Weekly forecast update – Mar. 19, 2021

Forecast updates
Eased the remainder of March and April forecasts for spot prices.
Adjusted Q2 NDM and butter prices lower.
All changes impacted milk prices accordingly.
2H 2021 forecast forward remained unchanged.

Fluid Milk Market
This week USDA’s AMS announced the advanced April Class I base milk price at $15.51, which was 31¢ more than March. The skim price declined by 62¢, but the butterfat increased 26¢ compared to March, driving the MoM increase. Overall the price remains remarkably stable. That said, the industry continues to review the new Class I formula established with the 2018 farm bill.

Seasonally, milk production is rising, and several regions of the country are starting to notice an uptick in receipts. That is already redirecting milk and causing discounts as processors are full consistently.

As expected, USDA revised the January 2020 milk production figures higher with the February Milk Production report’s release. It appears there was a significant compilation issue as California moved from negative to positive YoY increases. In February, the United States produced 17.6 billion pounds of milk, which was 2% more than last year after adjusting for Leap Day. The dairy herd continues to expand, now sitting at 9.46 million head, 81,000 animals more than the previous year, and 3,000 more than January. Output per cow is currently 1,864, up 1.2% vs. last year. It appears nearly an even split that new cows and higher production per cow contributed to more milk in February. In absolute terms, Wisconsin contributed an additional 80 million pounds, followed by California at 73 million pounds. Despite the winter storms, Texas still pushed milk 5.3% higher than last year.

Cheese Market
CME spot block cheese prices mainly were stable throughout the week – barrels dropped at a faster pace on Friday. Blocks averaged $1.7020/lb., which was 0.15¢ higher than the prior week with six loads trading. Barrels averaged $1.508/lb. and 1.6¢ less than last week on 13 trades. The markets were in a stalemate this week despite the impending USDA Section 32 bid due next week. For the most part, buyers and sellers appear somewhat content at current prices. That said, sellers tested markets a bit on Friday, and buyers were slower to materialize.

IRI continues to confirm that retail cheese sales are doing a yeoman’s effort offsetting declines from lost foodservice volume. For the 52 weeks ended January 24, 2021, natural cheese sales were $16,418 million – that was a 20.8% improvement over the same period a year ago. Unit sales increased by 12.8%. Processed cheese value increased 17.8% to $3.3 million, with unit sales up 10.8% or nearly 799 million. Shreds and grated cheese led the category increases with unit sales up 17.1% and 24.7%, respectively.

Butter Market
After remaining stable for much of the week, butter prices dropped on Friday, losing 4.5¢/lb. Spot butter averaged $1.702/lb., 0.15¢ higher than the previous week on five trades. While cream and butter demand remains optimistic ahead of the Easter holiday – there is still a lot of butter in the warehouse. Exports could be a reason for higher markets; however, some news surfaced that the port issue is seeing little relief and could persist for much of the year. That is a dose of bad news for agriculture and dairy, particularly as it relies heavily on exports. Butterfat exports would be a means to reducing larger stockpiles of products.

In February, the restaurant performance turned lower due to widespread storms; however, restaurants are optimistic about springtime due to the stimulus checks. February same-store sales were 12.6% lower than last year and foot-traffic down 19% – a reset to December’s performance. Some states allowed partial re-openings. Winter storms in Texas caused February same-store-sales to plummet 40% below the prior year, with the entire Southwest down 30%.

CME spot NDM prices slid through the week, with prices dropping again on Friday. Most were waiting to take a cue from the Global Dairy Trade (GDT) trades this week – WMP declines, and SMP increased modestly. Overall, the market expected those results, so they had little sway on the CME and futures. The news of persistent shipping issues that could last well into the second quarter may have caused markets to step back slightly. Also, milk production is rising – given 70% of NDM/SMP volumes moved overseas last year – that could be problematic for the domestic market if more product stays home. While bad news for NDM processors – that could keep Class I and II skim prices steady through the spring.

The more troubling news from GDT was that while demand from China remains elevated, demand from other countries in Southeast Asia declined. That said, New Zealand and GDT prices are the highest in the world, reflecting some of the reluctance to purchase from that source. European SMP producers are reportedly balanced – but attempts to increase prices have been met with resistance.

Whey & Lactose Products
CME whey prices reached new heights this week, with the spot rising to 61.25¢/lb. That resulted in a 60.45¢/lb. average this week – 1.1¢ higher than last week. Just two loads traded. The story remains China and ravenous demand for whey, permeate, and lactose. European prices moved up this week also. Dairy Market News and NDPSR whey prices are even lifting but at a slower pace. Given the demand from China, whey prices could track into the 60s for a time.

China has confirmed African swine fever in Sichuan and Hubei provinces – two large hog-producing regions. USDA will update its forecast for China’s hog production next month. That will likely influence whey markets. So far, the increased whey price is lifting the Class III milk price.