Weekly forecast update – July 7, 2023

Forecast updates

Cheese:

• No change to this week’s forecast. While Thursday was one of the busiest single-day trading activity for barrels – there was good buying interest from primarily one seller.
• Expectations are for exports to pick up – data suggests the export imbalance created additional pressure at the CME through Q2.
• Production slowed and the new cheese plants are slower to start than the market may be expecting.

Butter

• Modest increase to butter price forecast for July – no changes for future months.
• Expected butter prices to rise, but widespread heat and higher ice cream demand could curb butter production quickly. Demand remains positive, and exports were surprisingly strong to Canada despite higher prices.

NDM

• Reduced Q3 NDM/SMP price expectations. While markets appear poised to recover, it could take a bit longer, given the demand concerns.
• China’s milk is slowing faster – which could cause the nation to rely on imports later this year to backstop shortfalls.

Whey

• No significant changes to 2023 forecast.

Milk Market

Heat and humidity arrived this week. It is widespread and record-setting, with some areas experiencing triple digits for days. That combination will slow milk off the farm and could prevent a recovery, given the duration and severity of the event. That could cause July milk production to drop below the previous year’s level. Sufficient stocks and product availability could slow a price recovery, but if demand continues at current levels and milk slows, that could cause prices to lift.

In May, China’s milk production was modestly higher than last year. China’s dairy producers produced 6.44 billion pounds of milk, 1% less than in April but 1.3% more than last year. While positive, the pace of output gains has slowed considerably over the past two months as dairy producers struggle with profitability, much like dairies throughout the globe. Local reports cite a few issues. First, lower demand during the pandemic caused dairies to reduce the herd size to manage slowing demand. Additionally, the rapid expansion from larger dairies continues pushing out smaller ones. Finally, imported milk powders are less expensive than domestic milk, causing a shift.

Cheese Market

This week was one of the busiest ever for barrel trading. On Thursday, barrels traded 35 times, the second-highest on record and the most since December 2017. The CME barrel price averaged $1.3506/lb, down 3.29¢ from last week. Block trading was less, with pricing averaging $1.3750/lb. up 4.15¢. That reduced the block-barrel spread and returned blocks to a premium. Since US exporters lost out on exports due to higher prices at the end of Q1, sellers have flooded the CME with blocks and barrel cheese throughout Q2 – so far, Q3 is getting off to a busy start. That could indicate that sellers are trying to clear the last of the cheese or that July exports are off to a poor start. Despite the hefty sales volumes, prices are slowly moving up.

US cheese imports totaled 35.7 million pounds in May – 7.3% more than last year and a sizeable recovery from April’s YoY decline.  Imports from Italy continue to be less than last year – some anecdotal reports suggest Parmesan demand is down. Imports from France, the Netherlands, and Spain picked up.

US cheese exports totaled 73.3 million pounds and 18.2% less than last year. It was also modestly less than the five-year average for May. Fresh cheese exports fell by 40.5%, driving most of the losses. That was about 10 million pounds less than the five-year average for May. Cheddar exports fell 34.4% vs. last year. The additional 16 million pounds of cheese left in the domestic market quickly explains the imbalance.

US cheese production in May was 1.2 billion pounds, 0.18% less than last year and modestly lower than April on a daily average basis. Most of the declines were in specialty cheeses – Gouda, Provolone, and Ricotta were significantly lower than last year. Reports indicate that consumers are buying less specialty cheese due to pricing pressure. Cheese production expanded in most cheese-producing states (CA, ID, MN, WI & PA), but there were slowdowns in South Dakota, New York, Vermont, and Ohio compared to last year. May 2023 reflected the smallest YoY increase over the last five years.

Butter Market

Spot butter prices moved higher throughout the week. Despite higher spot prices, futures are reluctant to follow and forecast lower prices once July passes – even lower prices at the end of July at JUL23 futures ended last week at $2.435/lb. CME butter averaged $2.4725/lb, up 5.65¢ compared to the previous week. Heat spreading throughout the country is slowing milk and components seasonally. Given the widespread heat and humidity, it could impact milk sizeably. That will likely pull cream away from churns into ice cream. Microfixing is underway, but reports suggest plenty of butter is still in warehouses for immediate needs.

US May 2023 butterfat exports totaled 8.1 million pounds and 28.5% less than last year. Canada, the largest destination for US butterfat, increased by nearly 13% compared to last year. Higher exports to Canada could not offset declines to Mexico, South Korea, and Bahrain.

US May 2023 butterfat imports totaled 16.2 million pounds and 13.9% more than last year. Ireland accounted for more than half of all imports, with volumes 8% more than a year ago. Imports from New Zealand and Mexico, reflective of AMF, were up 52% and 104%, respectively, compared to 2022. Imports from India were down 61% – again a reflection of the Indian government’s prohibition on exports vs. demand.

US May 2023 butter production totaled 194.5 million pounds – 8.14% more than last year. That was a sizeable YoY increase that exceeded the five-year average for May. Higher production comes as little surprise given the reports at the time that indicated cream was plentiful; additionally, with less domestic AMF production, more cream would go to churns this year compared to last year. California produced 7.4% more butter than last year.  Pennsylvania produced 1.07% less butter compared to 2022. Central states increased production by 9.7%; Despite lower production from PA, Atlantic states increased butter production by 11.1% compared to last year – a sizeable turnaround.

NDM/SMP

CME spot NDM prices were lower this week following a much lower Global Dairy Trade (GDT) showing on July 4. GDT SMP prices fell 6% to $2,525/MT ($1.145/lb); WMP dropped 0.4% to $3,149/MT ($1.428/lb). Following that, CME spot markets ended the week at $1.08/lb – the lowest price since November 2020. The CME weekly average was $1.1056/lb, down 1.39¢ from the previous week. Futures also pulled back, with prices below $1.15/lb through the end of the year. Despite indications that China is importing more milk powder than last year and that milk production could slow, markets turned bearish in early July, with that sentiment spreading through the end of the year.

US NDM production totaled 206.18 million pounds and 7% more than last year on higher production from California, Wisconsin, and Pennsylvania. Central states produced 5.3% less NDM than last year – given fewer cows and some unplanned plant downtime that may explain the YoY differences. The YoY increase for May was consistent with the last five years. Again few surprises as reports indicated milk was everywhere in May due to ideal milking conditions. SMP production totaled 35.35 million pounds and 30.4% less than last year – on fewer exports to SEA. US Mfg stocks of NDM totaled 300.1 million pounds on May 31. That was 2.2% less than in April and 5.4% less than last year. That was the first April to May drawdown since 2020.

US NDM/SMP exports totaled 175.3 million pounds – 3.1% less than last year. Exports to Mexico increased 30.5% vs. last year, but there were sizeable losses throughout Asia.

Whey & Lactose Products

CME whey prices retreated throughout the week. While some reports indicate more interest in US exports of WPC/WPI – there is also news that new WPC80 capacity could begin in Q4 2023. As a result, whey prices are mired in pessimism, causing prices to retreat. CME whey averaged 23.44¢, down 1.21¢ from the previous week. DMN prices dropped, with Central mostly down 1.35¢ to 26¢; Western mostly was 30¢ down 0.1¢. NDPSR whey prices fell below 30¢ for the first time, with prices reported at 28.92¢ down 2.17¢ from the previous week. Whey prices could continue to slide.

US May 2023 whey production was 81.78 million pounds and 3.3% more than last year. Wisconsin produced 12% less whey, and New York 1.2% more. WPC (25-49.9%) whey output totaled 15.94 million pounds and 37.9% more than last year. WPC (50-89.9%) whey output totaled 29.95 million pounds and 8.8% more than last year. WPI output totaled 9.7 million pounds and 18.3% less than last year. Stocks continue to increase.

US WPC 80 exports increased in May to 14.4 million pounds and 16.2% more than last year. US whey exports were 35.3 million pounds and 1.3% less than last year.