Weekly forecast update – July 8, 2022

Forecast updates

  • Updated 2022 forecast for current markets.
  • Adjusted JUL22 CME blocks modestly lower. No change to barrels.
    • Continuing to hold price recovery for cheese given positive foodservice demand and exports that have largely offset slower retail sales.
  • No change to CME butter.
    • Butter trade remains positive and production lower.
    • Given robust cream demand and slower churning, butter prices could likely sustain higher prices during the summer.
  • Adjusted Q3 NDM prices lower.
    • Still expect a modest, temporary price recovery this fall, given lower output.
    • The current decline seems to have renewed overseas’ interest.
  • Adjusted 2022 and 2023 whey prices – mostly lower.
    • European prices are declining, and exports remain muted.
  • Adjusted Q3 buttermilk powder lower.
    • Following modest butter price drops.

Milk Market

Summer weather conditions abound –heat and humidity could combine to slow milk off the farm – typical for this time of year. That will seasonally reduce milk headed to manufacturing plants, slowing the output of cheese, butter, and NDM for the next few months. At the same time, New Zealand’s season is about to get underway in earnest. Markets are awaiting the Southern Hemisphere season start, combined with demand prospects to reassess prices headed into the second half of the year.

Milk prices tumbled during the shortened holiday week trading before price found some support at the end of the week. For a time, future reset to prices not seen since February with Class III milk falling into the $21/cwt range for a time. Petroleum markets, grain, and oilseed markets all fell in post-holiday trading. Weaker markets and concerns over waning demand pulled dairy down. Milk and dairy product futures found stability, and prices began to recover lost ground as more reports suggested that dairy products were still moving overseas in a sizeable fashion.

There are some rumbles that milk production in some European countries is starting to expand. That could begin to wear away the floor on global milk prices. Additionally, the US corn market reset has done the same this week.

Cheese Market

Cheese markets started the week lower, with both products mostly unchanged and a late-week recovery. Blocks averaged $2.01913/lb – down 6.78¢ vs. the previous week. Barrels averaged $2.1756/lb. down 0.39¢. Futures markets added premium back to the markets throughout the week as prices returned to the mid-to-upper $2.20s as the week wore on. That carry provides an opportunity for those looking to age cheese to hold a product with a potential return. At the same time, the sizeable break in 2H 2022 prices may provide the opportunity for US exporters to commit to cheese at a competitive price through the end of the year. Still, there are concerns that slower retail sales could signal slowing consumer demand. That said, retail benefitted since the onset of the pandemic. As people resume normal summer routines, demand shifts back to food service, with retail retreating to pre-pandemic summer patterns. Rather than a sign of weakness, it may be a sign that markets are attempting to return to pre-pandemic patterns. Restaurant food traffic may be an indicator to pay close attention to in the coming months.

While there is considerable uncertainty in the domestic market, US cheese exports continue a remarkable run this year. US May 2022 cheese exports sailed past last year by 31%. Exports totaled 89.6 million pounds. Volumes were higher in several regions confirming US value in the world markets. Export to Mexico rose nearly 14% compared to last year, followed by improved exports to South Korea (+23%); Japan (+57%). Cheddar cheese led the increase, followed by fresh Cheese. Lower Cheddar output may suggest that the product could remain broadly balanced. That was another record-setting performance, with US cheese exports tracking one billion pounds by the end of the year.

Butter Market

CME spot butter and futures tumbled to start the week, with prices recovering. Butter appears to be the one product that maintains the reason for higher prices, and the downticks, at least for now, appear to be more sympathetic to other dairy products rather than unraveling market fundamentals. This week CME butter averaged $2.9475/lb, down 2.8¢. While prices were lower than the previous week, prices again picked up on Friday by returning to $2.97/lb. Central cream multipliers eased this week, and western was stable. As spot markets recovered, futures markets turned higher again. Still, futures are projecting a sizeable decline heading into the fall. Historically, that has been challenging unless there is a significant turnaround in trade.

There are some signs that US butterfat trade dynamics could be shifting. US May 2022 butterfat exports slowed compared to last year, falling 9% behind 2021. Exports totaled 11.35 million pounds. Fewer exports throughout the Middle East led to YoY declines. Higher exports to Canada, Mexico, and Australia offset most of the drops. At the same time, US May 2022 butterfat imports 14.2 million, 27.7% more than last year. Imports from Ireland continue to rebound. There were more imports from New Zealand and India – indications that some may be looking to purchase less expensive butter from overseas. That is a crucial indicator that can slow domestic AMF production and replace domestic butterfat with imports. That can quickly release more butter to domestic churns and pressure prices lower.

NDM/SMP

CME NDM prices were up and down throughout the week, resulting in largely stable markets. In the end, NDM prices averaged $1.7469/lb – down 4.41¢ from the prior week. Reports of weaker demand and more milk headed to driers are causing prices to deteriorate this summer. That is somewhat typical in early July as the United States and Europe look to market carry-over second quarter products and Oceania begins to market its first half of the 2022/23 season product. Each year, for a time, markets shift to buyers’ advantage as more product becomes available to the markets. Add to that the Global Dairy Trade (GDT) July 5 event saw considerable price decay. SMP dropped 5.2%; WMP fell 3.3%. Despite the price declines, more product was offered at the July 5 event, which is evidence that Chinese buyers returned to the auction.

US NDM/SMP May 2022 exports totaled 178 million pounds – 6.9% less than last year’s period. Exports to Mexico slipped 2.3% behind last year’s pace. Higher exports to Indonesia, Honduras, and Malaysia partially offset the declines. Other volumes loses throughout SEA, MENA and China pressured exports lower.

Whey & Lactose Products

CME whey averaged 49.25¢, up 0.2¢ from the previous week. DMN western mostly price was 54¢, down 1.5¢ from the last week. Central prices declined this week to 52.5¢ – down 0.75¢ versus the previous week. The lactose price was 45.5¢ this week, unchanged from the last week. European prices were lower this week, with signs that prices could weaken further. More production and weaker demand have taken prices lower in recent weeks. That said, Northern Hemisphere production should be past its peak – that could help prices stabilize. However, the loss of Chinese demand remains a concern moving forward and could cause prices to churn lower over time.

US whey exports remain lackluster and lower due to fewer exports to China this year than last year. US May 22 whey exports tumbled 22% compared to last year as volumes to China dropped 50%. US May 22 WPC <80% exports increased to nearly 35 million pounds – up 51% vs. 2021. US May 22 WPC >80% exports totaled 12.3 million pounds – down 12.2% vs. 2021.