Weekly forecast update, Sept. 24, 2021

Forecast updates

  • Increased Q4 CME barrel cheese forecast
    • Raised prices based on recent higher spot trade;
    • Lifted blocks in October also;
    • That raised the Class III milk forecast.
  • Increased the Q4 2021 whey forecast
    • Nearby WPC demand strength and seasonally lower production could keep prices near current levels through early 2022.
    • Spot prices remain elevated based on strong demand from China and WPC80 that remains high.
  • No significant adjustments to butter and NDM.

Fluid Milk Market

USDA released the October 2021 Advanced Class I price this week at $17.08/cwt, 49¢/cwt more than September. The butterfat and skim prices increased. Class II advanced skim for October is $10.63/cwt, 22¢/cwt more than September. That was the result of an NDM survey price that continues to track higher. Moderating weather is helping milk off the farm to recover from the end of summer heat. Most are reporting that the school milk supply line is resupplied and that the pull from bottling has stabilized; in turn, this is returning some milk to manufacturing.

US August milk production totaled 18.8 billion pounds – that was 1.1% more than last year and the smallest YoY gap so far this year. Data is starting to lap last year’s expansion so this slowdown was expected. Output per cow is slowing and that resulted in nearly all of the new milk coming from more cows than last year. The US dairy herd totaled 9.48 million head – 106,000 more cows than last year, but 19,000 fewer cows than July. That confirms culling has picked up. Wisconsin, followed by South Dakota, led the increases in August, up 67MM and 42.5MM pounds, respectively. Slowing output from California and Texas impacted output. Washington and New Mexico turned significantly negative.

Cheese Market

Block cheese prices retreated throughout the week while barrels remained mostly stable. In the end, blocks averaged $1.723/lb – 7.65¢/lb less than the previous week with 10 loads changing hands. Barrels averaged $1.596/lb, up 10.7¢ compared to the prior week on similar trade volumes. That closed the block-barrel spread to 12.7¢. There are some reports that cheese offered at the CME is coming from the West Coast. Given the current cost of transportation, that may make buyers a bit more reluctant to acquire cheese that requires considerable transportation investment to move to market.

US cheese stocks totaled 1.43 billion on Aug 31 – that was 1.5% less than July, but 4% higher than last year. That is reasonable given the new cheese plant and added working inventories compared to a year ago – still, there is a portion of the build that could reflect a recovery of very low stocks from last year when stocks were unusually low.

American cheese stocks totaled 823.6 million pounds – 0.7% higher than July and 4.3% higher than last year’s levels. Cheese stocks, excluding American and Swiss, were 582.6 million pounds – 4.4% less than July but 3.5% higher than last year – this category includes Italian-style cheeses. It could reflect a depletion of hard Italian and frozen Mozzarella since July.

Butter Market

CME spot butter prices dropped this week with trade volumes doubling compared to the previous week. Spot butter averaged $1.745/lb this week, 6.25¢ less than the previous week. In total, 48 loads traded compared to 22 the prior week – with 16 loads trading on Friday. Cream demand is reported strong and that is supporting multipliers, but there is some western cream headed to butter churns in the West and Midwest. Demand from other high butterfat items continues to increase and is likely to remain elevated through the holidays. That could continue to curb butter production.

US butter stocks dropped below prior-year levels in August. In total, US butter stocks were nearly 367 million pounds 7.4% less than July and 1.2% lower than year-ago levels. That suggests that output slowed during the month – expected given the slower milk production in western states that comes as little surprise. Last year’s July to August build was unusual. That makes this year’s decline slightly higher than the five-year average, excluding 2020. That change suggests that carryout stocks could be lower than last year.

NDM/SMP

CME NDM spot prices increased to $1.37/lb on Thursday, the highest price since October 2014. Prices retreated some by Friday. In the end, prices averaged $1.358/lb – that was 1.85¢ more than the prior week. Trading volumes picked up with 15 loads trading this week, compared to 9 loads the previous week. Reports suggest that demand remains strong and that a lot of the recent domestic trading is from brokers looking to increase ownership.

China’s SMP and WMP imports increased in August. During that time, China imported 74.5 million pounds of SMP – that was 23% more than last year. For the year, lifted imports to 41.7% ahead of last year through August. China’s WMP imports totaled nearly 163 million pounds – that was a whopping 146.6% more than a year ago. Most of that volume is coming from New Zealand.

Whey & Lactose Products

CME spot whey prices increased this week with prices rising to 57.75¢/lb. CME spot whey prices averaged 55.85¢/lb – 5.85¢ higher than the previous week on four trades. DMN Central prices increased to 51¢ with the low end of the range lifting; western prices were unchanged at 54¢. DMN lactose and WPC34 prices were unchanged this week. For now, WPC80 and WPI demand are supporting higher prices and drawing whey solids.

China imported nearly 137 million pounds in August – that was 11.9% more than last year, but still 4.6% less than July. The United States shipped 13.6 million pounds more whey to China during the month. That looks to backfill lower volumes from Belarus and Poland.