Weekly forecast update – Nov. 4, 2022

Forecast updates

No significant changes to last week’s forecast. Considered spot market adjustments – that may have shifted outlooks for November and December prices modestly. Adjusted 2024 prices. See last week’s notes for a comprehensive review of changes.

Milk Market

USDA released the October Class III and IV milk prices this week. The October 2022 Class III milk price increased to $21.81/cwt, $3.98 more than last year and the highest in the last five years. Class IV was $24.96/cwt – up $0.33 compared to September and $7.92 higher than a year ago. In some parts of the country milk receipts are higher than a year ago – in other, some are noting that milk receipts appear closer to unchanged. That may reflect the difference between regions with higher Class IV milk influence than those with more Class III. The gaps are notable and are having an impact on milk output. Preparation for the holidays is underway and that is drawing milk away from processing plants and has some looking for milk. The end of October milk price reset could strain margins. That said, most dairy producers did well during the first half of this year so it could take a bit of time for the milking herd to adjust lower should margins become negative in early 2023.

Cheese Market

After CME prices dropped last week, they seemed to find some support this week, and blocks moved back above the $2/lb threshold. Most report that demand remains positive and retail is performing well. Add to that the United States had another strong export performance in September – that seemed to be sufficient to arrest declines. Ahead of the holiday, prices likely reset too quickly, but a sharp rise may be equally challenging, suggesting prices could be range-bound for a time. Blocks averaged $1.9835/lb, down 2¢/lb. Barrels averaged $1.9645/lb, down 1.45¢. The spread has returned to blocks holding a premium to barrels.

USDA released the dairy products report and international trade this week. In September 2022, US total cheese output was 1.14 billion pounds – with several states slowing output vs. last year. American cheese production totaled 442.8 million pounds and 2.6% less than last year. Cheddar cheese output was 304.7 million pounds, 1.7% less than last year – on 0.9% lower output from Wisconsin and 21.4% less from California. Mozzarella output increased by 4%, totaling 384.7 million pounds.

US September 2022 cheese imports totaled 38.6 million pounds – 1.2% more than August and 0.2% higher than last year. Imports from Italy tumbled – falling 43% compared to last year – that could be drought related as milk was short at that time. That was offset by higher imports from France, the Netherlands and Denmark. US September cheese exports totaled 79.3 million pounds – 4% less than August, but 6.9% higher than last year. Cheddar cheese exports surged 54% more than last year – that offset declines from the fresh cheese category 21.9% lower than the prior year. Exports to Mexico were up 10.7% compared to last year. Exports to Australia, Canada, Saudi Arabia, UAE, Dominican Republic were also higher and similarly higher than the previous year.

Butter Market

CME spot butter markets fell this week resulting in one of the top-five largest declines in trading history. This week CME butter averaged $2.739/lb – down 41.65¢ from the prior week. Price recovered some lost ground mid-week. 27 loads changed hands. While prices may have been above $3/lb for too long the correction ahead of the holidays may have also been too far too soon. Demand appears to be picking up for cream for holiday preparation. At the same time, the price reset may make importing butterfat less attractive as US spot and futures prices are closer to New Zealand prices. This holiday season and demand will provide direction for 2023 prices. Should consumers benefit from holiday promotions that could whittle back stocks further. Global Dairy Trade (GDT) butter was up 0.2% at the Nov. 1 auction – approximately $2.15/lb.; AMF was down 1.7%. While these prices are low – it is unlikely much of this butter is available to US buyers presently.

US September 2022 butter production was 141.6 million pounds. California’s output increased to 0.7% more vs. the prior year; Pennsylvania’s production jumped 4.6% above vs. 2021. Compared to last year, production from other western increased by 0.7%. Central states produced 6.1% less butter – that could, in part, be related to higher AMF output.

US butterfat exports in September 2022 totaled 12.4 million pounds, 26.6% less than in August and 15.3% lower than last year. That was still well above the five-year average for that month. Exports to Canada roared higher – up 115.4% compared to last year. Mexico, Saudi Arabia, and South Korea also received more butterfat than last year. The gains were offset by sharp declines in China, Singapore, and Bahrain. US butterfat imports in September 2022 were 11.7 million pounds – 2.3% more than August on a daily average basis but 3.1% lower than last year. Imports from Ireland fell 22% behind last year’s pace – there were reports of limited supply. Imports from New Zealand and India were higher, followed by France and Mexico – which reflects more AMF inbound.

NDM/SMP

NDM price declines accelerated after the lower Global Dairy Trade (GDT) performance on Tuesday. GDT SMP fell 8.5% $2,972/MT ($1.348/lb). That shook markets and caused them to fall. Prices started to recover midweek as USDA reported lower production and expected exports. CME NDM averaged $1.394/lb, down 2.8¢ from the previous week. Given the strong dollar and weaker overseas demand, it makes sense that US prices have to move to the lower to maintain competitiveness; however, nearby futures markets likely over-corrected, given that NDPSR prices are still in the $1.50s this week. Dairy Market News (DMN) central mostly dropped 4.5¢ to $1.46/lb, and western prices were mostly $1.471, down 1.9¢.

US production of September 2022 nonfat dry milk (NDM) totaled 123.7 million pounds. SMP production was 58.5 million pounds, 18.9% less than the prior year but +7.8% compared to August. US MPC production totaled 15.9 million pounds, 24.3% more than the previous year. US manufacturers’ stocks of NDM totaled 273.1 million pounds as of September 30.

US NDM/SMP exports were 142.8 million pounds in September – less than last year but ahead of the five-year average. Exports to Mexico were up 22% vs. last year, and volumes to Peru were up nearly 3X last year; however, that was not enough to offset declines to China and throughout SEA – especially Vietnam. Losses in SEA may be the result of more competition from Oceania.

Whey & Lactose Products

CME whey prices increased to 45.05¢, up 1.65¢ from the previous week. DMN western mostly whey prices were 50.5¢, up 0.5¢ from the prior week; central prices were unchanged at 44¢. Lactose prices were increased to 48.6¢, down 0.9¢. Markets news remains mixed. China’s September whey imports were strong and the highest for that month on record. That level of recovery could provide considerable support for whey prices through the winter. As EU27 produces less cheese this fall that could mean less whey – a factor that may support prices this spring.

In September 2022, the United States produced nearly 77.7 million pounds of whey powder on significantly higher output from Wisconsin and New York. WPC (25-49.9%) production was 16.5 million pounds, 0.9% less than last year. WPC (50-89.9%) production totaled 29.6 million pounds, 11.6% more than in August and 5.2% more than in 2021. WPI production was 12 million pounds, 1.6% less vs. August but 21.8% more than in 2021. US lactose production was 95.1 million pounds, 5.5% less than the prior year.

US whey exports were 49.9 million pounds in September 2022. US WPC (<80% protein) exports totaled 33.8 million pounds, 50.1% more than last year. US WPC (>80% protein) exports totaled 11.8 million pounds, 7.5% less than a year ago. US WPC (<80%) imports were 3.9 million pounds, 11.3% less than last year. US lactose (<99%) exports totaled 6.7 million, 38.6% less than the previous year. US lactose (>99%) exports totaled 84.9 million, 44.8% more than the last year.