Weekly forecast update – May 5, 2022

Forecast updates

  • Adjusted whey prices lower
    • NDPSR whey prices could take weeks to decline.
    • Reviewed western and central mostly prices, reduced Q2 and Q3 prices to low 60s-upper 50s. Given drops in European prices and slower exports, it could take that price level to entice buyers back to the product. Reformulation could take time to reincorporate the product into rations.
  • Adjusted cultured buttermilk prices higher
    • Despite moderating NDM prices, cultured buttermilk continues to lift.
  • Completed modest adjustments to NDM.
  • Maintained other prices as markets remain within range for May and June’s expectations based on data released this week.

Fluid Milk Market

USDA announced the April Class III and IV milk prices at $24.42/cwt and $25.31/cwt, up $1.97 and 49¢, respectively. Those are record-setting prices. Futures markets suggest that Class III milk prices have yet to peak but that Class IV prices may be past their peak. Futures prices are off recent highs, but prices remain elevated and consistent with past weeks. Q3 and Q4 prices continue to retreat, with weekly averages easing over the past three weeks. At the current rates, the June Advanced Class I milk price could still exceed $25/cwt.

Spring remains elusive, with bouts of cold and wet weather spreading across vast swaths of the country. At the same time, rain and humidity are spreading across southern states. That appears to be keeping milk production in check. Concerns are mounting that spring doesn’t happen, and we rapidly transition from winter to summer. That sort of shock negatively impacts milk production as cows struggle to transition to hotter temperatures. Similarly, the wet, cool and overcast weather may slow crop progress. Feed prices contracted this week, with corn falling back below the $8/bushel price level for the first time in weeks. Soybean meal marked its fifth consecutive pullback – a trend helpful to dairy producers that may have to step back into feed markets this spring. Moderating feed prices could keep on-farm margins from collapsing as milk prices reset lower.

Cheese Market

CME cheese markets started the week declining, but as has been the case, prices strengthened into the end of the week. That recovery was insufficient to gain compared to the previous week, but it did stop the most recent price slide. CME blocks averaged $2.3485/lb, down 2.1¢; Barrels ended the week $2.338/lb, down 1.6¢ compared to the previous week. That reduced the block-barrel spread to 1.05¢. Trading picked up compared to the last week. On Tuesday, the Global Dairy Trade (GDT) Cheddar cheese price settled at $5,652/MT ($2.56/lb) – down 8.6% compared to the previous event. That result set the tone for early market trading. Anecdotal reports suggest that markets are mostly balanced, but there could be periods where more cheese heads to spot markets as processors work to balance supply and demand this spring.

USDA released March 2022 cheese production at 1.2 billion pounds, 1.1% more than last year. That was also 2.2% lower than February on a daily average basis – that rate of growth was slower than the five-year average. American cheese production was 473.6 million pounds and 3.4% less than February and 1.4% lower than last year. American cheese output from four-of-five major producing states was lower than the previous year – Minnesota was the only reporting state to increase production. Mozzarella cheese production totaled 406.4 million pounds – 2.2% more than February and 3.5% higher than last year. That would be consistent with higher export commitments.

US March 2022 cheese imports totaled 35.8 million pounds – 12.4% more than the prior year. Compared to last year, imports from Australia dropped by 89%, but higher imports from Italy, Morocco, and France more than offset those declines. US March 2022 cheese exports totaled 92.4 million pounds – 12.9% more than last year and the highest for that month on record. Substantially higher exports to Mexico and South Korea drove the results.

Butter Market

Butter markets stabilized this week, with prices averaging $2.6574/lb – up 0.01¢ compared to the previous week. On Tuesday, spot prices bottomed at $2.62 after a poor showing at the GDT. Butter and anhydrous milkfat (AMF) plummeted to 12.5% and 12.1%, respectively. That was the largest slide over the last five years and the biggest since May 2021. It is common for GDT butter prices to decline at this time of the year. The declines were consistent across all delivery periods. Like cheese, US prices were sympathetic to lower GDT prices, but markets turned once USDA released March data mid-week.

USDA released March 2022 butter production of 202.6 million pounds – 0.3% less than February but 1.5% more than last year. Production was less than the five-year average. California produced 11.4% more butter than the previous year, while Pennsylvania produced 3.3% less. Lower eastern butter production remains a theme this year. That kept butter output 4.94% less than the last year through the year’s first quarter. Typically, the first quarter of the year represents the most butter the United States produces annually, suggesting production could remain less than the previous year’s levels without substantial recovery in Q2.

US butterfat imports were 11.4 million pounds above the five-year average pace. While higher than February by 39%, but 14.7% less than last year. Imports from Germany increased by 47.5%. But imports from New Zealand and India were lower, indicating the higher cost of AMF. US butterfat exports were 16 million pounds – 20.2% more than the previous year. Exports to Canada and Mexico soared, jumping 2.5 and nearly six times, respectively, vs. 2021. Substantially higher exports could offset slower retail sales this spring.

NDM/SMP

Spot NDM declines slowed this week, with the CME averaging $1.735, 0.01¢ less than the previous week. The lower GDT performance caused a further sell-off of spot and futures markets on Tuesday, reaching a low of $1.71. But like other products, USDA data brought buyers back to the markets as data was primarily supportive of prices later this year. Still, it is spring, and milk production has yet to peak. Further, schools are in the process of winding down for the summer break. That could push more milk back to manufacturing over the next four to six weeks culminating in more NDM output. At the least, that could temper price runs through the end of Q2.

US March 2022 NDM production totaled 190.5 million pounds – 0.7% more than February on a daily average basis but 3.9% less than last year. That was well below the five-year average pace. California produced 0.7% less than the previous year. US SMP production was 32.99 million pounds – 0.6% more than February but 37.2% less than last year. NDM/SMP output was significantly less than the previous year. Like butter, 1H represents the most production, and US output will be less than last year at the current pace. That would indicate that production levels could approach pre-pandemic levels.

Manufacturer held stocks totaled 288 million pounds on March 31 – 8% less than last year. That represented unchanged from February – in most years, Feb-Mar represents a decline. That may be consistent with anecdotal reports that some western processors were holding stocks in “hedge” programs and may help explain the end of April sell-off. On a five-year average basis, March holdings were closer to 308.5 million pounds. While less than last year, the YoY gap closed.

US NDM/SMP exports for March 2022 totaled 177.1 million pounds – well ahead of that month’s 143 million five-year average pace. Exports were 7.6% less than the previous year.  Fewer exports to Algeria in March accounted for half of the decline. Exports to Mexico, the Philippines, and Malaysia were substantially higher and able to offset declines in Indonesia, China, and Thailand partially.

Whey & Lactose Products

CME whey averaged 58.95¢, up 0.5¢ from the previous week. DMN western mostly dropped 3.5¢ to 62¢; Central prices fell 0.5¢ to an average of 63¢. This week, prices were mixed, with spot prices stabilizing but at lower levels than contract prices. DMN prices could continue to decline this week as prices find a new equilibrium. Given deteriorating European prices – it seems more likely that US whey prices live between the mid 50 to the mid-60s for most of this year.

While US dry whey production was nearly 83 million pounds in March – 4.2% less than the previous year; US whey stocks totaled 68 million pounds on March 31 – 7% more than last year. That is a concern that despite lower production, stocks are building, suggesting slower demand. US WPC (25-49.9%) output totaled 13.6 million pounds – 8.4% less than the previous year – US WPC (25-49.9%) stocks totaled 22.3 million pounds – 4.8% less than last year. US WPC (50-89.9%) totaled 25.9 million pounds – 0.9% less than the previous year – US WPC (50-89.9%) stocks totaled 45.2 million pounds – 17.8% more than last year. US WPI production totaled 10.6 million pounds – 1.2% more than the previous year.

The story for whey remains exports. US whey powder exports continued to deteriorate in March compared to last year. Exports totaled 43.4 million pounds and 17.8% less than the previous year. Exports to China were 45% less than the previous year. Exports to South Korea fell by 90%. Higher volumes to Japan offset some of those declines.