Weekly forecast update – Sept. 16, 2022
Forecast updates
- Modest changes to the forecast this week with most updates related to the spot market price adjustments.
Milk Market
Milk output is showing small signs of improvement in Europe when there are competing concerns that milk processing and demand could falter this fall. Domestically, the school milk supply lines are refiled, and many reports that milk production is recovering from the late summer heat. As the weather turns to fall, milk production will likely follow seasonal patterns. Although prices increased this week, some are expecting that modest supply improvements and slowing demand could pressure prices lower again.
Cheese Market
CME blocks and barrels appreciated throughout the week, with prices lifting and the block-barrel spread closing. Blocks averaged $2.0265/lb – up 18.21¢ compared to the previous week. Barrels rose 13.23¢ to an average $2.0510/lb last week. Despite the higher spot trade, futures were slower to respond, with carry evaporating from the market this week. While prices are moving up, there are concerns that demand could slow in response.
July 2022 domestic commercial disappearance at 1.083 billion pounds – 0.4% more than the previous year. While slight, the unchanged performance was an improvement from previous months with YoY declines. That follows with anecdotal reports indicating that sales picked up since the lull in Q2 caused by high inflation and fuel costs. Year-to-date domestic commercial disappearance is 1% more than the previous year. That has helped remove an additional 72.6 million pounds; exports 76 million pounds with no new capacity on the horizon for 2023 – at the current consumption rate – could keep prices elevated.
In August, retail natural cheese unit sales were 1.9% less than last year, according to IRI scan data. Processed cheese was 3.2% less. The deli-cheese performance was mixed – cheese from the service case fell 10.8%, but pre-sliced cheese increased 0.5% vs. last year. The Dairy-Deli-Bakery Association notes that retail inflation has been less than retail inflation. They offer that prepared deli meals offer families the convenience of a prepared meal without the same cost as dining out. That said, the group recognizes some inflation has narrowed the gap between the two formats.
Butter Market
After reaching new heights, CME butter markets spent the week pulling back. The new all-time high is $3.24/lb – set on Sept. 13. Prices are tracking lower, but for now, futures expect prices to remain above the $3/lb mark through October. The United States closed the gap with European butter prices and created a larger chasm with New Zealand. That could put some pressure on new butterfat exports. That said, exports could continue through the end of the year given futures markets making it feasible to protect at much lower prices. Cream to churns remains spotty – that continues to fuel participants’ concerns that product could be tight this holiday season.
US July commercial disappearance at 167.2 million pounds – 0.8% more than last year. That was the best performance for July through the last decade. Year-to-date butter commercial disappearance remains 2.9% less than the previous year. Improving food service demand and modestly lower retail demand have combined to keep butter near previous year levels. Most butterfat consumption this year has been from a lack of production as processors shifted butterfat from churns to AMF output. That could change by mid-Q4 2022 should buyers begin to source less expensive AMF from New Zealand.
Retail butter sales units were 1.1% less than the previous year, according to IRI data released for August 2022. That is an improvement over previous months but reflects that consumers may be moderating purchases due to comparatively higher prices than a year ago. Add to that, bakery item sales in grocery stores have fallen. Those items consume some additional butter suggesting demand in those categories could decline.
NDM/SMP
CME NDM prices increased at the beginning of the week as concerns about European energy and availability worried some about NDM/SMP availability. Prices eased mid-week but picked up again, headed into the end of the week. CME NDM averaged $1.5725/lb, up 2.06¢ compared to the previous week. Nearby futures eased, but those Q2 2023 forward remained in the upper 150s/low 160s. Still, 2022 futures are higher than in recent weeks. NDM/SMP news remains competing, and that may explain the yo-yo pricing of recent weeks. While there are concerns about EU natural gas availability, the offset is the negative impact on demand caused by higher energy prices this fall and winter.
US NDM/SMP commercial disappearance totaled 54.3 million pounds – 29.4% less than the previous year. It is also running behind the five-year average for that month. So far this year, US NDM commercial disappearance was 21.5% less than last year. Given the difference between Class III and IV protein – substitution or standardizing cheese vats with NDM could be limited. Ceres estimates that fluid bottling may have consumed 1 billion pounds less milk this year vs. last year through August – that likely caused more milk to head to balancing plants than in recent history.
Whey & Lactose Products
CME whey averaged 47.60¢, up 2.66¢ from the previous week. Prices picked back up on higher protein values and concerns about energy in Europe. DMN central mostly price was 46¢ unchanged from the last week. Western prices were 53¢ this week, up 1.5¢ from the previous week. The lactose price was 45.75¢ this week, up 0.25₵. While most believe that whey, permeate, and lactose drying could be limited in Europe, lower WPC80 and WPI prices could limit price increases, given that the economics of protein would deteriorate quickly. Some reports that US WPC/WPI processors are switching to whey powder to balance stocks.