Weekly forecast updates, Sept. 10, 2021

Forecast updates

• Increased cheese forecast in 2022
  • Still assume a seasonal decline, but given lower whey prices that could reduce the Class III value – expect more exports given lower prices and potential for more USDA orders to support the Class III milk price
• Reduced the 2022 whey forecast for Q1 and Q2
  • Deteriorating pork margins and historic losses for Chinese swine producers could force lower prices.
  • Further African swine fever may result in a 14-20% decline in the current hog population in China, reducing whey powder demand.
  • Price remains high as presently there is an alternative with WPC/WPI.
• No significant adjustments to butter.
• Increased NDM through Q1 2022
  • That resulted in a Class IV exceeding Class III in Q1 & Q2 2022.

Fluid Milk Market

Heat and humidity are taking a toll on Southeast milk production, resulting in a vacuum with the Southeast pulling milk from other regions. In addition, there are reports that Southeastern fluid milk processors may be seeking longer-term contracts with milk from outside the area. That could result in more local milk requiring balancing next year. While milk is widely available and more cost-effective, transportation could be a persistent issue next year.

With lower milk and lower components, processors have to compete a bit more for milk to processing. As a result, some are opting out while others are paying the prices to secure more milk. This could remain the case as above-average temperatures remind us that the autumnal equinox is still two weeks away. Milk should begin to recover as soon as the heat abates, but recovery may not fully recoup earlier losses. On a positive note, dairy producers are seeing better margin prospects as milk prices rise and feed prices decrease this week – that could slow output. Still, reports about this year’s harvest suggest that feed quality could negatively impact production later this year as this year’s crop of forage may not feed as well as last year in some regions of the country. Additionally, cow numbers could rival last year’s herd size by year-end that could cause the YoY gaps to close.

Cheese Market

CME cheese prices are rising this week, with blocks and barrels reach the highest levels in weeks. Commercially markets remain balanced with better demand met with better supply. But, there could temporarily be fewer CME eligible products available due to restocking 640# and a significant shift toward Mozzarella to fulfill domestic and international demand. CME block prices averaged $1.7615/lb – that was 4.55¢ more than the prior week. Spot Cheddar barrels averaged $1.4669/lb – 8.44¢ higher than the previous week. Transactions for blocks and barrels were lower than a year ago.

The USDA annual bid season begins in a matter of weeks, an event typically supportive of prices. Additionally, reports indicate European cheese is tighter than expected due to lower milk production and fewer components in the milk. That is causing the internal price to increase – something that could make US cheese more competitive internationally.

Ida and Covid-19 took a toll on restaurant performance at the end of August, with growth slowing to the pace set in early June. As a result, week-over-week sales growth slumped, dropping 1.2% behind the pace set on the week ending August 2020. Additionally, sales in Louisiana fell by 30% due to the storm – Mississippi dropped 8%.

Butter Market

In shortened holiday trading, butter markets traded within a limited range, and prices ended the week much when they started. CME butter averaged $1.7869/lb – 1.94¢ more than the previous week. Trading volumes were slightly less than the last week. Butter demand is rising as the holidays approach, and cream multipliers remain above the last two years. USDA orders require butter made from cream, seasonally higher demand for cream cheese, and an ice cream season that continues to linger increases competition and price for cream.

GDT butter and AMF prices lifted at the September 7 event, ending at $2.2092/lb and $.25819/lb, respectively – that was +3.7% and +3.3%, respectively. Prices are trending higher. The same thing is happening in Europe as retailers heavily promote consumer packaged butter, lifting demand while processors are having a hard time keeping up. Again, fewer components and milk headed to cheese vats are keeping butter output somewhat limited. That said, European prices could be capped as plenty of frozen butter is available for the remainder of the season. Like cheese, higher EU butter prices could maintain US butter export competitiveness – especially in the Middle East.

US butter commercial disappearance totaled 171.5 million pounds – that was 13.1% more than year-ago levels. Year-to-date commercial disappearance is running 0.9% behind last year’s pace. Given double-digit declines during Q2 – the year-to-date figure is positive. While stocks are higher than last year, the gaps are starting to close. That is likely supporting fall prices – but given that stocks are just shy of 400 million pounds – that could be a hard cap price increase. That said, price direction will hinge on fall and holiday demand. Should 2021 carry-out stocks decline below last year’s levels, that could support 2022 prices.

NDM/SMP

NDM markets continued to lift this week to their highest levels since early May. CME prices averaged $1.355/lb – up 3.1¢ above last week with fewer trades. Reports indicate that western ports are severely backlogged, and most exporters are avoiding them to get products exported. Similarly, several ports in China are also experiencing backlogs, with 100 ship delays due to Covid-19 closures. GDT SMP prices increased to $1.4721/lb and WMP is $1.7375/lb, both are up +7.3% and +3.3%, respectively.

US NDM commercial disappearance increased 72% above the previous year in July. Still, year-to-date domestic, commercial disappearance ran nearly 15% behind the same pace a year ago. Earlier in the year, discounted milk and lower Mozzarella production likely contributed to the higher NDM output and stocks. Thus, the recent turnaround in demand could be due to tighter and more expensive spot milk and higher Mozzarella output.

Whey & Lactose Products

After retreating for a bit, CME spot whey prices increased this week also. CME spot whey prices averaged 52¢/lb – 3¢ higher than the previous week. After a down week, CME and DMN Central prices moved back up and above 50-cents. For now, WPC and WPI demand remain sizeable, but there are some concerns that once the nutrition market is resupplied, demand could subside for a time.

Reports this week suggested a larger European WPC manufacturer ran into some production issues that temporarily disrupted supply. In addition, reports from China indicate there could be additional weakness ahead for whey as swine producers are losing records amounts of money, making it harder to purchase whey and soybean meal at current price levels. Additionally, the spread of African swine fever and worsening losses could reduce China’s hog herd by 14-20% in 2022 – which could put additional pressure on whey, lactose, and permeate demand.