Weekly forecast update, Sept. 17, 2021

Forecast updates

  • Increased NDM forecast for all years
    • Slowing output from the United States and Europe could lift prices;
    • So far, China has not slowed demand;
    • Stocks are lower than in recent years – which provides less of a buffer to supply-side events.
    • Still, prices could range from upper teens to low 130s – more than that could reduce demand from price-sensitive buying regions.
  • Increased the Q4 2021 and Q1/Q2 2022 whey forecast
    • Nearby WPC demand strength and seasonally lower production could keep prices near current levels through early 2022.
    • Prices could make modest declines to the upper 40s.
    • Deteriorating pork margins and historic losses for Chinese swine producers could force lower prices – but that could take some time.
  • No significant adjustments to butter and cheese.

Fluid Milk Market

Reports this week indicate that school supply lines and bottling demand could be nearly full and that milk should begin to return to normal with more milk available to manufacturing as weather abates and milk production improves slightly. Still, Southeast milk is lower and will continue to pull milk from other parts of the country through December. Higher milk futures prices forecasts this week have helped dairy producers explore Dairy Revenue Protection programs for 2022. Most concede that prices are less than where they hoped; however, it is better than potentially lower seasonal prices this winter.

As suspected, the spread of the Delta variance of Covid-19 resulted in more people staying home. Restaurant visits in August rolled back to June levels and consumers prepared 79.9% of meals at home, compared to 76.6% in July. That trend is expected to increase into the fall. In August retail milk sales, dropped 5.5% compared to the same period last year according to IRI data for multiple locations – that could be the result of more kids going back to school and less milk consumed at home when most schools elected online learning.

Internationally, EU-27 milk production in July was 27.4 billion pounds, which was 0.4% less than year-ago levels with most countries falling behind July 2020. Add to that components were less in milk also.

Germany, France, and the Netherlands dropped output by similar levels compared to last year. Those losses were partially offset by higher output from Ireland +3.35% and Italy +6.3%. In the future, environmental proposals from the Netherlands could result in a 25% reduction of the nation’s herd. Less milk from Europe could support dairy product prices heading into 2022.

 Cheese Market

After reaching $1.815/lb on Monday, blocks eased into the end of the week; at the same time, barrels increased throughout the week with prices surpassing $1.50/lb. Cheese markets have moved in opposition and that resulted in 2020 futures giving back most, if not all, of the prior week’s increases. Cheddar blocks averaged $1.7995 – up 3.7¢ compared to the previous week. CME barrels averaged $1.4890 – up 2.21¢ over the same time. Trading volumes for barrels jumped up to 19 loads compared to six loads the previous week. The block-barrel spread remains wide at 31.05¢ this week. Some of the futures declines may be traders removing some of the barrel premium from markets as the current gaps are just 7-10 cents compared to the 30-cents in spot markets.

IRI scan data for August reflected natural cheese sales volumes 1.3% behind last year’s pace and 1.6% less on a price basis. Processed cheese volumes were 2.1% lower and prices 2.9% lower. That was a strong showing for the month and could bode well for August data released early next month. It may also help account for balanced markets and prices that have been trading in a somewhat consistent range for much of the summer.

European cheese processors put the breaks on output in July. In total, cheese production totaled 1.67 billion pounds. That was 1.4% less than last year and the first YoY decline in 2021. That decline may explain the clamor for cheese as of late and recent increases as the market feels tighter than it did coming out of the spring. Constrained European cheese markets could provide better opportunities for US cheese exporters in 2022.

Butter Market

CME butter markets lifted to the low $1.80s this week, but prices dropped toward the end of the week. In the end, CME butter averaged $1.8075/lb 2.06¢ more than the prior week. Trading volumes were similar. While there is good demand for butter – there is still substantial product in warehouses – that could be drawing more butter from warehouses presently. Despite the spot market retreat at the end of the week, 2021 cash-settled butter futures continue to increase. OCT21 futures have been rising since early August after a deep decline from the spring. NOV21 and DEC21 futures are following a similar track. Markets remain inverted (spot higher than the forward curve plus carry) – that is typical for this time of year as processors are preparing for the peak demand season just 60-days away.

Retail butter sales in August were 6.4% on a volume basis lower than last year based on IRI MULOC data. Still, a solid performance given the uptick in dining out this summer. The Dairy Bakery Deli Association surveyed consumers and found that 50% said they were less comfortable with on-premises dining that requires sitting indoors. That could slow on-premises dining yet this year – a slowdown in foodservice butter demand could result in more bulk butter production similar to last year. At the same time, creamer and cream cheese sales volumes increased 3.1% and 0.2%, respectively. That supports reports of stronger cream demand for other high butterfat products.


NDM markets continued to lift this week to their highest levels since early May. CME prices averaged $1.355/lb – up 3.1¢ above last week with fewer trades. Reports indicate that western ports are severely backlogged, and most exporters are avoiding them to get products exported. Similarly, several ports in China are also experiencing backlogs, with 100 ship delays due to Covid-19 closures. GDT SMP prices increased to $1.4721/lb and WMP is $1.7375/lb, both are up +7.3% and +3.3%, respectively.

Retail yogurt sales in August were 3.5% on a volume basis more than last year based on IRI MULOC data. That could help explain some of the additional condensed skim and milk powder use during the summer. If Q3 remains positive, that would be four of six quarters with positive year-over-year retail sales dollars for yogurt. It could be that consumers perceive yogurt as an immune system product and that is helping drive sales.

EU-27 SMP July output totaled 282 million pounds – that was 10% less than year-ago levels and the largest YoY declines so far in 2021. Given the demand from cheese and SMP prices that eased over the summer, it appears processors diverted milk supplies toward cheese vats and away from SMP driers. SMP production fell off for most countries, but Germany and Ireland led the declines.

Whey & Lactose Products

CME spot whey prices increased this week with prices following a similar up and down pattern. CME spot whey prices averaged 53¢/lb – 1¢ higher than the previous week on fewer trades. DMN Central prices were unchanged at 50¢; western prices increased to 54¢. DMN lactose and WPC34 prices were unchanged this week. For now, WPC80 and WPI demand are supporting higher prices and drawing whey solids.

EU cheese production declined in July, reducing whey solids available to the market. That may explain the modest whey price recovery at the end of August. Given strong WPC demand, it seems reasonable to expect whey powder output declines could speed up.