Weekly forecast update – March 12, 2021

Forecast updates
China’s demand is the primary focus of markets – should it move higher, it could lift milk powder prices and Class I and II milk solids. The forecast contemplates higher milk powder and related skim prices for the second half of the year. That said, accelerating demand from China could lift prices further. The converse is also true. Some feel the shipping issues are causing buyers to place higher orders, and that is putting upward pressure on nearby prices that resolution of the US port issue could resolve.
Increased the Q2 to Q4 cheese prices. Demand has been able to absorb most of the new cheese from Michigan. Additionally, USDA announced it would keep the school lunch program active through the remainder of the year. Once the port issue is resolved, US cheese is highly competitive so that exports could turn higher. That combined with foodservice supply line restocking could lift demand.
The Class I price remains near current levels through Q2; however, Ceres expects prices could move sharply higher during 2H 2021 as demand for commodity products increases. The higher prices are the result of a higher Class IV price. Nearby costs are higher due to high butterfat and whey prices.
Fluid Milk Market
USDA’s AMS announced the first of two pricing periods for the advanced Class I. April prices appear consistent with Q1 prices – but the butterfat will be higher and skim less. Demand from bottlers picked up as forecasters predicted severe winter storms for Mountain and Central states this weekend. Additionally, some schools went back to in-person learning have helped to pull milk away from dryers this week with expectations larger school districts may still attempt in-person learning yet this year.

Vacillating between winter and spring weather may be causing some output-per-cow issues, with some dairy producers reporting that milk off-the-farm has declined. That said, most are noting that components are high and unaffected by the changes. It is possible that lower milk output may not necessarily translate into fewer dairy products as spring approaches. While the weather is causing some issues now, most expect milk to expand as winter weather conditions abate.

The late snowfall could help moderate-severe drought conditions in Colorado and surrounding states. There are concerns that there could be droughts that may negatively impact crops during the summer months – that is one reason feed prices remain high. China’s forecasted ethanol purchases are the other that is keeping corn near $5/bushel. Higher feed prices could keep margins in check despite higher milk price forecasts in 2H 2021.

Cheese Market
CME spot cheese prices increased throughout the week, with gains picking up during the second half of the week. Blocks averaged $1.7635/lb., which was 9.8¢ higher than the prior with no trades. Barrels averaged $1.522/lb. and 7.55¢ more than last week on just three trades. Overall, buyers are willing to own cheese at higher prices, and for now, sellers are comfortable holding cheese – that is helping to lift spot prices higher. Most report that cheese is relatively easy to come by; however, most are saying that retail sales remain strong and that foodservice orders may be improving.

Ceres estimates US January 2021 cheese commercial disappearance at 4.23% for that month. That would explain the unchanged stocks. A solid playoff and Super Bowl supported by already soaring pizza sales likely pulled more product. Additionally, the fifth round of the food-box program was announced at the end of that month. Given the new capacity that indicates that cheese prices could be much higher had it not been for new cheese in the system and that cheese prices may remain higher,

Butter Market
CME butter prices pushed higher, occasionally running into some sell-side interest, but traded volumes were half of the previous week. Spot butter averaged $1.7005/lb. 1.9¢ higher than the previous week. This market has most head-scratching so far this year. Fundamentally, there is plenty of supply, and stocks are the highest they have been in decades – so why are prices moving up? Presently suppliers are working on fulfilling the latest round of USDA purchases and prepping for the Easter holiday. Add to that, there is likely some pack-ahead happening for fall butter demand. While futures contract purchases in the fall are more economical than producing and freezing butter for use later in the year – some companies prefer pack-ahead. All of that has worked to tighten up the spot cream market causing multipliers to appreciate and has slowed bulk packers. Lastly, interest in US butterfat exports is rising. While it takes time to get US exports moving, they can be substantial and work to reduce butter available to the domestic market once they do.

Ceres estimates US butter commercial disappearance at 8.5% more in January 2021 vs. 2020. That was the second-best consumption for butter over the last decade for that month. Likely a stronger export performance could have helped better last year’s showing.

CME spot NDM prices were higher than the previous week but mostly stable with slight price fluctuation. NDM averaged $1.1715/lb. – that is 0.25¢ higher than last year. Trading volume slowed compared to the prior week. Futures markets are projecting a rise in milk powder markets later in the year. Concerns mounted that a stronger pull from China could send prices soaring as buyers compete for a scarce product like it did in 2014. If that were to happen, NDM price could quickly move to $1.35 to $1.50 levels – that would send Class I and II skim prices higher. Some are hoping that the resolution at the US ports could alleviate the supply situation – but that will largely depend on overseas demand.

Ceres estimates NDM/SMP commercial disappearance at 73.2 million pounds for January that is 145% higher than last year. With lower exports, that suggests a considerable amount of domestic product changed hands during the month. That may explain the recent uptick at the CME as sellers are well committed and less concerned about the additional product they may amass headed into Q2.

Whey & Lactose Products
CME whey prices increased again this week, with prices again setting a new record at 59.5¢. Prices averaged 59.35¢/lb., up 2.4¢ from the prior week. Other price series moved up again with Western Mostly prices rising the most. The story remains strong demand from China. Given the level of demand, whey prices could move into the 60-cent range for a time. Higher whey prices could be responsible for lifting Class III and ultimately Class I skim values this year. So far, the whey price increase has added 60-80 cent/cwt. to the Class III value.

Reports from China indicate that African swine fevers (ASF) resurfaced, and it may be a bit more challenging this time around. For now, this could support whey, permeate, and lactose demand as Chinese hog farms look to keep mortality rates low. This variant of ASF is highly contagious and may be caused by a bootleg vaccine – it causes widespread embryotic and fetus mortality.