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Transcript:
(0:14) Alyssa Badger:
Hello everyone and thank you so much for tuning in to Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today’s Friday, July 12th, and you’re hearing from Alyssa Badger and Cara Murphy.
It’s been a somewhat quiet week, but the Global Dairy Trade event coming next Tuesday and the summer heat in full swing, there’s certainly a lot to talk about. We’ll get into more of the details shortly, but let’s start off with the CME spot market recap of the week. Cara?
(0:45) Cara Murphy:
Absolutely. Dry whey moved above $0.51 per pound on Thursday, the highest price since late February this year, but saw minimal trading with just 3 trades on the week. And the cheese market started off bullish as blocks moved to $1.97 per pound before falling back a bit to close at $1.89 with 12 trades, while barrels also slipped down to $1.85 per pound today with 31 trades in total, 15 of those occurring on Tuesday. Butter sank to $3.10 with 22 trades, though I still have to say these are historically high prices for this time of year. And ever range bound nonfat dry milk still hovering close to $1.18 per pound with 14 trades on the week.
(1:23) Alyssa:
Thanks, Cara. You were back home in Iowa last week, and we continue to see grain prices move lower on the futures market. Can you give us an update on how the crops are looking out there?
(1:33) Cara:
Oh, the fields look spectacular through eastern Illinois and central Iowa. Plenty of rain and warm summer temps are perfect growing conditions for corn, which as the old saying goes, is knee high by the 4th of July. Most of it is actually quite a bit taller than that, and some parts have already began to tassel. The beans are looking pretty good too, which bodes well for farmers to keep feed costs low this year.
There is one thing I’m a little nervous about, though, as we get into the second half of the summer and particularly the hottest part as well. Consistent rain so far provided plenty of topsoil moisture. The result is that plant roots did not have to grow very deep. The risk here is that the crop is more susceptible to drought, and forecasted temperatures into August suggest it’s going to be quite hot. If the rain stops, crop conditions could degrade quickly, so let’s keep our fingers crossed that the storms keep coming.
(2:21) Alyssa:
Interesting. I always appreciate an agronomy lesson, so thanks for that. The heat seems to be impacting other parts of the country as well. Any thoughts?
(2:29) Cara:
California looks hot. The San Joaquin Valley is baking under heat advisories, with temperatures soaring above 100 degrees Fahrenheit. As we know, milk output and components suffer when cattle face higher levels of heat stress. California producers are no strangers to the summer heat, but there is only so much fans and water coolers can do. Milk Production in the state took a hit in May, although that did not appear to be heat-related. Now, though, milk flows and components could face challenges as the hot weather takes its toll.
We’re also seeing milk availability tighten in the Midwest as well. This week, the Class III Upper Midwest Spot Basis marked a low of $0 and a high of $1 overclass, bringing the average to $0.50 overclass, the highest average price for Week 28 since 2013. The USDA reports this is atypical for this time of year, as milk and cream suppliers usually have to work overtime to find homes for excess milk during the holiday week. While this could be a result of hot and humid weather across the Midwest, farmers are buckling down in the region, doing the best they can to keep milk moving.
Alyssa:
Now, replacement heifer costs are still pretty high. Are slaughter rates still low?
(3:35) Cara Murphy:
Boy howdy they are. Across the US, slaughter rates trend at levels not seen since 2008. Year-to-date, down 14.4% across the US, with the week ending June 29, marking the largest year-over-year decline since January. The first half of 2024 compared to last year’s slaughter in Region 9, the West, is down 19.8%. In Region 10, the Pacific Northwest, is down 19.2%. Region 6, the Texas-New Mexico area, is down 19.4%. And surprisingly, Region 5, the Upper Midwest, the second-largest dairy cow slaughter region following the Western US, is only down 9.6%, although this gap has grown more quickly over the last three weeks. I, as well as I’m sure many others, am super bummed that the USDA canceled the July 1 Cattle Inventory Report this year. We’ll have to wait until January 2025 now to get an update on the US cattle herd, but I don’t expect slaughter to turn positive anytime soon. With beef on dairy as a lucrative profit source and replacement costs as high as they are, farmers are keeping cows as long as they can keep milking and pay their feed bill.
What’s on the radar across the globe, Alyssa? A GDT event next week, and oh, the Paris Olympics begin in August. I’m sure that’ll bring some added demand to the European market.
(4:48) Alyssa:
Yes, indeed, that Global Dairy Trade event will be in focus primarily next week. The previous event was not very glamorous for the sell side, marked by a significant overall decline across the board. Weak demand, combined with seasonal increases in offer volumes, delivered a knockout punch to elevated prices. Market bearers are lining up again for this auction, with futures markets and fundamental signals aligning to support this downward trend. Whole Milk Powder prices have slipped at both the previous GDT event and at this week’s Pulse Auction, with SGX traders also trading that July 24 Whole Milk Powder contract lower, sitting at about $3,140 MT to close out the week.
Skim Milk Powder has also slipped lower the last two weeks, with SGX traders expecting momentum to continue. The July 24 contract is also pointing lower, with the implied price of $2,530 MT potentially not low enough.
Milk fats registered a huge dip at the last event, with both anhydrous milk fat and butter down by more than 10%. The question is, can milk fats repeat this feat? The answer is yes, and that would still keep them values well above long-term averages.
(6:02)
And to your point on the Olympics, Cara, we should see a nice rise in consumption as a result of the bustling travel through that city and, of course, as the bystanders in other parts of the world step out to celebrate and watch at restaurants and pubs throughout the world. Butter prices in the European Union are finding support because of strong demand already, but also a result of tight fat in the European Union, as it has also recently gotten pulled from the churn and into cheese and retail cream. Of note, French butter popped to the highest price since November of 2022 this week.
(6:35)
Other international fundamentals that we’re covering in our Forecast Report, that will be out next Monday by end of day, is determining when and how much growth will soon be shown on Milk Production figures from the big five exporters, that is, the US, the European Union, Argentina, Australia, and New Zealand. We also dig more into the European Milk Solids situation, like I mentioned earlier, solids are really heading to cheese vats and retail cream at an impressive rate. Third, we discuss the fact that the Middle East has recently backed off at the Global Dairy Trade Auction, and Southeast Asia seems to be stepping in to just bargain buy on certain commodities. Fourth, the bearish tone shift on that GDT will likely bring some interesting results for favored valorization options at the commodity level within New Zealand. We also dig into the fact that cheese and protein are really driving Global Dairy Trade volumes. And lastly, China. China is still bearish for now. Inventories are continuing to consolidate in the country, but raw milk prices crashed to an all-time low this week into July, highlighting just how serious that oversupply situation remains.
Well, that does it for this week’s roundup. Thanks for tuning in, as always, to this week’s Let’s Chat Dairy. Be sure to subscribe and join us next week for another discussion on dairy fundamentals. And if you have any questions or topics you’d like us to cover, feel free to reach out to us via email at info@highgrounddairy.com. Cheers.
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The post Let’s Chat Dairy – 12 July 2024 appeared first on HighGround Dairy.