Weekly Forecast Update October 23, 2020

Forecast Updates

  1. Increase the block and barrel cheese prices through January – in turn that lifted the Class I and III price expectations.

  2. Modestly increased the Q1/Q2 cheese prices. Based on more discussion of additional food box orders that could raise demand next year.

  3. Flatted NDM price expectations through Q1..

  4. Increases NOV butter, but reduced DEC and JAN price expectations this week.

Fluid Milk Market

USDA’s AMS announced the NOV20 Class I base price this week at $18.04/cwt. $2.84/cwt improvement vs. October. It could be touch and go whether the NOV20 Class III price remains elevated compared to the Class I price through the remainder of the pricing period. Likely December corrects with all classes of milk pooled. If markets continue on their current trajectory it is possible December is one of the highest Class I prices this year.

USDA also announced September milk production at 2.3% more than last year – far exceeding most expectations – that worked to dampen market enthusiasm that day, but Class III markets have since recovered. In total the United States produced just over 18 billion pounds of milk. Although there were widespread stories of how the fires in California negatively impacted output – those must have been few and far between as the Golden State pushed output 104 million pounds above the previous year, leading the year-over-year gains. The Lone Star state followed with 74 million pounds more than 2019. Eight states experienced declines vs last year. Dairy cows were up and rivaled 2019 and 2018, but it was really output-per-cow that drove the increases.

Cheese Market

Cheese markets have yet to find the peak on this run. Blocks moved up, but barrels increases are accelerating at a faster pace. This week CME blocks averaged $2.753/lb., up 3.9¢/lb. compared to last week. Barrels jumped up 16.9¢/lb. to average $2.344/lb. Block trading remains very limited – barrels were a bit higher at 11 trades. As a backdrop this week the St. John’s cheese plant began receiving milk. While that is unlikely to send a lot of cheese to Chicago over the next few weeks – in November there should be more cheese available to the market. Several market participants are still reporting strong holiday orders and those seeking cheese for the food box program. Just a few weeks ago, Sec. Perdue suggesting the program had run its course; however, rumors of another round swirl this week from some reliable sources suggesting there could be more government buying yet this year. That could lift price expectations for early 2021.

USDA September Cold Storage seems to confirm what the market already knew – there was less cheese available to the market vs. last year. On. Sep 30, US cheese stocks totaled 1.36 billion pounds 1% less than a year ago and 1.3% lower than August. American cheese stocks totaled 772.6 million pounds were 2.2% lower than last year. Less Cheddar cheese could keep prices high again this holiday season as more cheese heads to government orders.

Butter Market

Spot butter prices retreated throughout the week with prices solidly in the $1.40s ahead of the holidays. CME butter averaged $1.4635/lb, down 1.9¢/lb. with 13 loads changing hands. Data indicates that retail butter sales were +24.5% volume and 16% value in September vs. 2019 according to Progressive Dairy. Most are reporting busy packing lines, but the ability to acquire sufficient cream and frozen butter to meet current needs. Cream multipliers remain above averaged in the East. As the new cheese plants gets underway that could further limit cream available to certain markets.

US butter stocks are starting to seasonally trend lower, but the year-over-year gap remains wide and that is taking a toll on spot markets. On Sept. 30, US butter holdings totaled nearly 344 million pounds. That was 7.5% less than August, but still 18.3% more than year-ago levels. Markets have viewed that data negatively as CME spot prices dropped further after the report.

NDM/SMP

Spot CME NDM prices declined this week as more sellers arrived at the market. It is possible news of more western milk and more New Zealand milk deflated price expectations. Add flat futures prices expectations that indicate that the best return is a spot vs. deferred sale. That may explain the 23 loads of NDM traded in Chicago this week. CME NDM averaged $1.115/lb. 2.1¢ less than the previous week. Most report that interest and demand are better than just a few weeks ago, but markets could have been getting a bit ahead of themselves and were due for a modest correction. China’s trade statistics are due out next week – that could likely influence market direction.

New Zealand Sept. milk production was 2.7 million metric tons and 1.65% higher than year ago levels. Gains are starting to ease a bit. Year-to-date, milk production is comparable to year ago levels as earlier in the year output fell behind the pace set in 2019. This week’s Global Dairy Trade auction was within expectations with SMP declining a modest 0.2% compared to the previous event, while WMP gained 0.3%.

Whey & Lactose Products

CME spot whey prices eased but recovered by Friday. The weekly price averaged 38.2¢/lb., down 0.8¢ vs. a week ago. Demand from China remains the mainstay of this market, but that could change as a new WPC plant gets commissions later this year. Still the demand for whey, lactose and permeate remain elevated.

EU-27 & UK whey exports totaled 135.4 million pounds in July, 9.7% higher than the prior year on more exports to Asia.

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