Weekly forecast update, July 9, 2021

Forecast updates

  • No significant changes to this week’s forecast.
  • Updated July and August for spot market changes.
  • Dairy product price changes also modified milk prices.

Fluid Milk Market

Summer weather is heating up, and milk is subsiding as it typically does post-July 4 holiday. That is causing milk to move from north to south on the East Coast; it also slows milk to manufacturing throughout the country. However, there are still issues with driver shortages that are causing problems throughout the country and causing milk to flow to different outlets. In addition, the packaging and labor shortages for cheese plants are present and expected to worsen over the coming weeks – that too could impact milk flows.

With the heat and milk off-the-farm abating, Class III milk futures picked up – especially in Q3. However, class IV stumbled with NDM and butter prices declining. That is causing the August Class I price forecast to be lower – than the past three months. That said, it could be a short respite, as the spot cheese prices are lifting Q3 price expectations.

Cheese

CME spot Cheddar prices recovered throughout the week as news of packaging and labor shortages continue to spread. Some larger cheese processors are struggling to find enough people to operate cheese plants at full capacity; as a result, some plants have reduced intake to accommodate – that has caused the milk to flow to other regions, and in a few cases, to be dumped. Additionally, 640# block packaging shortages have some buyers substituting 40# Cheddar blocks. While shredding lines can easily accommodate 40# blocks, slicing and chunking experience reduced throughput and higher shrink. That said, there are reports that 40# blocks are more balanced this week. In addition, some reports indicate that processors are balancing with 500# barrels to keep milk intake up, making barrels more available.

As a result of supply chain issues, CME Cheddar blocks averaged $1.6919/lb, 14.84¢ higher than the previous week. Barrels averaged $1.555/lb, 5¢ more than the prior week. Trading volume picked up 30 loads of barrels. That left the block-barrel spread at 13.69¢ with blocks premium to barrels.

Ceres forecasts May cheese commercial disappearance at 2.9% more than last year. While USDA ended the Farmers-to-Families Food Box program – orders were fulfilled through the end of the month. Additionally, foodservice demand increases were able to offset slower retail and export orders.

Butter

CME spot butter prices slipped to the lowest level since early March this week. Prices averaged $1.7075/lb, which was 4.3¢ lower. At the same time, trade volume declined compared to the prior week. Cream multipliers remain consistent with 2019 but still slightly below last year’s levels. That said, multipliers are slowly rising across the country. Reports indicate that markets are still unsettled and that some cream demand may remain lower than expected for this time of year. As milk off the farm declines, that could reduce cream headed to churns.

Ceres estimates May butter commercial disappearance at 6% less than year-ago levels. While exports and foodservice demand were higher, retail demand slipped below year-ago levels. Year-to-date government removal, lower production, and exports have helped remove more butter; however, retail sales could be essential to price direction later this year.

NDM/SMP

CME NDM retreated again this week with prices averaging $1.2369/lb – that was 2.56¢ lower than the previous week. That was on fewer trades. GDT prices declined on July 6  – which set off a round of selling that reset prices to the lowest level since mid-April. World NDM/SMP dropped this week – that could cap export prices for now. Still, demand and world stocks are supportive of prices so declines may be fleeting if China’s demand continues. Additionally, the drought in Mexico looks to have taken a toll on output, providing an opportunity for US exporters.

Based on the data, Ceres estimates domestic NDM demand in May as the lowest over the last decade for that month. That could explain why manufacturers’ stocks lifted. Domestic demand would fall below last year’s levels at the current pace – that could put more pressure on exports.

Whey & Lactose Products

CME whey prices tumbled, retreating to the lowest level since early January. In the end, CME whey averaged 50.56¢, down 5.54¢ on the week. Dairy Market News whey prices also fell with the Central Mostly averaging 56.75¢ and the Western 59.75¢. Exports remain higher than last year, but the US portion of Chinese whey imports is less, suggesting that buyers may be substituting US products. There has also been some pushback domestically. That could cause prices to step back – but given lower stock levels, prices are likely supported in the 50s for a time.