Weekly forecast update – March 5

Forecast updates
Demand from China surprised global markets as GDT leaped higher this week. There are consistent parallels with the price run from 2013 and 2014. For now, we are keeping the forecast well short of those lofty levels; however, we do foresee a significant price shift higher – especially for milk and whey powders. There could be some delays for the United States closing the gap on world dairy product prices given the current shipping issues and disruptions; however, Ceres views this as an issue that should start to improve by Q2 2021 that may permit prices to close with New Zealand prices declining, EU prices remaining at or above current levels and US prices improving.
Ceres expects higher year-over-year (YoY) US milk production through Q2, with the YoY gaps closing later this year. At the same time, Fonterra price forecasts continue to lift – that could slow the seasonal slaughter pace resulting in higher milk flows and more production during the off-season. At present, supply and demand levels should largely remain in balance – it could be somewhat deficit given the current pace of Asian demand.
With 62% of Americans viewing the pandemic situation as improving and with states reopening faster that could lift foodservice demand, it may also slow the retail market later in Q2, assuming people begin going back to work, school, and dining out more frequently this year vs. last year.
Increased 2H butter forecast – given the sizeable increase in overseas prices the United States will likely slow imports and should have an advantage in the Middle East. There could be a lag until shipping congestion is resolved.
Raised milk powder prices late Q2 forward. Given China’s internal milk price and the level of demand – the United States should be in a good position to backfill areas of South America and Asia that New Zealand has retreated due to its focus on China. Expect world prices to begin to converge later this year. That will lift Class I and II skim prices also.
Increased 2H cheese prices modestly on the expectation of pent-up demand and higher foodservice/institutional uses later in the year. Those increases could be tempered by more cheese capacity added this year.
Increased EU prices – milk remains flat, and demand is starting to increase – that should support higher prices.
Increased Q2 NZ price, but have prices easing once US product can more reliably ship.

Fluid Milk Market
USDA announced the February Class II, III, and IV milk prices at $14, $15.75, and $13.19/cwt., respectively. The Class III and IV milk prices were lower than January by 29¢ and 56¢, respectively. Current futures markets suggest that February could be the lowest price of the year as dairy product markets strengthened on better demand and more important news from overseas. This week weather continued to turn toward spring, with many regions of the country reporting warm-ups. That is also followed by short periods of colder weather, raising some concerns about health and production issues for cows.

Cheese Market
CME spot Cheddar blocks increased throughout the week; barrels increased toward the end of the week. Block Cheddar averaged $1.6655/lb., up 6.4¢/lb. vs. the previous week. Barrel cheese averaged $1.4465, 3.75¢ compared to the prior week. Once again, markets moved up on little information as sellers were few and far between at the spot markets. Over the weekend, the Senate passed the Biden $1.9 trillion stimulus package – that could support demand and traders’ enthusiasm.

USDA released January production figures this week – output totaled 1.1 billion pounds and 0.5% more than last year. Cheddar cheese production was 337.6 million pounds, up 5.7% compared to the previous year. The higher production is likely due to the new Michigan cheese plant – with expectations that the year-over-year gaps will persist through the year. Mozzarella production continues to underperform last year. Hard Italian cheese production bettered previous year by 5.7% – given lower prices, it appears processors are taking an opportunity to restock depleted coffers.

US cheese exports slipped in the first month of 2021. January cheese exports totaled 62.2 million pounds, 10.6% less than last year. Exports to South Korea were higher, but Mexico down by 49%. Given that Mexico’s hospitability industry remains impacted by Covid-19, it could take some time to recover – that may also explain lower Mozzarella production.

Butter Market
Monday started new crop butter trading at the CME. That helped lift prices as butter made before December 1, 2020, is no longer eligible for trade. A much stronger Global Dairy Trade (GDT) performance on Tuesday helps lift market sentiments even further. CME spot butter markets reached $1.715/lb last week – the highest price since July 2020. Prices eased into the end of the week. In the end, CME butter averaged $1.6815/lb, up 19.55¢ compared to the previous week. Futures markets moved up, but not at the same pace as spot markets. For weeks, futures forecast a sizeable jump in prices, but this week’s spot run exceeded expectations resulting in the futures curve flattening. Reports suggest that cream is still widely available at multipliers consistent for this time of year. That could change as processors begin to work to fulfill the latest USDA Section 32 orders.

January US butter production remains well above last year, according to the latest Dairy Products report. In total processor produced 206.9 million pounds, 7% more than last year – with most of that butter coming from California.

US butterfat exports totaled 7.1 million pounds, 39% more than year-ago levels. Most of that butter went to the Middle East – Egypt and Bahrain. Given the US discount to Europe that could continue through the first half of the year.


After a surprisingly strong Global Dairy Trade performance, CME spot prices increased and remained steady throughout the week. China’s strong demand lifted the GDT index by the widest margin since 2015 – most of that was attributable to milk powders. Reports continue to indicate that the Chinese market remains strong and that supply concerns are keeping buyers willing to hold additional safety stocks. For now, strong demand from China can lift all prices. US prices could be slow to follow EU and New Zealand prices higher until the container issue, and port congestion is resolved. Still, persistent demand from China this year could keep NDM, and SMP prices and Class II and IV SNF solids elevated this year.

The United States produced 233.8 million pounds of NDM and SMP in January – that was 8.1% higher than year-ago levels. Most of the new products came from California. The reduction in SMP production was likely due to higher milk intake limiting production rather than lackluster demand. Stocks totaled 305.2 million pounds and 8.8% higher than last year – that could indicate the shipping slowdown and higher production.

The United States exported 138.2 million pounds of milk powder, 9.9% less than the previous year. Exports to Japan, Thailand, and New Zealand were all less than year-ago levels.

Whey & Lactose Products
CME whey prices increased again this week, with prices reaching the highest trading level on record for the new spot market. Prices averaged 56.95¢/lb., up 2.05¢ from the prior week. Other price series moved up again. The story remains strong demand from China. US whey exports grew 34% on higher export volumes to China.

US whey production totaled nearly 83 million pounds in January and 0.3% more than the previous year. Lactose production was 94.3 million pounds, up 7.5% vs. the prior year – likely related to higher WPC and WPI output, up 6.6% and 11.8%, respectively. Stocks for whey, lactose, and WPC34 all expanded compared to the previous week, while WPC80 and WPI inventories declined.