Weekly Forecast Update September 11, 2020

Fluid Milk Market

Wildfires in the West are reportedly impacting milk production. Inferior air quality is causing some farms issues. With air quality deteriorating as far away as to Arizona, Nevada, Idaho, and Utah, there could be a noticeable impact on output. Whether that is capable of slowing milk production sufficiently to impact the trajectory of nation milk production has yet to be seen.

Overseas’ milk production continues to expand. Many regions are expressing concern that demand could slow by the end of the year, suggesting that milk production could be too much. For now, markets appear balanced, and that is supporting prices throughout the world.

Cheese Market

CME spot blocks ended the week moving higher again while barrels were unable to hold, and prices slid back into the $1.50s by the end of the week. Cheddar blocks averaged $2.1563/lb., up 21.88¢ vs. the previous week. In contrast, barrels averaged $1.6538/lb., up 9.63¢. While block prices are elevated, cheese is still finding its way to Chicago. So far, in September, 19 loads of blocks have changed hand; when markets increased in May – it took 30 days for equivalent loads to trade at the CME.

Ceres estimates US July cheese commercial disappearance was over one billion pounds and 0.71% higher than last year and the highest for that month over the last decade. Despite record-high prices, cheese consumption continued to plot a positive course compared to the previous year. Although April was double-digits lower, year-to-date commercial disappearance is running just 0.83% behind last year.

Blackbox Intelligence reported August restaurant same-store sales down 12.3% compared to last year and foot traffic down 17.7%. That is the best performance since February this year and indicative of a sizeable recovery that helps to explain the demand figures through the summer. But, the restaurant industry is saying the remaining 10-15% could take months, if not years, to recover.

Butter Market

CME spot butter markets were much of the same this week. Butter averaged $1.4906/lb., down just 0.04¢ compared to last week. Butter trading volumes remained elevated this week with 42 loads changing hands. So far this month, 96 loads of butter have traded, suggesting at the current pace could eclipse August if it continues through the month.

Ceres estimates butter domestic, commercial disappearance was 148.9 million pounds in July and 4.6% less than a year ago. That comes after months of double-digit gains. While a setback, butter year-to-date commercial disappearance is still running 4.5% ahead of the same period last year – all around a very impressive increase. Production and net trade contributed over 88 million pounds of butter to the system through July while higher commercial disappearance has removed 56, leaving just over 30 million pounds more butter this year vs. last year

USDA issued new Section 32 bids for butter for 2.5 million pounds. Government orders have helped to pick up some of the slack left by lower foodservice demand. But data suggests net trade has been a sizeable contributor to extra butter in the system.

NDM/SMP

On Friday, CME spot NDM markets pushed to their highest level since March 13. At $1.0381/lb. the weekly average was 0.81¢ higher than the previous average. Trade volumes remain elevated, suggesting that both sides are comfortable with current price levels. Futures markets continue to forecast higher prices through next year. Despite concerns that markets could slow before the end of the year – there is a bit of momentum, and the United States remains heavily discounted to European prices suggesting there could be a bit of a lift for a time.

US NDM/SMP commercial disappearance was 28.1 million pounds in August, down 76% compared to last year. Year-to-date NDM commercial disappearance is running 42% lower than the same period the previous year. It is likely that US commercial disappearance is less than last year, but that the gap is wider than anticipated. Next month the new Michigan cheese plant could slow milk flows to NDM – that could reduce output and help bring the domestic market back in balance. Dairy products consumed 53% of 2019 NDM, according to ADPI.

At next week’s GDT, Fonterra will be offering 11% less SMP than the previous auction and 29% vs. the same period last year. There will be 6,060MT in OCT and 5,945MT in NOV. WMP volumes are 21,240MT OCT – the same as the previous auction and similar to last year’s offer volumes. Volumes will remain identical through the November auctions.

Whey & Lactose Products

Spot CME whey prices climbed back to the 35.5¢ for the first time since May 22. The weekly average price of 34.25¢ up 0.85¢ compared to the previous week. Trading volumes were limited. Additionally, cheese and whey production should be headed seasonally lower. Still, it has been difficult for whey prices to sustain runs above the mid-30 mark. For now, reports indicate demand for whey powder remains positive, and sellers are not in any hurry to commit as the product is readily moving. That could help explain recent buying interest in Chicago.

Our mailing address is:

Ceres Dairy Risk Management LLC
PO Box 2440
Sun Valley, ID 83353-2440