Weekly forecast – May 19, 2023

Forecast updates

Again, news was limited this week but there were some changes to the forecast due to spot markets.

  1. No change to the butter forecast
  2. Decreased cheese prices through the end of the year.
    1. This could be a debatable change. Current prices should make US cheese highly competitive in export markets; however, processors appear to have fewer commitments domestically that continue to overwhelm spot markets.
    2. Additionally, lower domestic cheese prices could result in extremely low-Class III milk prices through July – which could further curb output.
  3. Modest adjustments to the whey forecast.
  4. Reduced Q2 NDM prices.

Milk Market

USDA released the June advanced Class I milk prices $18.01/cwt – $1.56/cwt less than in May and $7.86/cwt less than last year. Milk off the farm is still rising in most areas as the weather remains pleasant to cooler throughout the country. There are some reports of milk dumping in parts of the country – those appear intermittent and related to limited production capacity – typical this time of year. What is more prevalent – is significant discounts to classified pricing for milk that is searching for a home. USDA reports prices $7 – $10/cwt under class prices. Weather is expected to warm up across the country, which should slow down output.

Overseas, Italy received six months of rain within 36 hours in Emilia, a major agricultural region. Italy has been a driver of milk production growth in Europe since the end of the quota. It has slowed recently, with last year’s drought negatively impacting output. On the opposite end of milk production, New Zealand released April milk production at 1.53 million metric tons and 6.73% more than the previous year. That was the fourth month of consecutive increases.

US April milk production was 19.21 billion pounds, 0.33% more than the previous year. The YoY gap continues to close as more states fall behind prior year output. For western states, only Washington and Idaho gained compared to last year, all other states fell behind. California is running 1.9% behind the previous year. Central states are pushing ahead of the previous year with Illinois the only state lagging last year. Eastern performance was mixed with New York, Ohio, and Georgia running ahead, Vermont and Pennsylvania unchanged and Virginia and Florida lagging. The US milking herd was 9.43 million head and 0.28% more than last year. Again the YOY gap is closing suggesting the herd could begin to contract compared to last year. Output per cow was 2,037 pounds and a small 0.05% ahead of last year. California’s output-per-cow is down 1.9%.

Cheese Market

CME spot market volumes are elevated and remain so as sellers look for an outlet for additional volumes. Given fewer exports and rising output, more cheese is available. Domestic demand appears mixed – which is consistent with recent weeks. There are mounting concerns that foodservice could experience a slowdown as people look to spend less. At the same time, retail demand appears steady to better-than-last year. But, the reports appear to vary from processor to processor and throughout the country. Barrels traded 54 times and blocks 35 times – a pace that could surpass or rival April. Barrels averaged $1.458/lb, down 5.35¢. Blocks averaged $1.51/lb, down 9.85¢. Prices reset to lows not seen since 2021. For a single day, barrels held a premium to blocks.

Dairy continues to perform well at retail, with natural and cottage cheese surpassing April 2022 volumes. Only milk and alternative milk beverages underperformed compared to last year, losing sales dollars and volumes. Natural cheese sales were up 0.9% in April – for the 52 weeks ended April 30, that was 0.6% less than the previous period. Butter volumes were 2.7% lower in April but down 1.2% in the 52-week comparison. Most higher-fat dairy products like cream cheese, sour cream, and creamers had lower volumes in April versus the prior year. Processed cheese was down 3.6% in April and 31.% for the 52-week comparison. Cheese snack kits performed well, up 11.1% in April and down 1.6% in the 52-week comparison. Deli cheese sales were down 3.3% in April – consistent with the 52-week comparison, down 3.2%. Grab and go remains positive, with April volumes up %, but service and specialty continued to lag last year.

Butter Market

Ice cream production is ramping up, but reports are somewhat mixed. Ice cream mix production is ramping up, but there are several reports that hard ice cream production is slower than expected and less than last year. That may be keeping cream flowing to butter churns. Butter demand is steady to better than expected in most parts of the country. CME spot prices started to increase at the end of the week. CME spot butter averaged $2.451/lb, up 4.55¢ from the previous week. Despite the higher spot move, futures are trending lower this week suggesting the uptick could be limited. While futures are lower, monthly prices are somewhat consistent.

European butterfat exports in March surged – doubling the previous year. The data seems suspect as March would reflect the most butter exported in a single month, with most of that butter headed to Singapore, a nation that doesn’t typically buy that much butter from Europe. All of the increase is coming from the Netherlands, as the nation reported 56.2 million pounds of exports. Given 10X exports, it appears the results will be revised lower next month. Exports to the United States increased 77% compared to last year. Volumes to the UK fell 30.4%, offsetting some of the gains to the United States. Most exports were similar to last year. It seems reasonable to expect that exports were comparable to last year if the data gets reset.

NDM/SMP

CME spot NDM prices retreated throughout the week. CME prices averaged $1.16, down 1.95¢ from the previous week. Global Dairy Trade (GDT) SMP prices declined at the May 16 event. SMP prices dropped 1.6% to $2,766/MT ($1.255/lb); WMP prices increased 0.3% to $3,244/MT ($1.4714/lb). European prices are steady to higher. Overall, prices appear to be stabilizing, but not to a point that prices could turn around. But more stable international prices should begin to provide a level of support for US prices. Given US discounts to other regions, that may indicate that further price declines could be limited. Domestic demand remains limited as there is sufficient condensed skim available to processors.

EU-27 March 2023 SMP exports totaled 179.5 million pounds, 40.5% more than the previous year. After a year of lower volumes, it appears EU-27 SMP exports returned to trend. That has YTD exports running 34% higher than last year and bettering the five-year average. Exports to Algeria soared with volumes 3X March 2022 – which drove the export results during the month. Exports to China were 100% higher than the previous year. Indonesia, Yemen, and the Philippines were the only regions to have lower volumes.

Whey & Lactose Products

Domestic whey prices continue to slide. CME price averaged 28.45¢, down 2.45¢ this week. DMN Central prices were 35¢, down 2.75¢. DMN Western prices were 38¢, down 1.5¢. NDPSR prices were 39.05¢, down 2.05¢. Overall, prices are still under pressure and trending lower. While there are some reasons to be optimistic, likely improving export opportunities, supply continue to be more than the current market can absorb.

EU27 March 2023 whey exports totaled 136.6 million pounds and 14% more than the previous year. Exports were driven by higher volumes to China – up 50%. That is consistent with the US experience. With more volume to China, it is providing some optimism about export prospects.