Weekly forecast update – June 24, 2022

Forecast updates

·        Add the Announced July Class I milk price.

·        Based on current information reduced cheese forecasts – reports indicate cheese trade appears to be slowing.

·        Reduced butter forecast. While prices are supported, it appears there could be a trade reversal toward the end of the year.

·        Reduced NDM forecast as sales are slower and could remain so through most of Q3.

·        Moderated whey forecast through the end of the year.

Milk Market

USDA announced the July 2022 Class I base price at $25.87/cwt – unchanged from June. While the milk price is unchanged, the skim value declined by $1.02/lb, and the butterfat increased by 28.15¢/lb. The Class II skim value declined 8¢/cwt to $15.42/cwt. for July.

US May milk production totaled 19.72 billion pounds – 0.7% less than last year. Several of the 23-states experienced lower YoY output due to fewer animals but improving production per cow. Cheese-producing states like Wisconsin, Texas, South Dakota, and Idaho continued to expand production, as did Oregon and Florida. The United States had 9.405 million cows compared to 9.507 million last year. Although Wisconsin and Idaho had higher milk production, those states had fewer cows compared to the previous year. The herd expanded by 2,000 cows from April. Output-per-cow improved to 2,028 pounds, up 0.35% compared to last year. Interestingly the West Coast and Arizona were the only regions to struggle with output numbers compared to the previous year. The Upper Midwest and Mideast bettered last year, with most noting ideal milking conditions.

Cheese Market

CME cheese prices were lower but mostly stable this week until Friday. On Friday, blocks and barrels dropped again after the Cold Storage report was release on Thursday. CME blocks averaged $2.0975/lb – 7.3¢ lower than the previous week. Barrels averaged $2.1644/lb, down 1.51¢. That resulted in a block-barrel spread of 6.69¢ with barrels premium to blocks. Reports throughout the week weighed on prices culminating in the Cold Storage report that caused prices to retreat even further.

On May 31, US cheese stocks totaled 1.51 billion pounds, the most reported. That figure immediately caused cheese futures to sell off near-daily limits in late-day trading. Stocks represented a 3.7% increase over the previous year and the largest April to May expansion since 2018 – a turnaround from the last three years where stocks have declined or increased modestly. While the YoY May gap is large, it is less than four of the previous six years; however, markets looked at the YoY shift as negative news. American cheese stocks made a big recovery totaling 875.9 million pounds at the end of May – 3.6% more than the prior year – accounting for most of the increase.

Butter Market

CME butter prices nearly reached $3/lb again this week before falling on Friday. Prices averaged $2.9515/lb. 0.48¢ less than the previous week. A total of 17 loads changed hands during the week. At the same time, cream multipliers were steady this week. The market definitely took a turn toward bearish on Friday. Trade data and stocks were less than friendly this week. For some time, markets have priced in most of the positive news, but some more negative news seeped into markets causing prices to pull back. Despite some moves higher Q3 butter futures turned lower throughout the week. That caused the JUL22 price to retreat to the lowest level since early March.

On May 31, US butter stocks totaled 321.6 million pounds – 22.3% less than last year, but consistent for a month-over-month build compared to five of the last six years. Stocks are steadily climbing but given the size of the stocks last year they are still showing a gap. Still, stocks are above the 300-million-pound mark – a watermark over the last decade for the amount of butter necessary to meet second-half demand. Last year, stocks peaked in June suggesting there is a bit more build ahead of the drawdown.

NDM/SMP

CME NDM prices declined throughout the week with prices dropping as low as $1.79/lb by Friday. Prices averaged $1.8013/lb. down 1.53¢ from the previous week. Lower milk output continues to support markets, but slower trade is starting to force prices lower. That is causing US NDM prices to pull back – typically for this time of year. Price trajectory during the second half of the year will largely depend on how China returns to the market in Q3.

International data arrived this week and most of it was negative. China imported 106.2 million pounds of WMP in May – down 35.2% compared to the prior year. Given the shutdown and higher WMP output seasonally, the data mirrors earlier reports of slowdown. YTD WMP imports through May were still 1.1% more than last year. China imported 56.7 million pounds of SMP in May – 40% less than last year. YTD imports are 24% lower than in the same period in 2021. Most of the losses came from Oceania – but France, Germany, and Sweden also suffered setbacks. China imported more SMP from the US and Belarus.

New Zealand’s May SMP exports fell sharply compared to the last two seasons. In May, New Zealand exported 59.1 million pounds of SMP – down 21.7% compared to the previous year, reflecting the second YoY loss this year. While exports to China were halved in May vs. the last year – there were losses throughout SEA and MENA with very few offsets. Exports to Indonesia, Kuwait, and Libyan Ara Jamahiriya were higher.

Whey & Lactose Products

CME whey averaged 48.75¢, down 2.05¢ from the previous week. DMN western mostly price was 57.5¢ down 1.5¢ from the previous week. Central prices declined this week to 57¢ – unchanged versus the previous week. The lactose price was 44.5¢ this week, up 0.5¢ from the previous week. European prices were mixed again this week.

China imported 53.1 million pounds of infant formula in May – 19% less than last year. Volumes remain 6% lower than 2021 levels through May. China imported 98.3 million pounds of whey powder in May – 39.2% less than 2021. Imports from Turkey fell accounting for 20% of the decline. EU-27 accounted for the majority of declines. Imports from the United States increased by 2%.