Let’s Chat Dairy is a weekly podcast, hosted by HighGround Dairy’s top analysts. At the end of every week, they sit down to recap the week in dairy markets and summarize recent reports and relevant news. The podcast can be found here on our dashboard, or wherever you listen to your podcasts. Subscribe so that you never miss an episode!
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Transcript:
(0:12) Eric Meyer:
Hello, everyone, and thank you so much for tuning into Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. I’m Eric Meyer, and today is Friday, August 2nd. We are in the true doldrums of summer, so many out of office emails bouncing back when we send our analysis, and not only are many of our customers out of the office, but also a number of folks from our team are taking their summer vacations and holidays with their families. I’ll be heading to the Pacific Northwest with my family next week before the kids start up school again later this month, so enjoy that summer weather while you can. Cara and Stu covered things off in our podcast last week, so I’ll take the reins this week and focus a bit on the US markets.
(0:59)
Looking outside the dairy markets for a minute, there’s a lot of geopolitical tension heating up once again in the Middle East. Venezuela contested elections in a pretty volatile US stock market with some disappointing quarterly earnings reports over the past week, suggesting that we are not out of the woods yet when it comes to a healthy economy.
(1:17)
Within the food industry, McDonald’s released its Q2 earnings on Monday, which fell well below expectations, as it was their first quarter since Q4 2020, where domestic and global sales figures fell below the previous year. Store traffic has been the thorn in the food service industry’s side, as this has been a consistent problem for the past couple of years now, and is not improving. Many of these chains have made up for the lost customers with a boost in revenue with higher menu prices, as those have improved margins, but now even that is not the case anymore. In late June, McDonald’s launched their $5 value meal, which includes either a McDouble, which is a double cheeseburger, but just with a single cheese slice, or a McChicken sandwich, which doesn’t include any cheese, along with a four-piece chicken nugget, fries, and drink. That promotion has recently been extended, and many chains are following suit with value offerings of their own. This has boosted store traffic temporarily, but significantly reduced margins, and may be tough to continue doing while delivering franchisees consistent profitability. We do believe these fast food and casual dining promotions have created a temporary lift in domestic cheese demand, as extended limited-time offerings have created uneven buying patterns.
(2:36)
Moving on to the CME spot dairy markets, they’ve had an interesting week, with powders finding serious support, only to have them both back off by week’s end. Multiple contacts have indicated a major whey dryer in the Upper Midwest has been offline for the past couple of weeks, which has created a significant lift in CME spot whey prices. As late as July 17th, CME spot whey settled at $0.50 per pound, but has reached a high of $0.6250 this past Thursday, before rolling back to $0.61 on Friday, with futures following suit, which are the highest price levels seen since early 2022. Typically, the weekly National Dairy Product Sales Report pricing moves much more methodically than CME spot prices have to, but October CME futures eclipsed $0.60 per pound briefly this week, before rolling back more than $0.0250 at Friday’s close. There’s still a lot of uncertainty in the whey market, in addition to firm high-whey protein markets that keep grinding higher, which lend support to the lower-protein items. A lingering manufacturing issue could inflate prices in the near term.
(3:46)
In addition to CME spot whey, the spot nonfat dry milk market also temporarily eclipsed its 2024 calendar year high of $1.24 per pound to settle this Wednesday at $1.2475, which was its highest price since February of 2023, but futures were not having it. US nonfat is the most expensive skim milk powder in the world, and futures traders have zero confidence that prices will hold here, as futures are flatlined through March of next year. Milk production has been slow to recover in the US, but starting to pick up steam in Europe and world demand for milk powders is still muted. So what could have been a bullish data point resulted in a lack of confidence in the world’s largest anticipatory market for milk powders, the CME, which isn’t really bullish at all.
(4:38)
CME spot cheese prices this week found support early in the week but then eroded, as nearby Class III and cheese futures tested recent highs, only to fail by mid-week with a pretty significant correction that is still underway. Block cheddar settled as high as $1.95 per pound and barrels to $1.9850 but have since reversed course, with blocks settling a dime lower and barrels over a nickel from those intra-week highs. Class III and cheese futures, that had been carrying a significant premium to the spot market specifically in September, have fallen from Wednesday’s high of $21.83 CWT and $2.0960 per pound, respectively, which have now dropped to settle at $20.45 CWT and $1.97 per pound, a more than 6% decline in each of those markets in just 48 hours. HighGround retains the view that cheese prices will hold in a $1.80 to $2 per pound price range through at least October. Low $1.80s will be viewed as a value buy to US consumers, while $2 will kill off any opportunities for both incremental domestic and international demand.
(5.49)
And while CME spot butter remains above a jaw-dropping price of $3 per pound, and CME spot trading has picked up materially volume-wise over the past few weeks, the lack of volatility has been the real shocker, as July’s $0.065 price band for the month was the market’s most narrow for butter since May of 2019. Friday’s settlement of $3.10 per pound is right smack in the middle of July’s range.
(6:17)
Last on the docket this week in our podcast are grain prices. While parts of the country have endured some extreme weather this summer, and in some dairy-producing areas has made for heat stress for cows, limiting milk production, hot and humid weather with ample rain and moisture have produced superior row crops this year in the nation’s Corn Belt. Ample supply has driven new crop December 2024 Chicago Board of Trade corn futures below $4 per bushel this week before finding the slightest bit of support, or maybe just profit-taking, to close the week just above that $4 level. But these are some of the lowest feed prices US dairy farmers have seen on the board since Q4 of 2020. Enhanced profitability is coming to US dairy farmers in the coming months. The question is, what will they do with all that money when there is a shortage of fresh heifers around? How will they find ways to expand?
Well, that’s all from the HighGround Chicago office this week. Thanks again for tuning in. We appreciate your support and business. Be sure to subscribe to this podcast and join us next week for another discussion on dairy fundamentals. If you have any questions or topics you’d like us to cover, or want to learn more about HighGround’s products and services, feel free to visit our website at highgrounddairy.com or reach out to us via email at info@highgrounddairy.com. Cheers!
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The post Let’s Chat Dairy – 2 August 2024 appeared first on HighGround Dairy.