Weekly forecast update – Sept. 25, 2022

Forecast updates

• Modest changes to the forecast this week with most updates related to the spot market price adjustments.
• Some adjustments through Q4 – most returning the forecast to earlier in the month price expectations.
• Continue to keep the block-barrel spread minimal. It is unlikely to change unless exports slow.

Milk Market

USDA released the October Advanced Class I milk price at $22.71/cwt – down 91₵/cwt compared to September, but $5.63/cwt more than the previous year. That was also well above the five-year average for October – $16.58/cwt. Class II skim will be $13.37/cwt – $1.15/cwt less than July. School milk supply lines are refilled. IRI scan data suggests that dairy stocking has been lower this year and may account for some of the reduced scans this year.

This week USDA released August milk production that totaled 19.02 billion pounds – 1.6% more than last year. Cow numbers increased by 8,000 to 9.43 million head – dropping the YoY gap to 11,000 head – the lowest all year. Production per cow was 2,018 pounds – up 1.7% from last year and the growth driver. While milk production is higher than one year ago, it resulted from such a poor performance in August 2021 vs. a strong performance this year. The MTM performance in 2022 and 2020 were more comparable; the 5% decline from July to August last year reflected a falling herd and lower output-per-cow. While there is more milk than a year ago, relative to this year, the August performance was expected.

Cheese Market

CME blocks are declining again this week while barrels increased. That resulted in blocks averaging $2.0195/lb – 0.7¢ less than the previous week. Barrels averaged $2.1645/lb, up 11.35¢. Anecdotal reports continue to suggest that markets are balanced with sellers comfortable and buyers able to source any cheese. Barrels were likely stronger this week based on an USDA announced bid and more western cheese makers focused on exports and Mozzarella. Seasonally, Mozzarella cheese demand is higher as colleges and football get underway. Cheese futures markets soured when blocks declined again. 2023 futures also dropped by the end of the week. Currency may play a role this week as the stronger dollar helped US cheese markets close on European prices. The Sept. 20 GDT Cheddar prices increased 2.1% compared to the prior event, with prices at $5,147/MT ($2.33/lb).

US cheese stocks totaled 1.48 billion pounds – 3.56% more than last year. MoM stocks from July to August declined 38 million pounds, the most since 2018. American cheese stocks totaled 842.36 million pounds and 1.85% more than last year. Other than American & Swiss cheese expanded by 6.34%, suggesting that is where the build occurred.

New Zealand cheese exports rocketed higher in August. In total, New Zealand exported 47.5 million pounds – 60.5% more than the previous year. That included revisions lower for June or July. Exports to China were 188% more than last year. Volumes throughout Southeast Asia were higher than in most nations. Given flat milk production, more milk headed to cheese will likely reduce SMP production this season. That is based on higher WMP exports during the same period – that would point to a product mix.

Butter Market

CME butter markets were up and down this week, resulting in a $3.1345/lb average, down 5¢ compared to the prior week. That followed a GDT event on Sept. 20 with a split result, AMF moved up 4% to $1.96/lb on an 80% equivalent and butter down 0.2% $2.37/lb. Spot prices bottomed at $2.10, sending Q4 cash-settled butter futures sharply lower. Price recovered into the end of the week. With currency adjustments, US butter quickly rivaled European butter prices. At the same time, reports indicate that some butter promotions are picking up heading into the holiday season and that consumers respond favorably when finding discounts.

US butter stocks as of Aug. 31 – 282.6 million pounds and 22% less than year-ago levels. The YoY gap widened again. MoM stocks declined between July and August by 32.5 million pounds – consistent with last year and more than the five-year average.

In overseas news, New Zealand’s August butterfat exports totaled 48.9 million pounds – 51.1% more than the previous year and the most for August since 2016. The sizeable price gap between New Zealand and US/EU prices caught the eye of global buyers, and it is moving large volumes of product. Exports to China were 62.8% more than the previous year. Exports to Mexico surged 173% vs. last year. Exports were triple-digit higher to most regions.

NDM/SMP

NDM prices increased into the end of the week. That did not stop 2022 futures from pulling back for a time – 2023 offers remain in the low-$1.60s. GDT SMP disappointed expectations with prices falling 0.7% vs. the previous event to $1.608/lb – WMP increased 3.7% $1.69/MT. Data for NDM/SMP continues to be mixed, with some data supporting prices and others providing a cap. CME NDM prices average $1.564/lb 0.85¢/lb lower than the previous week. This market continues to be driven by international data, and a lot was released this week – some very supportive to prices, some less so.

New Zealand 23.8 million pounds of SMP in August – 0.6% more than the previous year. Year-to-date exports are running 4.4% more than the same period last year. But, given a slow start to the season and more volumes headed to cheese and WMP – SMP production and related exports could remain modest by comparison. Exports to Indonesia increased by 4.5X compared to last year. Shipments to China were lower – -16% vs. last year; export to Vietnam fell 85% vs. last year. Exports throughout SEA were mostly lower in August.

China imported 29,959MT (66.5 million pounds) of WMP in August – 59.5% less than last year. That was the largest YoY deficit so far this year. That puts China’s WMP imports 15.8% behind last year’s pace, but ahead of 2020 for the same period. Most of those declines came from New Zealand. China imported 32,985MT (72.7 million pounds) of WMP in August – 2% less than last year. That was the first-time monthly imports of SMP were more than WMP. That puts China’s WMP imports 24.7% behind last year’s pace. Imports from Oceania increased. Imports from the United States fell by 26%; Europe fell also.

Whey & Lactose Products

CME whey averaged 45¢, down 2.6¢ from the previous week. Prices eased this week but remained consistent once prices were adjusted on Monday. DMN central mostly price was 44.5¢, down 1.5¢ from the last week. Western prices were 54.25¢ this week, up 1.25¢ from the previous week. The lactose price was 45.75¢ this week, unchanged vs. last week. Reports from Europe indicate whey concentrate is rising, indicating that cheese production is increasing. Those same reports suggest that drying is less than normal and may be related to higher costs and natural gas conservation efforts.