Weekly forecast update, Oct. 1, 2021

Forecast updates

  • Increased Q4 CME barrel cheese forecast
    • Raised prices based on recent higher spot trade;
    • No substantial change to the block forecast for Q4.
    • Increased the 2022 forward cheese outlook – current demand and trends of flatter EU milk production could provide more opportunities for US cheese exports.
      • Kept 2022 near 2021 forecast 1H – increased 2H
      • Raised 2023 and 2024; however new cheese plants scheduled for 2024 could cap increases for a time.
    • Reduced the 2022 forward whey forecast
      • While WPC demand remains strong, reports indicate new contracts for whey could be closer to the mid-40s.
      • Given negative margins for Chinese hog processors – whey demand could ease a bit.
    • No significant adjustments to butter.
    • Adjusted NDM Q4 prices higher.
      • Raised seasonal low-point for 2022.
      • With little new capacity, more demand for cheese and slowing global milk – that could keep NDM prices supported well above the five-year average.
    • These adjustments revised all milk price forecasts.

Fluid Milk Market

This week, USDA released the September 2021 Class III and IV price at $16.53/cwt and $16.36/cwt, respective 58¢/cwt and 44¢/cwt more than August, respectively. The September Class II was $16.89/cwt, 38¢/cwt more than September. Dairy product prices increased throughout September, with many of the prices continuing higher headed into October.

Milk production reports are mixed this week with some reporting improvements. In contrast, others note that supply is flat, but expectations are for more milk in the coming weeks. Weather is still unseasonably hot in the West and Midwest, and heavy rains are forecast for the Southeast. In addition, global milk production is slowing, with European milk hovering above prior-year levels and Oceania dropping below last August. That, combined with the slowing US milk production gains, is starting to provide bullish sentiment to the market given global dairy product demand.

Cheese Market

Last week, September closed with the monthly Block and Barrel cheese prices recovering from springing levels and both products surging into the final day of the month. Block cheese prices jumped to their highest level since January; barrels reached the highest levels since May. In the end, blocks averaged $1.7970/lb – 7.4¢/lb more than the previous week, with five loads changing hands. Barrels averaged $1.6910/lb, up 9.5¢ compared to the prior week with 17 trades. That closed the block-barrel spread to 10.6¢. There are reports that CME eligible product is tight, but there are plenty of products outside that specification available to the commercial markets. Still, reports of orders cut due to supply-chain disruptions and labor shortages persist.

European cheese prices are rising, and product is scarce headed into the holidays as milk production remains limited. Spot milk prices throughout Europe above 50 euro cents per liter and expected to stay there through the holidays. Reports suggest that processors are fulfilling current orders – but spot product is limited to non-existent in some countries. Given internal demand, less cheese output is negatively impacting Europe’s cheese exports, and that is expected to continue.

Rabobank forecasts that EU milk production will continue to track 0.6% this decade, which could have serious implications for processors. That combined with growing internal cheese demand could slow European cheese exports, providing an opportunity for more US cheese exports through the end of the decade; that could sop up more of the cheese that becomes available to markets. Also, Leprino Foods announced an eight million pound-per-day Mozzarella cheese plant to be built in Lubbock, Texas, to be completed in 2025.

Butter Market

CME spot butter prices increased slightly this week, with trade volumes elevated but less than last week. During September, 121 loads of butter traded at the CME – the most monthly trading this year. Spot butter averaged $1.7535/lb this week, 0.85¢ more than the previous week. Spot trading this week was bookended with 11 trades each day on Monday and Friday. Cream demand is reported strong ahead of preparation for the holiday season, with products like creamers, cream cheese, and eggnog starting to ramp up output. However, western cream multipliers dropped – that could signal a bit of a recovery, and multipliers could be headed toward their seasonal low at the end of the year.

USDA reported 2020 per capita consumption on September 30, reflecting higher butter and ice cream consumption than 2019. Last year, per capita butter consumption reached 6.3 pounds per person, up 0.1 pounds. That was the highest for butter in the previous 50 years. Regular and low-fat ice creams rose to 12.7 and 6.9 pounds per person, respectively, up 0.4 and 0.1 pounds compared to 2019, respectively. Hard ice cream has been recovering since the low established in 2018 – low-fat ice cream has been marching higher since 2013. Butter alone added approximately 40 million pounds of butter disappearance last year.

NDM/SMP

CME NDM spot prices continued to push higher last week, ending Friday just shy of the $1.40/lb mark and the highest price since October 2014. In the end, prices averaged $1.38/lb – that was 2.2¢ more than the prior week. Trading volumes increased again with 23 loads trading this week. In total, 58 loads traded in September, the most since May 2021. Reports continue to indicate strong demand from Mexico, China, and South America. At the other end, port congestion is worsening and spreading to the East Coast and other areas as shipping delays and lack of containers are expected to wreak havoc on markets well into 2022.

Markets anticipate next week’s Global Dairy Trade (GDT) auctions that will influence where prices head for the year’s final quarter. So far, CME NDM futures have been reluctant to trade at the $1.40/lb level – removing carry from markets and driving a flat price forecast. Still, more robust demand from China and milk supplies slowing are not putting buyers minds’ at ease for the coming year.

Whey & Lactose Products

CME spot whey prices pushed up again this week, averaging 57.85¢, up 2¢ compared to the previous week on a single trade. Whey markets continue to move higher on better demand from China; however, some reports suggest that contracts being booked for Q1 2022 could be closer to the mid-40s – at least on some of the volumes. Certainly, with the new cheese capacity announced, whey markets will see much more capacity and product available by 2025.