Weekly forecast update, Nov. 19, 2021

Forecast updates

• For this forecast, modified outlook for the following products:
  • Increased 2022 Cheddar block and barrel forecasts. While prices move up this week at the spot market, retail and foodservice sales slowed. In addition, US milk production was less in several states, but cheese producing states remained in the black, suggesting that output gains could be less than previous months but still likely positive compared to last year.
    • Still expect there could be an October stock build; if not, that would indicate exports were sufficient to offset domestic slowdowns and that prices could be supported throughout next year.
  • Increased 2022 butter forecast modestly. Higher cream demand and potential for stronger imports and slower exports could cause stocks to decline at a faster pace and limit stock growth in early 2022.
  • Increased whey slightly through Q1 2022.
  • No change to NDM.

Fluid Milk Market

USDA announced the December 2021 Advanced Class I price at $19.17/cwt – up $1.19/cwt from November on stronger skim and butterfat prices. The butterfat value was $2.1139 – up 21.01¢ from November. That was the highest Class I price this year and unmatched since last December.

Retail dairy sales between January and October were just 2.8% behind last year’s record-setting pace. Dairy sales, according to IRI scan data (which excludes groups like Costco), reached $50.1 billion – that was 11.2% more than the comparable period in 2019, according to the Dairy-Baker-Deli Association. The report suggests that dairy is performing well and seems to do better with meals prepared at home. That could be something, that for a time, continues to support retail consumption. Fluid milk sales were down 3.6% vs. last year by volume, but up 0.5% sales. That could reflect a higher cost – or that consumers continue to switch to value-added milk products like lactose-free, organic, and higher protein milk. That would reflect a trend that has been in place for some time – fewer gallons and half-gallon and more added-value products.

USDA released October milk production with milk below the previous year – that was well below most expectations as several states experienced lower output. October milk production totaled 18.5 billion pounds, 0.67% below last year. USDA also revised September lower again. That confirms the tightness of milk and may explain how there has been the combination of slower milk sales at retail, but what appears to be a constant draw from bottling – it may have been less milk in the local market. Year-to-date US milk production is nearly 2% more than last year, but those gains came during the first part of the year.

Cheese Market

The latest USDA milk production report set the bulls loose in Chicago this week with barrels and blocks reversing recent downtrends. Given world prices and current demand, the pressure at the spot market seemed a bit overdone. That may also suggest that this run, absent higher demand, could also be prone to overcorrection. Many report that sales are comparable to last year and that milk supplies have been slow to move higher. Those sentiments certainly support milk and cheese prices – but to sustain prices above $1.80, it may take more robust exports or even more domestic demand. Cheddar blocks averaged $1.7235, down 2.2¢ compared to the previous week. While prices closed in the mid-180s on Friday, prices started the week lower, resulting in the week-over-week decline. Cheddar barrels averaged $1.4795, down 5.15¢ on similar trade patterns and volumes.

Retail cheese sales slowed in October – down 1.8% on a volume basis and 1.9% less than last year on a dollar basis. Overall, foodservice sales were also reported slower – which could negatively impact cheese. However, absent higher exports, there could be more products headed to stocks similar to September. During the first ten months of the year, natural and processed cheese sales totaled $11.7 billion, trailing by 4.6%. Interestingly cheese products combining natural and processed cheese sales were up 0.8% – but that market is a fraction (<10%) of the natural and processed cheese category. Alternative cheese sales fell 11.9% over the same period.

Butter Market

CME spot butter market participants woke up on Thursday and decided there was insufficient US butter, and the prospects for replenishment through the end of this year and the beginning of next year are less than expected. For the first time this year, CME spot butter prices surpassed the $2 mark. CME spot butter averaged $1.9890/lb, up 2.65¢ compared to the previous week. While spot prices increased an additional penny on Friday, futures markets surged with two days of trading, expanding daily trading limits. Slowing milk production in butter/NDM producing states, sizeable cream demand along with prospects for more export and fewer imports have buyers worried that butter could be harder to source next year. That sent people to the CME to seek price protection. While more cream should head to butter churns next week during the Thanksgiving holiday, many expect that to be less than the last season.

Retail butter sales volumes dropped 8.2%, behind last year’s pace, with dollar sales 3.3% lower in October. Still, on a dollar sales basis, October sales were 4.1% ahead of 2019, suggesting more volumes. This year, meals prepared at home dropped to a low of 76.6% in July 2021 when people started moving around again as vaccination rates for Covid-19 spread. However, in October, meals prepared at home increased to 80.3%, the highest since June. Given the upcoming holiday, it is likely butter demand could be particularly strong. Add to that retail bakery sales have been performing well – another major consumer of butter and fat products.

NDM/SMP

This week Global Dairy Trade (GDT) had another better-than-expected performance. Along with the October USDA milk production report, that helped to shift sentiment again – lifting spot and futures markets higher. GDT SMP was $3,676/MT ($1.67/lb), with buyers from the Middle East to Asia seeking more products. While most of the volume moved to China, the Middle East and Africa bought as much product as Southeast Asia. Continued overseas demand contrasted against slowing milk production has global buyers nervous about product availability during Q1 – especially given reports that European processors are overcommitted and out of the remainder of the Q4 market. CME NDM averaged $1.541/lb down 2.1¢ compared to the previous week.

The October 2021 milk production report may report less milk headed to driers in October and November as milk production slows around the country and milk moves to cheese and bottled milk processors. At the same time, milk from western and Southwestern states eased, suggesting less milk off the farm and more of that milk headed to other products. That may support prices, but it could be hard for spot prices to move beyond $1.60 without repercussions to exports if international prices do not move up in kind. After the latest milk production report, NDM futures are starting to trade higher, with 2022 prices moving up. So while spot prices may struggle to move up, 2022 prices could remain higher for longer.

Whey & Lactose Products

CME and Dairy Market News whey prices continue to move higher. News has not changed and remains supportive of prices through the end of the year and into the beginning of 2022. It would take more production or slowing exports to cause prices to soften. Given the demand for other WPC and WPI products – it seems less likely over the short run. CME whey prices averaged 69.2¢, up 3¢ from the previous week. Dairy Market News Central and West mostly increased 3.75¢ and 2.75¢, respectively, compared to the previous week. Lactose prices are easing a bit. More robust whey prices are working to lift the Class III prices, contributing to the higher year-end Class I values.