Weekly forecast update – June 11, 2021

Forecast updates

• Reduced the CME block markets for June and July as well as block markets September to December.
  • That has reduced the block-barrel spread.
  • It has also adjusted the Class I and III milk prices.
• Reduced the CME butter price June to September. It could take further depletion driven by recovering foodservice, exports and government removals to increase prices.
• Increased the June NDM price, but reduced August. It appears New Zealand could have a good start to the season – that tends to reduce August NDM/SMP prices.
  • Need to monitor China’s milk price, further declines could result in lower NDM/SMP prices.
  • Conversely, stabilization in China’s milk price could be supportive to prices for the rest of the year.
• Made some adjustments to buttermilk powder and whey prices also to reflect the current market direction.

Fluid Milk Market

In June, most processors still report elevated milk intake for various reasons, including planned downtime, fewer sales to bottlers, and stable milk off the farm. As a result, processing is busy, and some are reporting discounted milk sales. Additionally, balancing processors in the Southeast are still producing powders and cheese – hotter and more humid weather should curb milk off the farm. Still, the level of processing for manufacturing plants is somewhat elevated. As a result, most expect milk to subside from current levels by July 4 – consistent with past years. However, the US milking herd remains large and could keep milk flowing, albeit seasonally lower this summer.

Most are keeping a watchful eye on feed markets. Higher processing costs – fertilizer, labor, and feed are eating into what still appears to be high second-half Class III milk prices. While milk prices are forecast to remain above average, profitability is less than last year. This is because dairy producers no longer receive direct payments from the USDA, and higher costs are eroding margins. That could keep further expansion in check for now.

Cheese

CME spot Cheddar blocks dropped to the $1.40s this week – the lowest price in over a year. While blocks recovered to the $1.50s by Friday, Cheddar barrels rocketed up to $1.6725/lb. that same day. That drove the block-barrel spread to -17.25¢/lb. in favor of barrels. For the past 17 trading sessions, barrels have held a premium to blocks. Weekly cheese trading remains elevated – at the current pace, June could rival May’s level of trade – the highest volumes since July 2011. In the end, blocks averaged $1.4805, down 2.45¢ from the previous week. Barrels averaged $1.608/lb, up 1.49¢ vs. the prior week.

There is some good news – US exports and improving foodservice performance. US cheese exports surged in April to 89.1 million pounds – that was 49.8% more than last year driven by higher exports to Mexico, up 46% vs. last year. In addition, Cheddar cheese exports were higher, up nearly 20% and a total of 9.8 million pounds. That was well above the five-year average pace for April. All of the data suggests good demand for US cheese. It also indicates that US cheese may need to rely on more exports to keep the market balanced moving forward.

Restaurant same-store sales continue to improve compared to last year and 2019. In May, Blackbox Intelligence reported same-store sales up 5.43% – foot traffic was down 5.3% vs. last year. While the value of checks is higher, there are still fewer people in restaurants. Off-premise dining (delivery and take-out) are elevated but have been trending lower since March. Fine dining performed the best of all sectors. That could be good and bad news for cheese – fine dining could support various varieties of cheese, but slowing quick-serve restaurants could reduce American-style cheese demand.

Butter

CME butter markets continue to trade in a very tight range – this week is no different. CME spot butter averaged $1.783/lb, down 0.7¢/lb. compare to the previous week. Central and west cream multipliers continued to decline this week – Eastern multipliers picked back up. While data was neutral to nearby butter markets, seasonally churning is still elevated, and that seems to be keeping prices from moving higher. Still, US prices remain the lowest globally, on a fat-adjusted basis, helping to promote exports.

US butterfat exports in April totaled nearly 12 million pounds – that was 179% more than year-ago levels and the most butterfat exported for that month since April 2014. Exports to Canada and Bahrain jumped up compared to last year, driving the better performance. In addition, the United States reportedly exported some butterfat to Australia. Overall, current prices and demand suggest that US exports, which finally reached double-digits, could offset some retail declines. That could help deplete butter stocks.

US butterfat imports in April dropped 17.4% vs. the previous year. Imports totaled 10.8 million pounds with lower volumes from various countries – with no one group standing out.

NDM/SMP

After dropping last week, CME NDM prices recovered. Spot NDM averaged $1.297/lb, up 1.95¢ compared to the previous week, with trading volumes lifting to 19 loads. While markets became pessimistic last week, another solid export performance helped to raise sentiments.

US NDM/SMP exports were solid in April as shipments to Mexico lifted, accounting for nearly all of the increases. There were some notable slowdowns in Asia. But overall, April was a good performance and should be supportive of nearby prices. US exporters shipped 173 million pounds of NDM/SMP in April – that was 15.4% more than year-ago levels and the highest for April on record, surpassing 2018. One-third of that product went to Mexico – lifting the YoY performance by 45%. Shipments to China were five times higher than last year. Exports to Egypt soared. The United States’ ability to continue to move milk powder to overseas markets will help keep the domestic market balanced.

Whey & Lactose Products

CME whey prices increased modestly this week. Prices averaged 61.35¢, up 1.14¢ compared to last week. Traded volumes remain limited. While demand from China remains positive, shipments compared to recent months are starting to slow.

US whey exports in April better the prior year by nearly 23%, but they were 8.5% less than March on a daily average basis. That was a good-sized slowdown this spring that may explain some of the recent spot price declines.