Weekly forecast update, Sept. 3, 2021
Forecast updates
- Added 2024 to the forecast file for all products.
- Expect that US milk production is in a holding pattern and could decline in 2022 – that could support prices and keep declines from dropping to extremely low levels. EU milk should maintain its current course with a small YoY gap.
- After reviewing July Dairy Product report adjusted Q4 2021 higher – removing the updates from last week.
- Still expect a wide block-barrel spread through the end of the year.
- Given demand, improving exports, and seasonally moderating production – that could support 40# block prices through the end of the year. Barrels could increase but are unlikely to catch blocks as burger & sandwich season winds down.
- Have block and barrel annual averages similar through 2022.
- Expect some increases in 2023 as global demand continues to increase absorbing more US production.
- Forecast 2024 prices lower due to the likelihood of new capacity online.
- Increased butter forecast as stocks are declining and, for now, demand remains positive. A significant slowdown in foodservice business could cause prices to dip earlier than noted in the forecast. The forecast assumes a slowdown in foodservice compared to the summer, but better than last year.
- The 2022 forecast assumes the butter price begins to rise toward a $2/lb average given stronger butterfat demand from China; higher domestic AMF product and growing demand for other cream use.
- The current forecast assumes a decline in December that continues into January 2022, but that prices start to improve late Q1 2022 due to 1) higher exports and 2) lower stocks.
- Maintained higher NDM forecast with expectations prices could retreat by Q2.
- Reports suggest that Europe could have extremely low stocks;
- US could remain less than EU and NZ prices due to shipping issues and widely available milk that could displace NDM to cheese vats.
- Prices could be prone to moving up if China has a strong fall pull – the converse is also true. The forecast assumes China continues to pull at modestly higher levels compared to last year.
- Whey prices should ease, but it could take months for prices to show up in NDPSR. Central prices are dropping faster. Lactose prices are mostly steady. Whey prices may stay out of the 30s due to the strong demand for WPC80 products currently. New capacity could impact prices 2023/2024.
- Assume demand during the fall-winter is less than summer due to Covid-19, but better than last year.
Fluid Milk Market
Fluid milk demand continues to be strong and better than year-ago levels. That has more milk headed to the Southeast where milk is a deficit. Anecdotal reports indicate that transportation continues to disrupt milk movement due to a lack of drivers. It also appears that milk in the Southeast could be declining – due to weather and more permanent changes like retirements and exits. That may suggest that seasonal imbalances could become worse going forward as there is less local milk supply in that part of the country. Oppressive heat and humidity may also negatively impact supply in the Southeast with even the best producers seeing larger variation as cows react to it with less milk.
As milk moves to bottling and seasonally declines – there is less cheese, butter, and NDM production. That could support prices as fall markets approach. Still, there is some demand uncertainty that could cause markets to decline later in the year. That said, higher cheese, butter, and NDM prices could lift the Class I skim price this fall and into the winter; however, are expected to be much less than last year.
Cheese Market
The block-barrel spread remains wide with little expectation that the gap closes until the fall demand season passes. This week, spot prices declined compared to last week, but blocks mounted an end-of-week recovery. Cheddar blocks averaged $1.717/lb – 3.5¢ lower than last week on similar trade volume. Cheddar barrels slipped 8.25¢ to average $1.3825/lb with 16 loads changing hands. Reports suggest that orders were strong headed into the Labor Day holiday – and much better than last year. A year ago, Cheddar block prices $1.9375/lb and headed back toward $2.77 by the end of October. Current price levels could allow for more promotion at retail and foodservice this year. Additionally, quick-serve restaurants could see increased business should people avoid dining in restaurants.
US cheese exports recovered in July. In total US exporters shipped 81.5 million pounds of cheese – that was nearly 26% more than last year. Higher exports to Mexico, Chile, and Japan drove the gains. US exports improved across all categories. US cheese imports totaled 37.5 million pounds, 19.2% more than last year on higher volumes from Lithuania and Italy.
On Friday, USDA released the July Dairy products report with US cheese production totaling 1.15 billion pounds during the month – that was 3.5% more than last year. Cheddar cheese production fell -0.3% below last year’s output in July with output of 321.8 million pounds – despite the new production capacity. Mozzarella production jumped up 3.5% vs. last year to 377.7 million pounds. That could be related to higher export demand.
Butter Market
CME butter markets are picking up as demand begins to increases and cream availability wanes. This week spot butter averaged $1.7675/lb – that was 6.65¢ more than the prior week with 28 loads changing hands. Cream multiples throughout the country are running higher than the last two years for the first time in months. Hot and humid weather is keeping ice cream demand running higher but that is being met with product from storage. There are some reports that Mozzarella cheese processors may be retaining butterfat as they standardize cheese vats with NDM – that could be removing some butterfat from the system. Add to that incremental school milk demand is pulling between 1-2% additional butterfat also. That has butter processors bidding for storage butter and seems to be lifting prices for a time.
US butter exports continue to expand while imports are contracting – a factor that is impacting butter stocks as confirmed by last week’s stocks report. US July butterfat imports totaled 13.2 million pounds – 1.9% less than a year ago. Higher imports from New Zealand were offset by lower imports from Ireland. More products from New Zealand could provide more AMF to the domestic market.
US July butterfat exports totaled 10.6 million pounds and 83.9% more than last year – that was the most for that month since 2014. US exporters shipped more products to Singapore and throughout South America, Mexico, and Canada. That level of exports could help deplete stocks and support fall prices.
US butter production totaled 151.7 million pounds in July – that was 0.8% less than last year. Most of those declines came from western states where output dropped 7.2% below prior-year levels. Central states output was nearly enough to offset declines on the coasts. Ice cream and cream cheese production slowed compared to last year although sour cream was 4.8% more – a mixed result for other cream demand.
NDM/SMP
NDM markets surged this week with spot prices reaching the highest level since early May. Last week’s positive trade news from China and New Zealand caused markets to start lifting and that continued with this week’s US production that fell behind last year’s pace. CME NDM averaged $1.324/lb up 4.85¢ on 16 trades compared to four the prior week.
US NDM/SMP production totaled 208.4 million pounds in July – that was 8.4% less than the previous year. The largest declines came from western states with output falling nearly 16% behind last year’s pace – California was down 20.7%. Other regions produced more NDM offsetting some of those declines. Less milk in western states and improving Italian cheese output resulted in significant declines. Lower output helped to contribute to moderating stocks. USDA reported NDM stocks at 322.3 million pounds, 2.7% more than year-ago levels.
US NDM/SMP exports for July totaled 160.9 million pounds, which was 13.3% less than June on a daily average basis and 3.6% less than last year. Still, volumes were well above the five-year average. Exports throughout SE Asia fell – with most volumes dropping double-digits compared to last year. Exports to Mexico were up, but not enough offset the declines. Exports to China increased 265% compared to the previous year.
Whey & Lactose Products
CME whey prices continued to ease this week with prices averaging 49¢/lb, down 2.2¢ compared to the previous week. Spot prices are trending with Dairy Market News (DMN) Central prices – they dropped below the 50¢- level last week and remained there. There is a sizeable gap with the western mostly average of 55.25¢ – likely reflecting stronger export prices that were contracted weeks, if not months ago. DMN lactose prices continue to track a steady course at 45¢.
US July whey exports totaled nearly 37 million pounds – that was 8.5% less than June and 9.3% less than last year. Exports to China were up 2MM pounds vs. last year, but declines to Thailand, the Philippines, and Indonesia declined offsetting increases. WPC <80% protein exports totaled 30MM pounds – up 6.3% vs. last year. Exports to Mexico and Canada were higher, but Japan and South Korea were less eroding some of the gains. WPC >80% protein exports totaled 13.9MM pounds – up 45.7% vs. last year China and Japan led the gains.
US July dry whey powder production fell behind last year’s pace. In total, the United States produced 80.8 million pounds of whey powder – 2.3% less than last year. Lactose output was nearly 98 million pounds – 1.9% lower than year-ago levels. WPC (50-89.9%) production totaled 25.1 million pounds, +1.4% vs. last year. WPI output was 11MM pounds and +13.3% higher than the previous year.