Weekly Forecast Update October 9, 2020

Fluid Milk Market

Weather continues to moderate across the country with cooler weather prevailing across large swaths of the country, helping to lift output per cow. The weather is also helping harvest; although some are reporting, the dry conditions are causing soybeans to dry too quickly. Generally, this will help to promote milk production in the coming weeks. However, dry conditions throughout the west and southwest could be problematic next growing season should water continue to see rationing. Early indications suggest that could be the case in California and other western states.

Global milk production is expanding relative to last year – that could keep prices in check. However, mounting concerns about the La Nina and dry conditions in New Zealand could impact pasture growth and, in turn, milk production at the beginning of next year. Additionally, base programs throughout the United States are likely to curb output should it begin to exceed demand later in the year or at the beginning of next year.

Spot milk demand is going through starts and fits with bottlers pulling heavier as needed and curtailing demand just as quickly. There was some planned and unplanned downtime reported in the Midwest, causing milk to move around. Despite higher prices, demand for Class III milk remains intact.

Cheese Market

Spot cheese markets continued to increase last week and leveled off by the end of the week. While the run higher and duration are longer than most would have expected, few sellers at the CME prices are likely to remain here for a longer. That said, many are reporting that it is relatively easy to obtain cheese through commercial channels. A fact that could cause markets to swing quickly if orders slow. For now, demand remains positive, with processors reporting keeping mostly busy headed into the peak holiday demand. CME blocks averaged $2.6465 this week, up 6.9¢/lb. compared to last week. Barrels averaged $2.01/lb., up 19.8¢ vs. the previous week. Barrels appreciated at a faster pace than blocks and helped close the chasm between the two products. The block-barrel spread was 63.65¢ this week – still quite broad, but less than it was.

U.S. cheese production totaled 1.09 billion pounds, 2.1% less than a year ago in August – that likely surprised markets and is working to lift prices higher headed into the fall. American cheese output was 446 million pounds, 1.3% less vs. last year. Cheddar cheese production was 322.9 million pounds, 0.5% more vs. previous year. Mozzarella production totaled 354.2 million pounds, 4.4% less than last year. Surprisingly, hard Italian cheese output was just 0.7% less than last year.

U.S. total cheese exports increased 15% in August compared to last year – given spot prices over the summer. That is a remarkable figure and likely indicative the sales were negotiated in the spring and shipped in Q3. Total exports were 68.4 million pounds. Cheddar cheese exports increased 25.4% over the same period last year; processed cheese shipments fell 40% over the same time. U.S. total cheese imports were 29.8 million pounds, 16.6% less than last year. Fewer imports from Italy caused declines.

Butter Market

After weeks of pondering how the futures continued to provide substantial carry into next year, the market finally crumbled this week as traders removed carry from the markets. Headed into the holiday demand season, butter prices slipped into the $1.30s on Thursday before recovering a bit of lost ground on Friday. CME butter averaged $1.4420/lb. down 6.65¢ less than last week. Thirty-eight loads of butter changed hands this week. Butter futures are now in the $150s into early 2021. FEB21 futures have lost 15¢/lb. since last week. These are some of the lowest prices for this time of the year since 2013.

USDA data released this week likely helped tip the scales on markets to U.S. butter production totaled 152.3 million pounds in August, which was 7.8% more than last year and 0.4% higher than July. California increase butter production by 13.6%, but Pennsylvania production rocketed 24.5% above the same period the previous year. All regions added more butter compared to last year, and that is likely a reason as to why prices remain lackluster headed into the holidays. There is an indication that U.S. butter production could remain 6-10% more than the same period last year.

NDM/SMP

Spot CME NDM prices leveled out this week, ceding a little ground toward the end of the week. Data was mostly positive this week and supportive of nearby prices. Some are still reporting moving products through commercial channels near current spot price levels is difficult. CME NDM averaged $1.1265/lb. down 0.1¢/lb. compared to the prior week. The Global Dairy Trade auction this week saw SMP prices decline to $1.2996/lb. down 0.9% vs. the previous event. That was an expected result given the week-long holiday in China.

Combined NDM/SMP production was 203.7 million pounds in August – that was 5.4% higher than the last year, but seasonally 5.1% less than the previous year. NDM production was up 8.8%, and SMP production was down 2% less than the previous year. California’s NDM production jumped up 16.7% vs. last year – that could be the result of less SMP production. Other western states increased NDM 10% more than last year. Atlantic was the only region to produce less NDM than the previous year.

On Aug. 31, NDM stocks totaled 270.6 million pounds, 0.4% more than last year, but 12.6% less than July. Despite higher net production, processors shipped more than moved in during the month.

US NDM /SMP exports continue to gap the prior year in August, with exports totaled 151.7 million pounds, 35% more than the same period last year. That was the highest export volume for August on record. Exports to Mexico were 35% of the total but 13% less than in 2019. U.S. exporters made headway in China with exports up 3000% – suggesting the new trade arrangement could support U.S. exports.

Whey & Lactose Products

U.S. spot whey prices pushed higher again this week with prices averaging 39.55¢/lb, up 1.65¢ compared to last week. Only three loads of whey traded. Whey prices could inch higher as production is at seasonal lows, but little may be left in this run given the value of European whey. Demand from China helped to lift prices recently. The latest USDA data suggests that domestic demand is anemic and that new whey supplies expected later this year could cap any further price increases.

USDA data suggests there were less whey and WPC produced in August and more focus on WPI in August. U.S. whey production totaled 78.9 million pounds, down 5.8% vs. last year. Total WPC production fell 1.7% below last year’s level in August. WPI90 production totaled 10.2 million pounds, 8.5% higher vs. last year.

Despite lower output, whey stocks expanded to 85.8 million pounds, up 18.2% vs. last year. It was a similar situation for WPC, with stocks rising in both categories, double-digits higher than a year ago. WPI stocks retreated 14.3% vs. last year to 16.47 million pounds.

U.S. whey exports continue to recover with exports lifting 55.7% above last year on more volume headed to China.

Our mailing address is:

Ceres Dairy Risk Management LLC

PO Box 2440

Sun Valley, ID 83353-2440