Weekly forecast updated, Dec. 10, 2021
Forecast updates
- Increased the 2022 butter forecast
- Made minor adjustments to other products through Q1 2022 based on spot pricing.
- All changes increased milk prices for 2022.
Fluid Milk Market
Anecdotal reports suggest that milk off the farm is still well behind expectations for this time of year – output is better but still essentially flat. That goes for the United States and the rest of the world. As a result, the pull from bottling remains noticeable and continues to constrain manufacturing – mostly butter and milk powder plants. Dairy producers are somewhat reluctant to lock in milk prices despite higher prices given the current cost of production and cooperative deductions. Many discussions reveal that dairy producers feel current prices are acceptable but may not fully cover the cost of production and certainly fall short of the returns needed to expand output in light of cooperative base-plan fees.
The USDA’s additional funding for the Supplemental Nutrition Assistance Program (SNAP) this fiscal year may defray some of the inflationary impacts on grocery bills for some consumers. Additionally, the free school meals (breakfast and lunch) that will continue through this school year appear to be increasing institutional use of fluid milk; however, it will take until next year for USDA to confirm with its biennial reporting of institutional milk use. So far, better-than-expected school milk demand keeps bottlers busy and demanding milk. Additionally, this year’s Christmas and New Year’s holidays fall a weekend – possibly reducing the balancing required compared to a year where the holiday falls on a weekday. Overall, the data suggest that these program funding adjustments have impacted USDA purchases. Comparing FY21 to FY20, exclusive of the Farmers to Families Food Box program, USDA purchased 23.7 gallons vs. 19.5 gallons – a 22% increase after adjusting for leap day. Reports for this fiscal year have not been issued yet as the updates are quarterly, and the year began in October.
Cheese Market
Spot block and barrel trading remain limited with nearly two weeks of December trading complete. In November, barrels traded 47 times during the first ten days of the months, blocks eight; In December, there have been eight barrels and six blocks. The data suggests that there may be more domestic orders or that there could be more cheese headed to exports – given the October switch from American-style cheese to Mozzarella, that makes some sense. This week’s blocks averaged $1.8485/lb, 0.9₵/lb less than the previous week. Barrels averaged $1.6745/lb, 8.65₵/lb more than the prior week. The markets moving in opposition reduced the block-barrel spread this week to 23.4₵/lb.
US cheese exports were the highest for an October on record. The United States exported 78.9 million pounds of cheese in October – 43.5% more than the same period last year. More shipments drove that volume increase to Australia, Japan, Mexico, and South Korea. Year-to-date exports are 10.9% higher than the same period last year—a likely indicator of more to come for Q4 2021 export volumes.
US cheese imports totaled 39.4 million pounds – that was 14% more than last year, but 0.7% less than September on a daily basis. More imports from Italy, France, and the Netherlands accounted for half of the increases. The data suggests the Biden Administration removing Trump tariffs on European products may be bringing that product back to the US market.
Butter Market
On Friday, CME butter markets moved up to $2.1225/lb, lifting the weekly average to $2.06/lb and 7.5₵/lb higher than the previous week. This week, trading picked up with 31 loads changing hands, up from 22 loads the last week. While there are willing sellers, there are also willing buyers – likely those concerned about supply for next year. Cream demand remains elevated with multipliers at unchanged or higher. Midwest cream multipliers were 1.32 this week compared to a 1.22 five-year average for that week.
Similarly, West Coast cream multipliers were 1.27 versus a 1.14 multiplier for the same week. Higher multipliers are pulling cream away from churns, raising the prospects of 2022 costs for butter manufacturers and what they will need to pay to secure cream for churning. In addition, fears of scarcity continue to drive higher spot and futures prices.
US butterfat exports totaled 11.5 million pounds in October – the highest volume since 2018 for the month. That pushed export volumes 110% more than the same period last year and levels not experienced since 2014. Saudi Arabia accounted for a quarter of the increase, with volumes up 1813% vs. the previous year. More shipments to Canada accounted for just less than half of the rise. The rest of the increase was spread over several countries. Given higher prices for Canada’s internal butter production – there could be more incentive to import US butter in 2022.
US butterfat imports totaled 11.2 million pounds and nearly 14% more than last year. More imports from Ireland, France, India, and New Zealand caused higher performance. Given the rising butterfat price, it makes sense for those importers who can import less expensive products from India for processing. New Zealand’s AMF may be more costly; however, buyers may continue to source products from the region to maintain relationships.
NDM/SMP
After holding in the mid-150s for weeks, CME spot NDM moved to $1.625/lb on Friday – the highest since 2014. That lifted the weekly average to $1.584/lb – up 2.8₵ compared to the previous week with 19 loads exchanging hands. That worked to raise the FEB22 and MAR22 futures contracts above $1.60 – establishing new contract highs. Data, for now, does not seem to support the widespread sentiment that markets should drop in the coming weeks. Stagnant milk production and demand from other products continue to entice processors to shift milk away from milk powder driers. Most are looking to China for direction; however, data suggests China remains a buyer unless the nation can further expand its milk production or consumer demand retreats – two things that are now happening presently. Milk powder could be prone to bouts of sharply higher prices if weather creates a supply constraint during the second half of the Southern Hemisphere milk-producing season.
US NDM/SMP exports totaled 147.4 million pounds, which was 7.7% less than September on a daily average and 13.2% lower than last year. That was the lowest volume for October since 2018 and the lowest 2021 volume since January. While exports to Mexico were lower, substantial volume declines to the Philippines, China, and Malaysia caused the inferior performance.
Whey & Lactose Products
Just when it appeared CME whey prices could linger in the 60s for a time, prices jumped above the 70-cent mark again this week. CME prices averaged 70.35₵/lb, up 1.35₵ from the previous week on no trades – just bids. Dairy Market News (DMN) Central prices continue to increase with the mid-point of the mostly at 65.25₵ this week – up 3.12₵ – the western mostly was 65.5₵, up 4.47₵. That suggests that NDPSR whey prices will continue to lift for several weeks, which will drive higher Class I and III prices. That is consistent with CME whey futures that project prices have not yet reached their apex.
US whey exports were inconclusive in October – suggesting more product was consumed in the domestic market. That said, the basis of comparison could be skewed as sweet powder exports in October 2020 were unusually elevated. US whey exports totaled 41.8 million pounds in October – 21.7% less than last year and 2.5% lower than September on a daily average basis. China accounted for all of the declines compared to the previous year. US WPC (<80% protein) exports were 24.6 million pounds in October – 24.9% lower than a year ago. US WPC80/WPI exports totaled 9.7 million pounds – 3.2% less than year-ago levels.