Weekly forecast update – May 13, 2022

Forecast updates

  • Reduced the fall butter prices.
    • Based on current consumption rates and prospects for fewer exports during 2H 2022 – it appears feasible that July 2022 stocks could approach 300 million pounds – a level that has historically caused butter prices to level off.
    • Still, carry-out stocks could be very low this year if trends continue – that could support prices into 2023 after season declines.
  • Reduced the block-barrel spread.
    • Increased barrel prices through September.
    • Barrel prices have been higher because more cheese headed overseas limited some western barrel output.
  • Lowered DEC and JAN cheese prices on expectations that broader economic conditions could reduce exports and domestic demand by the end of the year.
  • Adjusted NDM prices lower through August.
  • No significant adjustments to whey prices.

Milk Market

Weather across the country turned toward spring conditions this week; in some cases, temperatures were well above average. There are some concerns the abrupt transition could have a negative, but not prolonged, impact on milk production. A derecho (a prolonged and severe windstorm) caused issues for South Dakota and Minnesota dairies this week – causing power outages and infrastructure damage like crumpled grain bins and barns. All of that resulted in cows moving around. The disruption was significant enough that it could cause a measurable impact on May’s output.

Cheese Market

CME cheese markets started the week dropping with blocks dipping to $2.26/lb before recovering mid-week. Once again, cheese appears to be trading in lockstep with corn markets. Cheddar blocks averaged $2.295/lb – 5.35¢ less than the previous week. Cheddar barrels averaged $2.3765/lb – 3.85¢ more than the prior week. While both markets followed a similar trend, barrels maintained supremacy over blocks – indicative of export demand and shipments. Block and barrel trading volumes remain limited through mid-May, with only 21 and 20 loads changing hands, respectively. It would be the lowest trading for barrels if this pace continues since January or February.

USDA reported March commercial disappearance totaled 1.14 billion pounds – 5.4% more than last year. Exports were more than last year, and retail scan data was lower. The March data implies that foodservice uses were more than capable of offsetting lower retail demand. March may reflect the highest commercial and domestic disappearance on record. Should demand continue at the current rate – 2022 could be the first year where all months exceed 1 billion in commercial disappearance.

Butter Market

Spot butter markets picked up where they left off – in the low $2.60s. By mid-week, prices recovered to the $2.70s. By the end of the week, CME butter averaged $2.654/lb – 0.65¢ more than the previous week. The modestly higher spot performance helped to lift nearby futures price forecasts again. Very little has changed this week. Cream remains tight in the east and is headed to churns in the west and Midwest. Cream multipliers increased last week. Poor weather may be impacting the start of ice cream season – as the weather warms up, it will be interesting whether ice cream production picks up. Slower ice cream output this year has likely pushed more cream to churns.

USDA announced March commercial disappearance totaled 177.1 million pounds – 11% less than the previous year. While exports were more than last year, retail scan data lower, and it appears foodservice has been unable to offset declines from retail. According to IRI, retail sales for the 52 weeks ending 4/17/22 were 1.6 billion pounds, which would be 160 million pounds less than the same period last year. Over the period, exports have absorbed 75 million pounds of those differences. That suggests that foodservice is still running 80 million pounds less over the same period.

NDM/SMP

Spot NDM markets were somewhat stable this week, with prices averaging $1.73/lb – 0.5¢ less than the previous week. Markets are still awaiting new news from China. The most recent data for March has China’s milk price easing again – falling 0.01 yuan to 4.18 yuan. At the same time, China’s milk production for Q1 was 8% more than last year. While global milk production remains in check, the prospects of slowing demand from China have markets concerned, resulting in prices easing recently.

Ceres estimates that March commercial disappearance totaled 46.8 million pounds – 30% less than the previous year.

USDA announced March commercial disappearance totaled 47.2 million pounds – 48% less than the previous year. Cheese uses of NDM compared to last year would be less as the protein value of milk in Class IV NDM was higher than Class III protein through Q1. That could remain a factor throughout most of this year. Lower milk availability or premiums could impact those calculations this summer.

Whey & Lactose Products

CME whey averaged 56.15¢, down 2.8¢ from the previous week. DMN western mostly prices were unchanged at 62¢; Central prices fell 2¢ to an average of 61¢. Lactose prices were steady at 43.5¢ this week. European prices are declining again this week – that will likely create a ceiling for US whey prices. Despite fewer exports, whey prices are somewhat supported as more whey heads to WPC/WPI production. Given the nationwide infant formula shortage, there is a focus on recovery, which could support value-added whey products through the summer – which may provide a floor for whey products.

USDA announced March whey commercial disappearance totaled 33.6 million pounds – 12% more than the previous year. USDA announced March WPC commercial disappearance totaled 11.6 million pounds – 35% less than the last year and a sizeable decline given the short-term demand surge related to infant formula.