Weekly forecast update – May 20, 2022

Forecast updates

  • Adjusted butter prices – removing last week’s reduction. Returned to forecast from earlier in the month. Some fall months are still less than the first forecast of May.
    • Reports indicate some larger US butter processors are short products and currently sourcing from the CME.
    • That resulted in substantially higher prices over the last week.
    • That could keep upward pressure on prices through June.
  • Further reduced the block-barrel spread and adjusted prices modestly through the end of the year.
    • Barrels remain limited on offer at the CME due to robust export demand – that could change during the second half of the year as global prices moderate and seasonally processed cheese demand slows.
    • That could cause the block-barrel spread to widen.
  • Reduced the 2H whey price forecast.
    • WPC prices are edging lower;
    • Whey prices are headed lower as European and US prices decline caused by lower feed demand from China.
  • Adjusted buttermilk prices higher through Q3

Milk Market

Weather disturbances caused disruptions, including temporary plant shutdowns and the relocation of cows in South Dakota and Minnesota. Markets picked up on some of those disruptions, and bidders raised prices through mid-week. Additionally, USDA released April milk production at 19.15 billion pounds – 1.03% less than last year. With few exceptions, milk production was lower compared to 2021 for most of the 24-reporting states. The US milking herd was 9.402 million head in April, down 98,000 head from last year. Output per cow was 2,037 pounds – unchanged from last year. Quickly the data indicates that fewer cows continue to create a headwind for milk output recovery this year. That said, output per cow has done little to gap last year, which may indicate rations or other changes resulting in flatter milk production. While milk is lower, March protein and butterfat components were higher for federal order milk. That may indicate that while milk is down, higher components may be offsetting some of these losses.

Cheese Market

CME block cheese markets strengthened through the week; barrels peaked on Wednesday at $2.45/lb before easing into the end of the week. Blocks averaged $2.374/lb – 7.9¢ higher than the previous week. Barrels averaged $2.413/lb – up 3.65¢. A cheese plant experienced a power outage following last week’s derecho storm in South Dakota. That may be one of the reasons cheese prices jumped up early in the week and kept increasing for most of the week. The May 17th Global Dairy Trade (GDT) Cheddar cheese price was $5,635/MT ($2.556/lb). With global prices easing in recent weeks – that could create a ceiling for US spot prices.

Foodservice demand has been a driver of cheese consumption over the last two decades. That was changed with the onset of the pandemic. Now that the pandemic is more under control, people are returning to their previous patterns, lifting foodservice demand again. In April, foodservice demand was one of the strongest post-Covid performances according to Blackbox Intelligence; however, it was modestly behind March results suggesting that inflation may be creating a headwind for consumers. Same-store sales were +5.3% compared to last year. Foot traffic was -2.7% – less than last year, but one of the smallest gaps since the onset of the pandemic. Reports indicate that fine dining and pizza are drivers of increases; burgers and QSR are underperforming.

Butter Market

Spot butter markets accelerated throughout the week a prolific buyer returned to Chicago this week. There are reports that a significant US butter manufacturer may have less butter than needed and they are currently sourcing that product from the CME. That drove the butter market up 10-cent throughout the week. CME butter averaged $2.796/lb – up 14.2¢ compared to last week. Several days traded at daily limits sending the following days higher. Those moves caused June and July futures values to surge. Likely lower western state milk production resulted in some price support this week. That said, US butterfat in milk was 4.1% compared to 4.01% last year. If that pattern holds for April, that would be 21.5 million pounds of butter more than the previous year. GDT May 17 butter prices were $5,750/MT, $2.55/lb on an 80% butterfat equivalent. With New Zealand prices dropping below US prices, that could create more competition for export business and something that could cause trade to reverse later this year.

Reports were limited this week, but there were some updates from Europe. EU-27 butterfat exports totaled 48.8 million pounds – 17% less than last year. Q1 exports are still 2.8% more than the same period the previous year. Exports to China, Egypt, and Morocco declined – by 46%, 57%, and 77%, respectively. Higher exports to the UK were offset by a lower performance to the United States. In part, some of the declines could be related to higher prices and constrained supplies, resulting in more products remaining in the region.

NDM/SMP

On Tuesday, spot NDM markets increased throughout the week despite a modestly lower GDT SMP performance. GDT SMP prices declined 0.6% compared to the previous auction. GDT SMP was $4,116/MT, $1.867/lb. CME NDM averaged $1.763/lb this week – 3.3¢ more than this week. That caused the futures markets to increase again. It is likely slowing milk from California helped to lift prices this week; however, US and global NDM/SMP prices are converging, suggesting that US prices could become toppy soon to remain competitive in export markets.

This week’s news was limited to EU27 March 2022 SMP exports totaled 128 million pounds – 23.9% less than last year. Exports to China, Algeria, Egypt, and Indonesia fell sharply during the month – accounting for three-quarters of the YoY losses. More exports to Yemen, Serbia, and the Philippines partially offset some of those declines. Europe remained the highest SMP price globally and produced less product – likely candidates that explain the YoY gap. There are some reports that European SMP stocks are starting to build – lower world prices could keep US prices in check for now.

Whey & Lactose Products

CME whey averaged 49.85¢, down 6.3¢ from the previous week. DMN western mostly price was 61¢, down 1¢; Central prices fell 2¢ to an average of 59¢. The lactose price was 43.75¢ this week, up 0.25¢. European prices are declining again this week – prices converged. This week, anecdotal reports indicated that WPC80 prices are slipping and WPI90 prices are steady.

This week’s news surrounded the infant formula shortage caused by various issues, including a voluntary recall, lumbering regulators, and a plant closure. As a result, processors and the US government are importing infant formula from Europe – with Nestle and Abbott airfreighting in the product. The stockout rate was 43% the week of May 8; however, there are reports the situation became dire last week. There is a plan to reopen the Abbott Michigan plant, but estimates suggest the product could still be six to eight weeks from the market.