Weekly forecast update – Jun 3, 2022

Forecast Update

  • Overall global milk slowdowns and environmental policy are keeping the dairy products and milk price forecasts elevated through 2024. While a potential recession will become a weight on prices, it seems likely that environmental policy and higher feed prices could keep milk prices from returning to the teens over a prolonged period.
    • Feed prices retreating from the $7/bushel corn level could allow milk prices to decline.
  • Class III milk forecast remains mostly unchanged from the previous month with few exceptions
    • Reduced the JUL22 forecast for block and barrel cheese resulting in a lower JUL22 price
      • Blocks and barrels are trending lower;
      • There have been some export slowdowns reported;
      • Retail sales in May 2022 were lackluster – that could cause cheese stocks to build somewhat in June 2022.
      • Combined that would work to pressure the July 2022 Class III milk price lower.
    • Increase Class IV milk price. 2022 forecast now tops out at $27.24/cwt in September.
      • Raised the butter forecast through September – cause a steeper decline expecting some retail slowdown compared to last year.
      • Additionally, expect 2H trade to reverse with more imports from New Zealand and fewer exports as US butter holds a sizeable premium to New Zealand presently.
      • At the same time, fewer US stocks and a slowly recovering global milk could keep the butter price from dropping until later in the year.
      • Ceres forecast 2023 and 2024 butter prices closer to a $2.25 – $2.35 range.
    • Those shifts are raising the Class I milk price with 2023 and 2024 expected to decline.
    • Class II could be the highest milk price should the Class IV forecast come to fruition.
    • Ceres expects that CME blocks and barrels will set a new record this year.
      • Still forecasting prices to decline into 2023 and 2024 but remaining above the five-year average until new capacity in Texas comes online
      • US trade is tracking one billion in exports for the first time, which could keep US cheese prices well supported.
    • Ceres expects butter could exceed $3/lb for a short time headed into the holiday season; however, an expectation of a trade reversal and retail slowdown resulted in a sharp correction lower in Q4;
    • Ceres expects NDM/SMP prices to rise into the fall on better commitments from New Zealand and slow to respond milk production.
      • Prices could correct toward the second half of the New Zealand milking season – a return to the $1.50 to $1.60/lb level.

Milk Market

Spring-like weather conditions continue to spread throughout the United States. The northern tier of the country continues to report moderate weather and ideal milking conditions, helping to lift milk production seasonally. More reports of schools headed into summer break send milk back to manufacturing plants as bottlers slow orders for the foreseeable future. Labor remains a challenge for processors and is noted as somewhat disruptive this spring – which may put additional pressure on the system. Especially for trucking – getting someone to transport milk, cream, and other products have proven difficult for many. Several regions are reporting sizeable discounts to get milk moved – that will likely persist, especially over weekends until July 4th or when milk seasonally subsides.

Cheese Market

In post-holiday trading, spot markets eased again, with blocks and barrels treating to the mid-220s for the first time since late March. Blocks and barrels continue to switch off as the highest market, causing the block-barrel spread to contract to 2.63¢ and barrels premium to blocks. By the end of the week, CME blocks averaged $2.2531/lb and 6.29¢ less than the previous week. Barrels shed 3.21¢ to average $2.2794/lb. Slowing retail sales velocity and potentially exports could be causing some to reduce orders making cheese readily available to the market and, in some cases, heading to the CME. Still, most are generally reporting that there is good interest in cheese overseas. According to the US Dairy Export Council, containers and congestion through the ports continue to hinder exports.

On Friday, USDA reported April US cheese production of 1.56 billion pounds and a scant 0.08% more than last year. Several sizeable cheese-producing states (CA, ID, NM, PA, and WI) fell behind last year’s pace. Those declines were offset by higher output from Minnesota, Iowa, Illinois, Ohio, and New York. Year-to-date US cheese production is still 2.6% more than the same period last year; however, the YoY gains continue to slow. That was somewhat expected due to the Michigan cheese plant ramping up last year; still, many would indicate the recent slowdowns are more than expected. American cheese production totaled 465.4 million pounds and 2.7% less than last year. Mozzarella output increased 2.3% compared to the previous year and totaled 385.8 million pounds – a strong indication that export orders/demand remained elevated at the start of Q2 2022.

Butter Market

In post-holiday trading, the CME butter markets continued to push higher; that said, markets eased on Friday. Trading remains elevated as rumors of sourcing in Chicago linger. Cream went to churns over the long weekend, but reports indicate that cream churns slowed by mid-week, with most believing the product moved to ice cream. CME spot markets averaged $2.905/lb – up 2.25¢ compared to the previous week. Interestingly, Central cream multipliers eased this week while western multipliers recovered. Trucking remains a persistent issue for cream sellers this spring, making products challenging to move. That could have implications for markets later in the year.

In April, US butter production totaled 181.2 million pounds – nearly 1% less than last year’s period. That puts US butter production lagging the previous year’s pace by 4.1% through April and is a likely cause for above-average prices. California and Pennsylvania continue to produce more butter than last year, up 2.3% and 3.6%, respectively. While ice cream production is rising seasonally, at 65.5 million pounds, it is 4.95% less than last year. Regular ice cream mix suffered a similar fate – down 5.9% compared to last year. It appears more cream may be headed to cream cheese this spring, with the category running 11.9% more production vs. last year.

NDM/SMP

After bottoming a few weeks ago, CME spot NDM prices have pushed higher, closing the global price gap over the last two weeks. This week NDM averaged $1.8663/lb – 2.98¢ more than the previous week. While prices have increased, the convergence of global prices could limit further appreciation without a move higher from international groups like New Zealand and Europe. As a result, Tuesday’s Global Dairy Trade (GDT) event is greatly anticipated as many will watch for price direction. Based on forecasts, WMP and SMP offered volumes will be less than in the previous event suggesting that prices could recover some ground lost throughout May.

In April, the United States produced 195.8 million pounds of NDM – that was 1% more than last year. Still, through April 2022, production lags the previous year by 7.1%. SMP output totaled 35.6 million pounds and 36.5% less than last year. It appears some manufacturers are continuing to add to MPC production with an output up 13.8% compared to the previous year, which may account for some of the SMP declines. As US milk remains behind last year’s pace, milk powder production could likely remain constrained.

Manufacturers’ stocks of NDM totaled 298.8 million pounds on April 30th – that was 0.4% more than last year. While slightly ahead of last year, the YoY gaps continue to close. Stocks expanded by 11 million pounds from March to April – with few exceptions, March to April has been a depletion period over the past few years, making the expansion unusual.

Whey & Lactose Products

CME whey averaged 54.6¢, up 4.38¢ from the previous week. DMN western mostly price was 59¢ -steady compared to the last week, as were Central prices at 57.75¢. The lactose price was 43.75¢ this week, unchanged. European prices were mixed this week. That performance helped CME whey futures recover some lost ground, with prices averaging the upper 50s for the rest of the year.

US dry whey for human consumption output totaled 81.3 million pounds in April – up 6.85% compared to last year. Wisconsin and New York reported higher production. WPC (25-49.9%) output fell considerably compared to the previous year. In part, that may be related to the start-up of the new Michigan plant – still, a 20.1% drop in output is sizeable. WPC (50-89.9%) production was 30.2 million pounds and close to unchanged (-0.25%) compared to last year. WPI production jumped up 24.8% compared to the previous year – likely accounting for most of the losses in the WPC category. Given current demand and pricing, that makes sense.

US manufacturer held whey stocks continued to expand in April. Stocks totaled 73 million pounds and 21% more than last year.