – 37% less than last year on significantly lower volumes to the United States.