Weekly forecast update – May 7, 2021

Forecast updates
Modest changes to Q2 pricing with most of the changes to buttermilk powder, whey and NDM.
Slight adjustments to June 2021 CME block and barrel prices.
Some of those changes impacted milk prices also.

Fluid Milk Market
USDA’s AMS announced the April Class III and IV milk prices this week at $17.67/cwt and $15.42, respectively, $1.52 and $1.24, more than March and a substantial improvement to last year. Milk in the west, Midwest, and Southwest appears to be leveling, suggesting that the peak output may have passed. While milk could remain high for a few more weeks, most plants can absorb new output. The Northeast may still be expanding and maybe a few weeks away from its seasonal peak. That said, milk is still plentiful, and components are elevated, keeping processing plants busy.

Higher feed prices could continue to plague farms and eventually milk output as producers search for lower-cost alternatives. At the same time, it appears dairy producers are keeping cows milking longer as the slaughter pace over the last two months slowed compared to the previous year. Dairy Margin Coverage (DMC) for March 2021 was $6.46/cwt – $2.80/cwt less than last year on higher feed prices than last year.

Cheese Market
After weeks of higher-than-expected spot cheese markets, prices moved lower this week as buyers’ interest waned and sellers remained present. This week Cheddar blocks averaged $1.782/lb, 1.9¢/lb lower than the previous week. Cheddar barrels slipped 1.5¢/lb. to average $1.796/lb. The averages don’t necessarily reflect that on Friday, blocks and barrels were $1.7475 and $1.7275, respectively. Reports suggest that retail sales are slowing a bit and that food service has leveled off. That may help explain why more cheese is available to the spot markets and the recent price decline. Markets could trend lower, but buyers seeking coverage may find value should the price approach the $1.60 level. That could keep futures somewhat elevated.

USDA released the March Dairy Products report this week. US cheese production continues to expand the gap relative to last year. In March, the United States produced 1.18 billion pounds – 4.8% more cheese than a year ago. American cheese output was 478.9 million pounds and 7.3% more cheese – the primary driver of output expansion this year due to the new plant. That is expected as cheese production likely doesn’t catch up with current output levels until next year. Cheddar cheese production was 338.7 million pounds. That was +7.8% more than last year. Mozzarella output continues to improve up 2% vs. 2020 and 394.1 million pounds. Hard Italian cheese output accelerated +17.5% and 40.3 million pounds.

US cheese exports recovered from last year’s pandemic-driven declines. In March, exporters shipped 81.4 million pounds of cheese – that was 9.1% more than last year and comparable to 2019. Fresh cheese exports improved by 13.7% and up to 32.7MM pounds. Cheddar exports increased 19% to 12.5 million pounds with much larger volumes to South Korea and Japan – volumes to Mexico rivaled last year. Grated cheese exports were nearly one-third higher and the most exported in that category for March.

Butter Market
The first Global Dairy Trade (GDT) auction of May resulted in a 12% decline in butter prices. While GDT butter prices are still high – that cast a pallor over CME spot markets this week. CME prices averaged $1.75/lb this week; that was 3.6¢ less than last week. But, as has been the case post-GDT result, by Friday, prices were recovering again. Still, CME cash-settled butter futures for Q2 2021 dropped below the $1.80 price point. That could provide those looking for coverage an opportunity to secure additional protection before ice cream season gets fully ramped up. Reports suggest that more cream moved to churns this week, and multipliers were a bit less. At the same time, many are reporting that ice cream processors are picking up activity, which has recently provided an outlet for milk and cream.

In March, US butter production totaled 198.9 million pounds, which was 0.55% less than a year ago. Output continues to close vs. last year. Production is headed to its seasonal low – so that could result in more stocks drawdown over the next few months. California’s output was still 2% more than last year, but production everywhere else in the country is slowing at a faster pace. Butter output in Atlantic states fell 14.3% vs. previous year – likely the impact of the Michigan cheese plant driving higher cream sales.

US butterfat exports doubled last year’s volumes this March. In total, exporters shipped 10 million pounds of product – that has lifted YTD exports 78% above last year’s levels. More products moved throughout the Middle East and North Africa. US butterfat imports jumped up to 13.3 million pounds, which was the highest since 2016 for March and 58% higher than a year ago. Irish butter imports recovered to 2019 levels in March. Surprisingly – imports from New Zealand grew to the highest level in three years – given prices, that was a remarkable uptick.

NDM/SMP
The higher GDT SMP prices sent US and EU NDM/SMP prices higher this week. CME prices continue to reach higher, with prices touching levels not seen in nearly seven years. Prices averaged $1.337/lb – that was 2.6¢ more than the previous week. While spot prices continue to move up, some sellers report that new bookings at current levels are more challenging domestically. At the same time, some reports suggest good demand from Asia, and Mexico has some larger processors well committed through the end of Q2 2021. For now, dryers are busy and expected to remain so through the end of the month – with some active through early June. Higher Class IV skim-solids are raising Class I and II skim prices also. Should overseas’ demand keep up at current rates, that could suggest higher prices during the second half of the year.

It was a busy reporting week for US NDM and SMP. In March, the United States produced 236.5 million pounds of NDM/SMP, which was 3.1% more than year ago. NDM production was up 14%, while SMP was 31.4% less than a year ago. California’s NDM output surged to 26.9% more than last year – but that was likely switching from SMP to NDM. NDM production was up throughout the country.

Despite modestly higher output, NDM stocks declined in March, dropping to 316.9 million pounds, down 9.8% vs. last year. That suggests domestic and export demand continues to outpace current production levels and is supportive to prices – especially those later this year.

US NDM/SMP exports grew to 190.8 million pounds – a record for March and the most powder exported so far this year. That was 9% more than the prior year and well above the five-year average of 124 million pounds for that month. Nearly one-third of the powder moved to Mexico, and that was 25% more than year-ago levels. US exports to China were 5,587 MT – compared to no exports last year. The United States continues to ship more products to SE Asia.

Whey & Lactose Products
CME whey prices averaged 64.55¢, down 1.75¢ from the previous week on just two trades. Dairy Market News central whey prices increased again this week, averaging 65¢ while western whey prices were unchanged. Lactose was unchanged at 45¢. Reports of pushback from customers seem to be slowing momentum upward for now; that said, demand from China remains elevated and supportive.

US whey exports reached 52.7 million pounds in March, the highest volume since 2011. Exporters shipped 25.9 million pounds of whey to China. US >99% lactose exports continue to lift, driving YoY improvements of 10.8% vs. the same period last year.

US whey production was 82.6 million pounds, 1% more than last year. Total WPC production jumped 14.7% ahead of last year in March. WPI90 production was 29.7% ahead of last year.