Weekly forecast update – June 25, 2021

Forecast updates
• Reduced the CME spot cheese markets through the end of the year.
• To adjustments lowered the Class I and III milk prices.
• Still expect a run higher in the fall, but the ultimate top could be less than recent forecasts.
• Reduced the levels of blocks and the block-barrel spread through the end of the year.
• Still have barrels higher, but expect a seasonal price decline in Q4.
• Reduced the CME butter price July and August. Like cheese, still expect a run higher later in the year, but the top could be less than previously forecast.
• Reduced the July NDM price, as well as adjustments to prices through 2022.
• Given seasonally lower demand from overseas and elevated production through June, that could temper prices next month.
• The adjustments will impact the Class I, II and IV milk price projections.
• Adjusted high-heat milk powder accordingly.

Fluid Milk Market
USDA announced the July Class I advanced milk price this week at $17.42/cwt – that was 87¢/cwt less than last month and 86¢/cwt more than last year. Class II advanced skim price for July will be $10.53 – that is 41¢ more than June. The June Class II, III, and IV prices will come out next week.
Heat stress will be a discussion this week as Seattle is forecast to reach 109F next week; Portland reached 114F on Sunday. Triple-digit temperatures are expected to spread across the western United States. Some reported the latest round of heat in the Midwest dropped production between 4-10% vs. the previous week. More mild weather this week helped output recover. That level of heat, and hot evenings, could curb output – something typical for this time of year. The heat level for this time of year and the coverage area could have a more significant impact.

US May 2021 milk production totaled 19.85 billion pounds, 4.6% more than the previous year. The wide gap has been anticipated for months as, a year ago, cooperatives and others were looking to reduce milk output quickly due to the lack of markets. Still, it was enough to weigh on dairy prices this week.
• Year-to-date that puts total output up 2.9% vs. last year, after adjusting for leap-day.
• The milking herd continues to expand as producers retain cows or expand in response to higher margins. At 9.5 million head – that is the largest dairy herd since the 1980s and 145,000 more animals versus last year.
• Output-per-cow was 2,088 pounds in May – that was 3% more than last year – producers continue to refer to higher quality feed and good weather that contributed to those increases.

Cheese
CME Cheddar blocks and barrels dropped this week, with prices stabilizing by Friday. Markets find bits of support at current levels, but it seems to fade quickly as prices approach the $1.50 level. CME spot Cheddar blocks averaged $1.4835/lb, which was 1.7¢/lb less than the previous week. Spot barrels averaged $1.486/lb, down 12.8¢ compared to the prior week. Traded volumed dropped considerably compared to the last week. While futures retreated, there is still good carry for both products through the end of the year. Lots still expect prices to lift, albeit less than just a few weeks ago.

USDA released the May Cold Storage report this week. US total cheese stocks were 1.47 billion pounds on May 31, which was 0.74% more than last year and 1.2% higher than April. American cheese stocks followed a similar trajectory, with holdings totaling 831 million pounds and 1.3% more than last year. Given the production increases, the data still suggests most of the product continues to move to end-users.

Butter
CME spot butter prices retreated this week to the lowest levels since April. In the end, spot butter averaged $1.7395/lb, 6.5¢ less than the previous week on similar trade volumes. There are reports of unsettled markets as several are indicating that flows to churns remain elevated and sales to ice cream and other processors mixed. Cream multipliers were similar to 2019 levels again this week but still less than year-ago levels. Consistent and widespread heat could cause ice cream processors to increase production.

US butter holdings totaled 401.8 million pounds on May 31 – 6.9% more than year-ago levels and 4% higher than April. So far, US butter stocks have not peaked. That continues to weigh on spot markets and is taking futures lower as well. That has removed carry from the market, making a spot sale the best sale currently.

NDM/SMP
CME NDM declined throughout the week and turned higher on Friday, recovering some lost ground. In the end, CME NDM averaged $1.2585/lb this week, which was 1.5¢ less than the previous week. Trading volumes were identical, with 19 loads changing hands. While monthly trade data continues to reflect a record-setting pace of exports for this year, more reports of transportation issues flare up from time to time. The US milk production report likely weighed on markets – especially NDM as fewer bottling sales and more milk probably drove production higher during the month.

The market continues to watch China closely for indications of future demand – May imports indicated that China was again pulling more milk powder than the previous year. China’s SMP imports in May totaled nearly 94 million pounds – that was more than double last year’s volumes. Thus, it is possible China’s campaign about consuming more dairy to manage Covid-19 could have some staying power. In addition, China imported 7% of its SMP volumes from the United States – another improvement. Should this pattern continue – it would indicate a powerful pull through the end of the year. Even moderation from China, assuming supply maintains its current trajectory, could remain balanced and prices somewhat supported through the end of the year.

Whey & Lactose Products
CME whey prices eased again week – with the weekly average falling to 59¢, down 1.35¢ compared to last week. Traded volumes were limited. Dairy Market News whey prices declined for the Central and Western prices. Lactose prices increased modestly this week. NDPSR whey prices fell quite a bit this week also. That may start to suggest that whey prices could head lower for a time.
China’s whey imports increased again in May. In total, China imported 162 million pounds of whey during the month – that was nearly 40% more than last year. The more significant concern was that the US percentage of imports declined to 34%, one of the lowest levels in quite some time. Importers began sourcing more products from Belarus and Europe – that could pressure prices lower.