Weekly forecast update, Oct. 29, 2022

Forecast updates

• For this forecast, modified outlook for the following products:
o Reduced NDM slightly – kept prices in the upper 150s, pulled back from 160s forecast.
o Reduced whey – kept prices in the mid-to-upper-50s
o No significant change to the other product outlook.
o Some reduction in the Class III milk price has moved Class IV to premium to Class III through spring.

Fluid Milk Market

Disruptions impacted the milk and cream markets this week – one company lost a facility a few weeks ago, and another was hacked, shutting down its global operations for a time. As a result, milk and cream moved to other locations that could accommodate the milk receipts. Most processors still report that milk is flat, but they expect some improvements as the new year approaches. Longer-term, many believe dairy producers could be more likely to increase output given futures markets projections of higher prices. Still, base plans and other deductions amounting to $1-$1.50/cwt along with cost increases have made $18/cwt milk less attractive than even last year.

New Zealand released its September milk production at 2.6 million metric tons (5.7 billion pounds) was 4.4% less than last year. A wet and cold spring remains the culprit, with most noting the much-improved soil moisture could help the 2H performance. Australia’s milk production was 842 million liters (1.85 billion pounds) – 2.9% lower than year-ago levels. That has world production essentially flat compared to last year, with year-over-year gains slowing – something that appears to be supporting prices this year.

Cheese Market

Barrels remained higher than blocks this week – that makes Friday the eighth straight trading session with barrels more than blocks. Barrels average $1.837/lb this week – that was 1.3¢ more than the previous week. Blocks averaged $1.7495/lb – 1.45¢ less than a week ago. Trading volumes were similar for both products. That resulted in an 8.75¢ spread with barrels holding the premium. Despite reports that a large processed cheese manufacturer (barrel user) had to slow operations due to a hacking, spot prices increased. Given that barrels could have backed up – it seemed more likely barrels would decline this week – but they did not. Reports indicate that quick-serve restaurants (QSR) continue to improve performance by getting more visits since the onset of Covid-19, which could help support more food service demand for cheese.
Most of the news this week came from overseas. New Zealand exported over 40 million pounds of cheese in September –2.4% more than last year and 34% more than August. That has lifted exports 15.9% year-to-date compared to the same period the previous year. Exports to China slowed, but there were offsetting improvements to nations like Australia and the Philippines. Prospects of a good export year next year are likely helping to support 2022 futures prices.

Butter Market

Spot butter prices moved up again this week as churning remains limited in the east and below-normal in the west due to lower milk off-the-farm and production limitations due to plant outages. Butter markets continue to set new highs for 2021, reaching $1.94/lb by the end of the week. Futures moved higher also – but not enough to provide carry, typical for this time of year. CME spot butter averaged $1.920/lb, 11.25¢ more than last week – on fewer trades. Cream multipliers jumped up, with western cream reaching the highest multiplier so far this year at 1.28. Eastern and central cream multipliers also reached highs this year at 1.42 and 1.38, respectively. Demand for high butterfat products remains robust, with the next three weeks expected to be some of the strongest of the year. That could keep churning limited until the final week of the year.

In September, the Blackbox restaurant performance index increased to 6.1%, up 0.4% for same-store sales, but foot traffic was still 6.3% less – a tumble from August. While an improvement, September was still unable to return to the heights established in June and July. At the same time, reports suggest that foot traffic remains lower as the cost of food in restaurants has increased much faster than food costs from grocery outlets, so more people are dining at home. In October, weekly data suggests that sales are improving again with fine dining establishments seeing more visitors – that bodes well for foodservice butter demand.

NDM/SMP

After a mid-week reset, CME NDM prices pushed higher into the end of the week. Prices averaged $1.544/lb on 13 trades, up 1.3¢ compared to last week on fewer trades. Futures markets seemed to follow spot trade this week. While prices are the highest since 2014, with world markets at parity, it will take further rise from Europe and New Zealand for US prices to move up. That will have most watching next week’s Global Dairy Trade (GDT) auction to gain further insight about price potential. For now, markets appear to be forecasting a consistent performance. However, there are some rumblings of pushback at current price levels. On the other end of the spectrum, slowing milk production and committed manufacturers through year-end have many worried about potential price spikes.

New Zealand’s September SMP exports jumped 22% more than the previous year. In total, New Zealand exported 44.7 million pounds last month – mainly on higher exports to China +180% vs. the previous year. Exports elsewhere were mixed with Australia and Singapore higher – everywhere else lower. New Zealand’s WMP exports totaled 145.1 million pounds, 12% lower than year-ago levels. While exports to China were modestly higher, volumes to Sri Lanka fell 16 million pounds compared to last year, causing the YoY gap. Exports to other nations were lower but less so than that decline. It could be at higher prices. Some countries have to moderate demand to accommodate the higher prices – again mixed results have markets wondering how this may impact pricing.

Whey & Lactose Products

CME spot whey prices averaged 62.3¢/lb this week, 1.7¢ more than the previous week with six loads trading. Prices reached the highest level so far in October. Futures prices remain elevated, which is driving most of the increase in the Class III milk price – in turn, it is also lifting the Class I price. There are continued reports that WPC80 and WPI prices are rising with demand coming from new uses – suggesting that the current price level could be sustained for a time.