Weekly forecast update – Oct. 27, 2023

Forecast updates

Cheese:

• Adjusted Q4 prices based on spot markets.

Butter:

• No significant changes – adjusted October and November based on spot markets.

NDM:

• No significant changes this week.

Whey

• Lifted whey forecast through 2026. Returned prices to the 40-cent level.

Milk Market

Despite a higher Class I price in November than August – $3.13/cwt more. The Class I skim price in November is 2¢/cwt more. The significantly higher October butterfat price is impacting the Class III protein value. Ceres is forecasting the October Class III protein price at $1.1355/lb – over the past ten year. Class III protein is based on the VanSlyke cheese yield price, which includes butterfat. The Class III protein formula backs out the butterfat value as it is paid to producers through the butterfat price. When butter prices are high, the formula deflates the Class III protein price value. While that has little impact on American cheese – it dramatically reduces the cost of low-fat cheeses as the protein price is substantially lower, and cream is typically sold to Class II or Class IV users.

As for milk availability, reports indicate that milk is seasonally improving as nationwide weather moderates. But winter-like storms are already picking up, which could mean intermittent delays that tend to impact milk flows. Some parts of the country are still expecting lower milk – but in other regions, the deficits are resolved.

There are some concerns that lower Class III milk price expectations this fall and winter could cause culling to pick back up as margins head south again.

Cheese Market

Spot cheese markets continued to drift lower at the start of the week, but prices appeared to stabilize by week’s end. Blocks averaged $1.7395/lb, down 1.3¢ from the previous week. Barrels averaged $1.7070/lb, up 3.05¢. That caused the weekly block-barrel spread to close to 3.25¢. Reports suggest barrels remain tight but that blocks and several varieties of cheese are widely available. Several participants indicated that orders are a bit slower than expected, causing orders to be canceled and cheese to back up. Currently, most feel that cheese is well supplied, and there are few concerns about availability into the final months of the year. With substantial carry in the markets, those looking to age cheese should be able to employ futures to cover risks. For now, cheese participants seem slightly pessimistic about demand outlook and prices through Q1 2024.

US cheese stocks totaled 1.47 billion pounds on Sept. 30 – 0.17% more than a year ago. The MoM decline from August to September was 23 million pounds – the most for that month since 2017 and nearly double last year’s pace. American cheese stocks totaled 850.5 million pounds, 0.88% more than last year. While stocks declined from August to September – a turnaround from the past two years – it was modest and unlikely to sway market participants. Natural cheese that is not American and Swiss totaled 599.4 million pounds – 0.69% less than a year ago. There was a significant MoM drawdown of 21 million pounds – the highest on record for the past eight years.

Butter Market

Spot butter declines are picking up, and futures are tumbling also. This week, futures markets traded under expanded limits as the sell-side pressure pushed price expectations lower. CME spot butter averaged $3.2965/lb, down 9.05¢ from last week. Trade volume was consistent, but several offers were left on the board at the end of the session. Reports indicate that the higher-priced cream took a toll on demand and was redirected to butter churns. That will work to reduce spot-frozen butter needs and make more butter available for the spot markets. With a few weeks left to the demand season, it is likely more sell-side pressure will arrive in Chicago as cream heads to bulk butter churns. The question now is how quickly markets decline.

US butter stocks totaled 275.5 million pounds on Sept. 30 – 3% more than a year ago. MoM stocks declined, down 16 million pounds from August – more significant than last year – but well below the five-year average pace. The YoY gap continues to decline. More is expected as stocks reach their seasonal low point in November. It is likely that, at current demand levels, 2023 carry-out stocks end near last year’s levels.

NDM/SMP

After a few weeks of price increases, NDM markets paused this week as news was more neutral market data. Trading volumes were modest, with no loads changing hands at the end of the week. CME NDM averaged $1.213/lb, down 1.45¢. Global SMP prices increased this week. While the news may not be bearish – continued increases may not make sense given current conditions. That could mean markets stay near current levels until new information becomes available. Still, buyers are worried that global milk production is slowing, with news this week intake in Ireland and the United Kingdom due to heavy rainfall.

Trade news was somewhat mixed for September. New Zealand’s September SMP exports totaled 46.95 million pounds – 6.3% more than a year ago. YTD exports are running 40.6% more than a year ago. That was a lower YoY gap than in previous months – but it was still on the plus side. Exports to China jumped 68% higher compared to last year. That was partially offset by lower shipments to Indonesia – down 66%. New Zealand’s September WMP exports offset those increases, totaling 151.1 million pounds – 14.4% less than a year ago. YTD exports are running 0.9% less than a year ago. A smaller YoY gap compared to previous months – but hovering near unchanged. Exports to China fell 28.8% below last year. That was followed by declines in Indonesia, down 49%. Increases to Algeria, Malaysia, and Saudi Arabia partially offset those declines.

China’s September WMP imports totaled 41.8 million pounds – 37.1% less than last year. That took YTD imports to 38% below the previous year – a consistent performance this year. While China’s milk is slowing, the nation still has sizeable stocks of WMP that could keep imports in check this year. China’s September SMP imports totaled 43 million pounds – 22% less than last year. YTD imports are 9.6% more than last year, but volumes are slowing. Imports from New Zealand were 69.7% more than last year. That was offset by declines from Australia, US and EU-27 countries. That may be why CME futures and spot markets pulled back after the news was released this week.

Whey & Lactose Products

Whey prices increased again this week – with spot markets reaching 40¢ on Friday. CME spot markets averaged 38.2¢/lb, 0.75¢ more than the previous week. US spot prices continued to close the gap on European prices – but like milk powder, they could be prone to slowing down. Dairy Market News (DMN) western mostly was up 1¢ to 36¢ this week. Central mostly was 34¢, up 0.5¢ from the prior week. Lactose jumped up to 24.75¢, up 0.15¢ from the previous week. WPC is also rising, up 0.25¢ to 87.25¢ this week. It appears lower-than-expected production is causing prices to lift. Whey above 40¢ would cause the Class I and III prices to rise next year.

China imported 122 million pounds of whey in September – 11.6% less than last year. Volumes from the United States were 10% less, followed by the Netherlands, Poland and Ireland.