Weekly forecast – June 23, 2023

Forecast updates

There were a few changes to this week’s forecast.

  1. Updated June 2023 prices based on spot markets
  2. Adjusted some NDM prices lower through mid-Q2 2023.
    1. While prices could lift until milk supplies slow, markets could continue to seek discounts.
    2. Corrected 2024 price ratios – Central NDM was too high.
  3. Reduced JUL23 butter forecast. Given modestly higher stocks in May, it could take until the June or July Cold Storage report for prices to adjust seasonally higher.
  4. Reduced JUL23 cheese – kept barrels over blocks.
  5. Adjusted whey based on current declines.

Milk Market

USDA announced the July advanced prices this week. Class I is $17.32/cwt, down 69¢ from June and the lowest Class I price since October 2021. That Class I price could lead to more depooling in July should Class III and IV prices stabilize. The Class I skim price has not been this low since June 2020. Reports are consistent. Milk production appears to be past its peak; however, schools finished closures for the summer in several states. Plant downtime, planned and unplanned, and stable milk keeping discounts abundant and some less frequent dumping. While milk is heavily discounted, some processors are still uninterested in adding to current stockpiles – even with substantial discounts.

US May milk production 19.88 billion pounds of milk, 0.6% more than the previous year. That was modestly higher than in April. YTD output is 0.8% higher than last year – but considering last year, milk production was slow to respond to higher prices during the first half of the year. Midwest and Mideast milk production pushed higher, with most states 1-2% more than last year. Texas and Georgia expanded milk production, but the YoY gap was 0.84% and 0.5%, respectively, reflecting a sizeable slowdown in output. Western states, except for Idaho, continued to slow output. The US dairy herd stood at 9.43 million head, 0.14% or 13,000 more cows than last year, suggesting that more milk came from higher output-per-cow. Output-per-cow was 2,108, up 0.49% vs. last year, with Minnesota and Wisconsin driving output gains.

Cheese Market

This week barrels dropped faster than blocks – given low block prices, that was somewhat expected. Barrels remain premium to blocks by 10.88¢ – a sizeable premium and unusual for this time of year. Barrel trading volumes were modest this week as prices averaged $1.5069/lb, down 3.31¢ compared to the previous week. Block trading volumes were less than the prior week, and prices averaged $1.3981/lb. and up 0.16¢ compared to the previous week. Spot market trading volumes continue to slow. The test will be whether recent low spot and lower futures prices allow US exporters back into the Q3 international market. Most reports suggest the domestic market is mostly balanced, indicating the lower Q2 export markets pushed prices to an imbalance resulting in much lower prices.

US cheese stocks on May 31 stood at 1.49 billion pounds and 1.5% less than last year. This year, the April to May stock build was average compared to the last two years. It was also the first YoY decline for May in the last five years. American cheese stocks were 852.5 million pounds and 0.6% lower than last year. That reflected an average build but less than last year. Other than American cheese stocks were 614.4 million pounds and 2.4% lower than last year – that was a sizeable decline and only that likely reflected slower putaway as some processors opted for American cheese vs. import varieties in May.

Circana reported May 2023 retail cheese scan data. Natural cheese volumes were up 3.1% compared to last year. For the 52 weeks ending May 28, 2023, volumes are down 0.2% – a good recovery. Deli cheese volumes were down 2.1% in May vs. last year. Grab & Go was the only deli cheese category to better the previous year – up 2.9%. Specialty cheese continues to underperform, down 1.3% in May; YTD, down 2.7%

Butter Market

Spot butter prices climbed through mid-week, and prices dropped back by Friday. CME butter averaged $2.367/lb, down 0.75¢/lb. Prices are still under pressure, but spot trading activity quieted more this week. While prices are less than recent highs, prices appear supported near current levels. Despite lower spot trade, futures ended Friday on an uptick. Markets will be closed on Monday for the Juneteenth holiday. Anecdotal reports indicated cream multipliers are rising, and less cream moved to churns this week, suggesting peak production passed. USDA reported that East and Central cream prices were higher, while Western multipliers dropped.

May 31 butter stocks totaled 366.7 million pounds – 14% more than last year. That reflected a 35 million pounds April to May build – the most over the past six years and 10 million pounds higher than the past two years. That may explain some of the recent price discounts. Stocks are likely to peak in June before declining. In part, butter stocks are higher due to lower AMF production this year compared to last year, but also there is more milk headed to churns and driers in the Central states until new cheese plant capacity comes online.

Circana reported May scan data for butter volumes up 1.9% compared to last year. YTD butter volumes are 1.4% less than last year, reflecting more interest in lower-cost butter than a year ago – but what is more interesting is that prices, while historically high, are not currently a significant deterrent to sales. Cream cheese sales were up 0.9%. Creamers were down 1.6% vs. last year. Overall volumes are still lagging behind last year, but with few exceptions, 52-week volumes are modestly behind last year or higher than last year.

NDM/SMP

CME spot NDM prices are following international prices lower this week. The June 20th Global Dairy Trade (GDT) auction offered few insights, with WMP unchanged and SMP 3% lower. Looking at the GDT SMP trend line, more downside could be possible in the markets during the off-season. That said, New Zealand trade data remains impressive through May. CME NDM prices averaged $1.145/lb. down 1.4¢ compared to the prior week. That was the lowest weekly spot average price since mid-April. Markets are unlikely to increase until more evidence that milk is slowing. Anecdotal reports indicate more willing sellers than buyers, causing prices to decline.

There was a lot of trade data this week. China imported more WMP in May compared to last year. In May, imports totaled 115.8 million pounds – 23.9% more than in April and 9% higher than last year. Still, YTD volumes are nearly 51% less than last year. New Zealand accounted for all of the increases. Imports from Australia, France, and Belarus were all higher. The largest decline was Uruguay, down 37.5%. China imported more SMP in May – 70.7 million pounds, 13% less than April but 25% more than last year. So far this year, China imported 21.1% more SMP than last year. China imported more SMP from New Zealand and Australia in May, 137% and 32.6%, respectively. Fewer imports from the United States, Finland, and Belarus partially offset those increases. Imports from Europe, led by Germany, were also higher.

New Zealand’s May WMP exports totaled 104.4 million pounds and 23.6% more than last year. YTD exports are up nearly 9.5% vs. the same period last year. Exports to China increased by 119% above last year. Exports also expanded to Algeria (+107%), Bangladesh (70%), and Sri Lanka (+565%). That may reflect a shift as New Zealand maintained WMP while expanding volumes to China. New Zealand’s May SMP exports totaled 87.6 million pounds and 48.7% more than last year. YTD exports are up nearly 49% vs. the same period last year and the highest exports for that month on record. Exports to China increased by 40.7% above last year. Exports also expanded to Indonesia (+23%), Kuwait (222%), and Saudi Arabia (+2437%). Similarly, more volumes are moving, suggesting demand in the global market.

Whey & Lactose Products

Prices faded this week after a few weeks of modestly higher spot prices. CME whey averaged 26.69¢, down 0.91¢ versus the previous week. Dairy Market News followed suit, with weekly prices dropping. Central whey was 28.75¢, down 1.25¢. Western whey was 33.5¢ – unchanged week to week. Lactose prices were unchanged at 22.5¢. Markets appear concerned about the prospects of new whey and lactose coming to market in Q4 this year. Given current production and stock levels, that is working to reduce prices for the foreseeable future.

China imported 125.7 million pounds of whey in May – 4.9% more than in April and nearly 28% higher than last year. YTD, China’s whey imports ran 40% more than last year. Imports were higher from Belarus, the United States, Germany, and the Netherlands. Imports from the United States remained 50% of the total.