Weekly forecast update – Nov. 18, 2022

Forecast updates

• Adjusted Q1 2023 cheese prices higher modestly higher and widened block-barrel spread;
• Adjusted NOV 2022 for spot market adjustments;
• Adjusted some 1H 2023 butter prices lower.

Milk Market

This week bottling orders picked up ahead of the Thanksgiving holiday, but milk and cream will be moving back to manufacturing next week with the extended holiday period. Most expect that output is continuing to make gains compared to last year.

This week’s milk news came from Europe, where official production for September confirmed anecdotal reports that intake was rising. Most suggest that current prices are between 55 to 60 euro cents/liter while costs remain in the 40 euro-cent range for some producers. EU27 September milk production totaled 25.4 billion pounds – 0.9% higher than last year. That helped to close some of the YoY gaps in September for the top exporters, narrowing the loss to 0.15% compared to the same period last year. German milk production jumped 1.2% above the same pace as last year. Poland and Belgium added 2.6% and 5.9% more milk, respectively.

Cheese Market

It was a split performance for cheese this week, with blocks rising throughout the week and barrels falling back to the low 190s. Anecdotal reports suggest western barrels are on offer – which suggests export orders could be slowing. Most reports suggest that demand remains positive, but few suggest block cheese is tight. There are some reports that when blocks were lower than barrels, some were used in processed cheese production, and that may be temporarily limiting blocks headed to the CME. Those differences caused blocks to assume a significant 21.5¢ premium to barrels every week. Last week’s USDA announcement may be losing some luster as there were no additional bids announced this week and it seems less likely for a bid to be announced over the holiday week. As a result, CME cheese futures are slowly retreating. CME blocks averaged $2.226/lb, up 13.5¢ compared to last week. Cheddar barrels averaged $2.009/lb, down 0.75¢. Questions remain whether higher block prices could make aged cheese, especially Parmesan, less desirable right now.

EU27 September cheese production (excluding Ireland) totaled 1.67 billion pounds, 0.6% less than last year. Ireland continued to lag in reports and was excluded, so comparisons were accurate. Germany and Belgium opted to make more powder than cheese as output declined, 10.1% and 0.3% compared to last year, respectively. Higher output from the Netherlands offset losses from France.

EU27 cheese exports totaled 203.6 million pounds for this report – 26.8% less than last year. As has been the case – the first month of reporting sales to the UK continues to be underreported. The same happened each month this year. August was recently revised to 203.6 million pounds, up 0.7% compared to double-digit lower. Reports indicate volumes to the UK are down – but that is unlikely to happen to the level reported. Exports to the United States accounted for the most volume but were 5.9% below last year. Exports were lower to Ukraine, Egypt, and Moldova. Exports increased to Japan and South Korea. That may indicate more competition for US cheese exports in Southeast Asia.

Butter Market

CME butter started the week stable to higher, but that changed on Friday when prices dropped to the low $2.81 shedding 13 cents in a single trading session on five trades. Reports suggest that western buyers have been sourcing product for the last few weeks, but with shipping days limited ahead of Thanksgiving and prospects for more cream to head to churns last week, the appetite may be lower for frozen butter that could take weeks to temper. That established the weekly CME butter average at $2.9145/lb up 3.8¢ compared to the prior week. Central cream multipliers slipped this week as western cream multipliers eased. Cream sellers are already searching for a home for extra cream during the Thanksgiving holiday week.

EU27 September butter production totaled 351 million pounds and 2.3% more than the previous year. The end-of-year expansion continued to reduce the YoY YTD deficit, still 2.3% less than in 2021. All of the increases come from Belgium, with output 74% higher than last year. Ireland dropped production by 10.6% vs. last year. Increases from the Netherlands offset those losses.

EU27 butterfat exports totaled 43.7 million pounds in September – 14.1% less than the prior year. YTD exports are modestly behind last year, down 0.6%, after two months of double-digit declines. Exports to the United Kingdom, China, Ukraine, and Morocco were lower than last year. Exports to the United States were close to unchanged.

NDM/SMP

The final Global Dairy Trade of November ended on an up note with SMP and WMP rising 3.1% each compared to the previous event. China continued to drive SMP purchases while other Southeast Asian countries were the top WMP buyers. Markets are optimistic that China’s steps to ease Covid-19 restrictions could help lift 2023 demand for dairy products. That was the largest step toward reducing Covid-19 restrictions since they began three years ago. That was enough to lift CME spot and futures markets trading early in the week. But, once NDPSR prices eased on Wednesday, CME markets started to step back again erasing most of the early week gains. CME NDM averaged $1.4405/lb, up 4.35¢ compared to the previous week. Dairy Market News, representing a small number of sales, prices increased this week.

EU September SMP production totaled 237.4 million pounds – up 9% compared to last year – the most significant YoY gain this year. Since EU27 milk production did not jump that high, it would indicate milk shifted to driers from WMP (down 9.4% vs. last year in September). New milk from Belgium and Germany moved to driers as both nations increased output 55.8% and 23.6%, respectively. EU WMP exports totaled 49.7 million pounds – down 14.8% compared to last year. YTD exports are still 18.9% behind last year – mainly due to lower demand and shifting product mix.

EU SMP exports totaled 63.3 million pounds – up 2.5% compared to last year. YTD exports are still running 14.9% behind last year – the first YoY increase this year. Exports to Algeria jumped up 85.5% compared to last year; Yemen was up 2X; Morocco 2.4X. Exports to China and throughout SEA fell double-digits, eating into the gains made elsewhere.

Whey & Lactose Products

CME whey prices are mostly steady with little week-to-week variation. CME whey prices decreased to 44¢, up 0.1¢ from the previous week. DMN western mostly whey prices were 48.5¢, up 0.5¢ from the prior week; central prices were unchanged at 44¢. Lactose prices were unchanged at 48.5¢. Europe produced similar amounts of cheese in September, which suggests whey could be similar to last year. With the potential for improving demand from China, that could provide a case for better demand into 2023. At the same time, reports of WPC/WPI demand remain consistent – for now, that likely keeps whey prices range bound through the end of the year.