Weekly Forecast Update September 18, 2020
Fluid Milk Market
Despite widespread stories of western fires negatively impacting milk production – relative to a year ago, the United States is still expanding supply. Once again, US milk production gapped the previous year with output bettering 2019 by 1.8% in August. California, Idaho, and Texas drove the output gains while Wisconsin, New Mexico, and Vermont milk production underperformed last year’s levels. US dairy producers milked 9.36 million head during the month, 42,000 more than a year ago. Output per cow was 1,987 pounds, 1.4% more than last year. That puts approximately 68% of new production from higher output and 32% from more cows than last year.
Given the latest forecast and increase in commodity prices, the prospects of depooling is once again on the table for October and November. Recurring depooling and negative producer pay-price-differentials (PPD) this year has industry entertaining discussions of federal order reform.
The USDA released details of the second round of Coronavirus Food Assistance Program (CFAP) payments that will start September 21 and continue through December 11. The payments will be $1.20/cwt. for milk produced between April and August 2020. Payment limits of $250,000 per entity will apply.
Cheese Market
The CME block market set all sorts of firsts this week. The block-barrel spread widened to 99.25¢/lb. on Friday – a staggering figure that seems unsustainable, a sentiment shared several times so far this year, but not one the market seems to be heeding. Blocks also achieved the largest day-to-day increase this week, gaining a single-day 22.75¢ between Thursday and Friday. Add to that, CME Cheddar blocks have surpassed the mid-$2/lb. range for the second time this year. This week CME Cheddar blocks averaged $2.3570/lb., up 20.07¢ from the previous week. Barrels decreased 3.78¢ from the prior week to average $1.610/lb. Futures increased throughout most of the week – but the spread is keeping October and November from reaching the peaks set earlier in the summer. The late-season run is starting to lift Q1 2021 prices also.
Overseas’ news indicated that EU27 & UK cheese production in July 2020 totaled 1.78 billion pounds – 1.4% more than a year ago. Germany and the Netherlands pushed output higher. Declines from Spain and France partially offset increases from other countries. With the new Michigan cheese plant just over a month a way, global cheese production looks set to eclipse this year. So far, demand seems to be absorbing most of the new production.
Butter Market
CME spot butter finally started to increase this week despite lofty trade volumes. CME butter markets averaged $1.5262/lb. 3.59¢ more than the previous week. Sixty-nine loads changed hands during the week. Prices gained 6.75¢ in Friday’s trading alone. Futures forecast a price increase into the fall, and it appears spot markets are finally reacting.
While some reports suggest that orders have been slower than expected in September, IRI data continues to indicate that retail butter sales are running 27.9% higher than the same period in 2019 (through August). In fact, several high butterfat categories are running significantly higher than the same time last year. That likely accounts for the elevated cream multipliers that have persisted through the summer. Most expect that as the baking season approaches, demand will increase and outstrip previous year levels. That could consume a lot of the butter left by lower foodservice orders.
NDM/SMP
After a stronger-than-expected Global Dairy Trade (GDT) performance, world NDM/SMP prices began to lift on further evidence of more substantial demand expectations through the fall. Just a few weeks ago, futures forecasted prices seemed a stretch, and now spot prices are reflecting those levels. CME NDM averaged $1.0595/lb. this week, up 2.14¢ vs. last week. Trading volumes were elevated at 21 loads – an indication that buyers and sellers were comfortable with product at these levels. Still, there are some reports that domestic sales are moving between $1 and $1.03 – at a discount to current spot markets.
Overseas, EU27 & UK milk production totaled 30.5 billion pounds in July – that was 1.6% more than year-ago levels. That puts the top exporting regions (EU, UK, US, NZ, AU, AR, BR) 1.05% more than a year ago. In most years, world markets can easily absorb that level of growth without building stockpiles of products. So far, global buyers have been able to consume most of the new product. But since the start of the year, year-over-year milk production growth from the EU and the United States is starting to accelerate, and that could be troubling for the beginning of 2021.
EU27 & UK SMP production totaled 329 million pounds in July – that was 10.6% more than year-ago levels and something that could weigh on markets later this year. Germany, France, Spain, and Poland accounted for sizeable increases compared to last year. For France and Spain, it appears processors shifted away from cheese to milk powder. For Germany, the higher output seems to be linked to more milk and potentially less fluid milk production as other commodity output were higher than last year.
Whey & Lactose Products
Spot CME whey prices pushed higher again this week after a setback on Monday. The weekly average price of 34.90¢ up 0.65¢ compared to the previous week. Trading volumes were limited to just five loads changing hands. Additionally, cheese and whey production should be headed seasonally lower. Many are reporting that the markets appear balanced and that sellers are somewhat comfortable with current positions. Some even expect that prices could lift for a short time. Demand from China continues to increase – but there are some concerns about the spread of African Swine Fever (ASF) in Europe.
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