Weekly forecast update – Mar. 18, 2022

Fluid Milk Market

It’s officially spring this weekend, and the flush is underway. Reports indicate that milk is rising. In the west, several manufacturers are reporting that milk is challenging capacity with little ability to process additional milk. In part, there is more milk and likely more cows, but some may be slower bottling as spring break rolls across the country. For the first time in two years, processors are dealing with balancing school milk. Just as school milk surprised the markets last fall, resulting in tighter supplies, the opposite could be true this spring. The Midwest and East are on the cusp of spring flush starting in earnest.

New Zealand reported its February milk production down 8.2% compared to last year. Season-to-date that puts New Zealand milk production 4.2% behind the previous season. Slower milk production globally supports dairy and milk prices well above average. Given reports that suggest that milk is limited, that could keep costs through the spring.

Cheese Market

CME spot markets dipped mid-week and recovered into the end of the week. That left blocks and barrels more minor than the previous week. Barrels averaged $2.009/lb, down 4.35¢ vs. the prior week, and blocks averaged $2.1135/lb, down 9.45¢. That closed the block-barrel spread to 13.16¢ this week. Mid-week buyers seemed to vanish for a time, resurfacing later in the week. Anecdotal reports indicate that sales remain positive, albeit slower than in recent weeks. Many are still reporting labor shortages that continue to cream issues for processors.

The loss of funding for the free school meals program could hurt cheese and milk next school year. The program has been in place for the last two years and has helped increase the uptake of meals. 75% of school lunches are already paid in part or whole – the incremental funding was cut as a concession to Republicans in congress. That could result in USDA reducing cheese and milk orders this spring compared to the last two years.

US January 2022 cheese commercial disappearance totaled 1.12 billion pounds and 2.85% more than the previous year. That was the best performance for January over the last three decades. A later Superbowl bolstered demand throughout the month. Data suggests that higher institutional uses and food service were likely the drivers for superior performance. Still, overall restaurant performance was lower, but it is possible outlets like QSR continue to see good foot traffic.

Butter Market

CME spot butter prices mainly were stable throughout the week, with a wobble mid-week. Trading volumes were a little lighter than in past weeks. There are reports that churning has been active in the west and that a bit more cream flowed to Midwest churns unexpectedly this week. There were some cream flow disruptions over the last week that may have elevated cream multipliers for a time. CME spot butter prices averaged $2.726/lb – down 0.75¢ from the previous week. Global Dairy Trade (GDT) butter prices slipped due to more products on the auction because there is a bit more milk and possibly more butterfat – that could lift output for a time and temper price increases.

Alternative fat prices remain expensive; Malaysian palm oil prices reached $1522/MT in February – the highest price over the past 12 years. Most vegetable oils are trending with crude oil prices. There are reports that countries like India are short fat – which could provide additional support to vegetable oil prices. That may mean less ability for some to switch or less incentive as vegetable oils are costly and may support butterfat prices at higher average prices throughout the year.

US butter commercial disappearance totaled 171.4 million pounds in January – that was the best performance for January over the last decade. Commercial disappearance was 3.1% more than the previous year. That was well ahead of the five-year average pace of 142 million pounds. Again, that level of domestic demand combined with exports helps explain the stock declines.

NDM/SMP

Spot CME prices increased on Thursday to the highest price since the start of the week – prices slipped a bit on Friday. The GDT performance was split, with SMP moving up 1.6% and WMP down 2.1%. Reports indicate the WMP performance was far worse when the impact on instantized WMP was considered. There were fewer participants at the last event – giving markets some pause about demand. CME prices averaged $1.8515/lb 0.35¢ more than the prior week. Like butter, spring flush is underway in California, with reports that driers are busy. Other reports indicate that Mexican buying interest slowed and that some milk powder may be backing up into storage. At the same time, world prices are above $2/lb, with Europe the highest reported price.

NDM domestic commercial disappearance continues to lag the prior year. In January, domestic commercial disappearance totaled 71.7 million pounds – 5.2% less than the previous year. That was modestly behind the five-year average pace of 82 million pounds for January. That may indicate domestic buyers continue to work down inventories to buffer the impact of higher prices; that said, buyers will need to restock at some point.

A sub-variant of Omicron is spreading quickly through Europe and the United States. The impact remains muted and unlikely to change current protocols. Omicron is moving through China, where they still have the zero-Covid policy. That has kicked off a new wave of shutdowns and lockdowns. There are mounting concerns that China could once again create issues for the supply chain with its policy. Additionally, there are concerns that China’s economy could stall, making problems for demand.

Whey & Lactose Products

CME whey markets broke the 75.75¢ trend by moving to 76¢ this week. This week CME dry whey prices averaged 75.9¢, 0.15¢ more than the previous week. DMN central whey declined to 77.5¢; western whey prices fell 1¢ to 76¢ this week. Prices appear somewhat stable, and European prices are rising – supporting prices.

Domestic whey commercial disappearance jumped 28.7% above last year’s 54.3 million pounds. That was the third strongest performance over the previous decade for January. Domestic WPC commercial disappearance jumped 32.9% above last year’s 29.7 million pounds. That may account for the slower exports as more products remained in the domestic market.