Weekly forecast update, Nov. 5, 2021

Forecast updates

  • For this forecast, modified outlook for the following products:
    • Reduced year-end Cheddar block and barrel prices due to a recent decline in spot markets.
    • Increased whey prices through end of year. Consistent exports and lower output, and stronger WPC/WPI demand continue to keep whey stocks limited.
    • That has lifted the Class IV milk price above the Class III price through mid-year. That could lead to higher Class I and II price next year.
    • Expect NDM prices to peak in Q1 and retreat from there until the end of the year.
    • Increased the butter prices with prices reaching above $2/lb – expect prices could remain higher.

Fluid Milk Market

While the weather has moderated, milk has been slow to recover, several manufacturers reporting that sales to bottling plants remain more than expected. However, that trend should begin to subside toward the end of the month as milk production seasonally increases and some retail demand decreases. That said, most are expecting a much stronger holiday season as get-together occasions are more frequent and more significant compared to last year. Still, most are reporting a reasonably balanced milk position.

China’s Covid-zero policy may be influencing spot dairy product prices. On Tuesday, China’s Ministry of Commerce released an advisory to consumers and companies to plan to stockpile “necessities” ahead of the winter months to reduce the impact of intermittent shutdowns to stop the spread of Covid-19. While the directive focused on meat and vegetables, the government has deemed dairy a necessary part of diets – so that may lift demand; at the very least, it may keep companies from depleting stockpiles of products.

Cheese Market

Barrel markets plummeted this week, resulting in the market losing 31.75¢ Friday to Friday. That was enough to send both markets back into the $1.50s for the first time since September for barrels and July for blocks. It is possible that last week’s price increase was overdone and that markets have corrected too far to the downside. That said, a major US cheese processor is still recovering from a hacking event – that could temporarily reduce the need for additional cheese. In the end, Cheddar barrels averaged $1.6005/lb, down 24¢ from the previous week. Blocks averaged $1.6365, 11¢ lower than the last week. Barrel trading picked up on Friday.

US September 2021 cheese production totaled 1.14 billion pounds – 2.8% more than August and 3.4% more than last year. Idaho and New Mexico produced less cheese than last year, but that was more than offset by higher output from California, Minnesota, Michigan and Wisconsin. Cheddar cheese output was 313 million pounds – 3.2% more than last year. Mozzarella production was 379.3 million pounds – 2% more than a year ago, with California up over 7%, Wisconsin down 2.8%, and Idaho down 3.9%.

US September 2021 cheese exports totaled 75.5 million pounds, 18.1% more than last year. All cheese categories performed better than 2020, with Cheddar exports 5% higher than 2020 & fresh cheese +13.6%. Exports to Mexico sailed past last year’s levels with volumes 45% higher.  US September 2021 cheese imports were 38.4 million pounds, 14.4% more than last year. Imports from Italy drove the higher performance – but it does appear some cheese solids are coming from Romania and New Zealand and Switzerland – some unusual spots.

Butter Market

Spot butter prices peaked at $1.98 this week – the highest price so far this year. Prices pulled back after Tuesday but remained in the $1.90s. Class II and III cream demand remains high and is expected to stay at those levels through the end of the month as processors push to get products onto store shelves ahead of the Thanksgiving holiday. There are still reports that limited labor is affecting plant operations and transportation. That could keep churning limited to need until the Thanksgiving holiday. In the end CME butter averaged $1.948/lb, 3¢ higher than the previous week.

As expected, US butter production in September 2021 fell 4.85% to 143.4 million pounds. Production was similar to August, taking year-to-date output down 1.95%. Output from California and New York were behind last year, by 2.3% ad 83.8%. The shortfall from the East confirms higher demand for cream and far less butter heading to churns this fall. September’s 15MM pounds shortfall to last year was the biggest over the last six years. All factors that are supportive to nearby prices and those into 2022.

US butterfat imports totaled 12.1 million pounds in September, down 17% compared to last year. Imports from Ireland were higher, but AMF and butter from Australia, India, and Mexico were down.  US butterfat exports in September surged – more than double last year’s volumes. US September exports totaled 14.3 million pounds – 221% higher. The biggest increase – exports to China accounting for a quarter of the increase. Given the current gaps to world prices – US exports could strengthen.

NDM/SMP

On Tuesday, the higher Global Dairy Trade (GDT) results helped to lift spot prices again this week. CME NDM averaged $1.5643/lb – 2¢/lb. more than the previous week. Overall, news remains largely positive for NDM/SMP demand. While market increases have moderated, prices continue to inch higher on good overseas demand. At the same time, domestic orders are starting to pick up also. Transportation remains at the forefront with buyers concerned of shortfalls – so they are ordering earlier, often and more to avoid outages.

US NDM production totaled 122.4 million pounds – 3.1% less than last year; SMP production was 62.8 million pounds and 22.5% lower than 2020. While California’s NDM output jumped up nearly 5% – given the higher cheese and slowing YoY milk gains that suggest milk was diverted from SMP to NDM.

US NDM stocks totaled 244.1 million pounds on September 30 – 2.2% more than year-ago levels. The year-over-year stocks increase was consistent with past years – the MoM decline of 41 million pounds was the most substantial decline over the last six years. Stocks are also behind the five-year average for this time of year. All supportive to price and indicative of volumes moving quickly.

US NDM/SMP exports totaled 154.6 million pounds in September – that was 14.6% more than year-ago levels. Exports to Mexico increased 14.7% above last year’s levels. HIgher volumes to China, Indonesia and Vietnam – more than offset declines to the Philippines. That continues to support that lower US prices were attractive to buyers and that some are still replenishing stocks ahead of the winter months.

Whey & Lactose Products

CME spot whey prices pushed higher this week with prices ending at 66¢ – higher whey prices have been the primary driver behind higher Class III milk prices. CME whey averaged 64.8¢, up 3¢ compared to the previous week. Dairy Market News central whey prices increased to 59.5¢ this week, and western prices were 58.88¢. Higher DMN will ultimately translate into the NDPSR and eventually Class III milk prices.

US whey production data remains supportive of prices. US whey production (human) totaled 74.3 million pounds in September – 1.7% less than 2020 and well below the five-year average for that month. WPC (25-49.9%) output totaled 16.4 million pounds – 11.5% more than last year. WPC (50-89.9%) production totaled 27.7 million pounds – 5.4% more than 2020. WPI production totaled 10.3 million pounds – 14.8% more than 2020. While US whey production moderated compared to last year, September 30 whey stocks totaled 61.1 million pounds falling 22.6% less than last year, indicating strong demand. Sept 30 WPC (50-89.9%) stocks totaled 38.6 million pounds – 5.2% less than last year.

US whey exports hovered near last year’s levels -0.3% less than last year. September exports totaled 41.4 million pounds – exports to China and Malaysia were lower but higher to Japan, somewhat offsetting declines. US WPC exports fell 28.7% compared to last year. Volumes totaled 22.6 million pounds – the decline was due to high levels last year.