Weekly Forecast Update September 4, 2020

Fluid Milk Market

USDA announced the August Class III price this week at $19.77/cwt and Class IV at $12.53, declines of $4.77, and $1.23, respectively, from July. Despite the large declines, August may reflect improved milk checks for dairy producers in federal orders as the impact of depooling could be far less than in June and July. Still, with rising commodity prices this week depooling will remain a specter for the remainder of 2020.

    Regionally, heat and humidity have combined to lessen daily output -still summer is fast coming to a close, so most expect cows to recover in a short amount of time. While 2020 milk could taper, the question remains how the heat impacts are relative to a year ago.

     As expected, with the turn of the calendar and a significant reduction in Class III milk prices, cheese plants are in the hunt for milk to produce cheese. Add to that, the delayed start to school for many states has bottlers also pulling heavier than past weeks. Those two events, along with some heat effect, could slow milk into powder plants east of the Rocky Mountains for a time.

Cheese Market

CME cheese markets were on the rise this week. Last week an announcement from President Trump indicating more funds could head to the food basket program, yet this year lifted markets. Still, news that negotiations between the House and White House fizzled let the air out of markets and blocks and barrels turned lower. By mid-week, USDA began issuing new Section 32 bids for various cheese products lifting markets higher and pushing blocks back above the $2/lb. Next week should kick off the annual USDA buying process, so this would be consistent with a September run in the cheese markets. Add to that, Cheddar blocks are a little harder to come by, and cheese moves into aging programs and hard Italian makers avail themselves of lower September milk prices. All of that culminated in a CME block weekly average of $1.9375/lb., 11.25¢ more than the previous week. Barrel increased at a faster pace than blocks this week, but there was a sizable gap, to start. Barrels averaged $1.5575lb. up 14.35¢ compared to last week.

It was a busy reporting day on Thursday with USDA releasing Dairy Products and US trade statistics for July. US total cheese production in July was 1.1 billion pounds and 1.8% higher than year-ago levels. The year-over-year gap tightened from the large 4.1% increase in June. American cheese followed a broadly consistent pattern with July output totaling 452 million pounds and 4% more than last year. It appears a significant slowdown in Italian-style cheese production sent more cheese to Cheddar cheese vats. Cheddar cheese output increased 5% in July, 321.2 million pounds. California Mozzarella production fell in July while other western states rose to suggest more could have come from places like Colorado. Other western states, excluding California and Idaho, grew Mozzarella output by 8.4% vs. last year.

US cheese imports fell 35% behind last year’s pace, with volumes totaling just 22.1 million pounds. That was the lowest volume for July over the decade. Volumes from Italy, France, and the Netherlands were double-digits lower than year-ago levels. Despite record-high prices in July, US cheese exports totaled 64.5 million pounds in July – that was 4% more than year-ago levels.

Butter Market

CME butter markets have been unable to muster a rally and are headed into the holiday season build at the lowest level in seven years. That is likely welcome news for butter retailers this season, but a bit troubling for processors. Given the value available in the market and limited pack-ahead earlier in the season, capacity constraints could crop up between now and Thanksgiving. While futures are still projecting a seasonal lift, should markets not make a move soon, it seems time could begin to work against markets. August spot butter trading volumes were some of the largest in recent months, and the first week of September is on pace to rival it. With prices averaging $1.4910/lb, up a scant 0.1¢ compared to last week, 58 loads changed hands in somewhat active trading. It seems while markets want to move higher, the reality of processors looking to shed uncommitted bulk butter could keep prices in check.

US butter production totaled 151.8 million pounds in July, which was 0.7% higher than last year. Butter production from the Golden State jumped 16.6% higher than year-ago levels in July. Pennsylvania also experienced just over a 16% increase. The output from other western states declined 3.8%, with central state producing less butter also. Of note, ice cream production outpaced last year again in July, explaining as to why cream multipliers have remained high throughout the summer months. That, along with cream and other high-fat product demand, could explain the slowdown in butter production.

After a sizeable lift in June, US butter imports returned to trend in July. US imports were 13.2 million pounds, 2.1% more than last year, but nearly 39% less than June. Irish imports fell almost 14% behind last year’s pace suggesting some consumers may be switching back to a domestic product as the higher tariffed European butter maybe a little less attractive at the retail shelf. Still, demand for Irish butter remains mostly positive, and this could be viewed as a temporary setback. For only the second time this year, US butterfat exports improved on last year’s performance. In July, US exporters shipped 5.7 million pounds of butterfat overseas with volumes just over one-third higher than the same period a year ago.

 

NDM/SMP

CME spot NDM markets were stable this week, with prices holding above $1/lb throughout the week. The Global Dairy Trade SMP price increase, along with some positive data from USDA, helped to lift optimism and interest for NDM. Prices averaged $1.03/lb., up 1.75¢ compared to last week. Still, processors are worried that sales have been slower and that most have been unable to achieve the premiums forecast by the current futures markets. As a result, sell-side interest through the end of the year has been present in daily trading.

Combined NDM/SMP output was nearly 215 million pounds in July, 2% less than year-ago levels. California increased the production of NDM while other western states dropped 6% along with declines from Atlantic and central states. Overall, NDM production fell 5.2% vs. last year while SMP increased 9.7% – that data suggests strong interest from overseas.

July was another record-setting month for US NDM exports with volumes reaching 166 million pounds and 52% more than year-ago levels. That was the highest volumes for any July. Mexico reflected just one-third of US exports, down from half over the past two Julys. Export to Southeast Asia continues to expand, and China too three times the volume it did in July 2019.

Stocks likely caused markets to slow their upward trend this week despite lower output, and better export stocks expanded to 309.6 million pounds on July 31. That suggests a sizeable slowdown in domestic consumption.

Whey & Lactose Products

Steady as she goes – that would best describe whey markets. CME whey averaged 33.4 cents this week, up just 0.2¢ from the previous week. Trade volumes were limited, and Dairy Market News reflected similar trends. Overall, market participants continue to indicate that whey and lactose are well balanced while WPC and WPI are still surplus.

US whey production totaled 82.5 million pounds, +2.2% vs. last year. Lactose production fell 4.6%  behind last year’s pace in July with output totaling 99.6 million pounds – an explanation as to why lactose prices remain elevated. In the end, whey stocks were 25% higher this July compared to the same period last year – again a good reason why whey prices seem to have a definite price ceiling these days.

US whey exports jumped 65% ahead of last year’s pace in July to 39.4 million pounds on higher exports to China. Lactose exports slowed with July volumes dropping 11% behind year-ago levels – a likely indication that prices could ease in the coming months. WPC08/WPI exports sailed 47% above last year’s levels. WPC34 had similar performance with volumes up 31.2% vs. 2019.