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:
(0:14) 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, August 16th, and you’re hearing from Alyssa Badger and Cara Murphy. What a week! Markets are moving, and the HighGround team published our August Global Dairy Commodity Price Forecast. We’ll cover some of the topics in that report today, but for more details and our price forecast, subscribers can head on over to the HighGround Dairy website. And if you’re not a subscriber yet, request a free trial to get access today. With that, let’s kick it off with the CME Spot Market Recap. Cara?
(0:54) Cara Murphy:
Big news, Alyssa, for butter. Yesterday, butter traded 51 times, the most in a single day since November 2004. Today, the price moved up to $3.18 per pound, the highest price since October 31st, 2023, and traded a total of 24 times, bringing the total weekly volume to 103. Cheese is also moving up, up, up. Blocks jumped to $2.10 per pound yesterday, the highest since March 2023, and barrels soared today again to $2.2550, the highest since June 2022. 21 blocks exchanged hands this week, and just 8 barrel trades. In a similar vein, nonfat dry milk headed back up to $1.2550 with 19 trades, while dry whey saw little movement, closing today at $0.55 per pound with just 3 trades.
Alyssa:
Thanks, Cara. Yeah, that run-up in cheese has been pretty astonishing.
(1:45) Cara:
Well, that’s something we definitely talk about in our forecast. As difficult as that market is to understand at the moment, it appears there are a couple of things in play. Firstly, milk availability is tight. The Upper Midwest spot basis high point hit $3.50 yesterday, the highest since February 2021. A combination of hot summer temperatures out west and Highly Pathogenic Avian Influenza (HPAI) impacts have caused milk volumes to fall seasonally, and school is starting up, which is stealing milk away from cheese processors. The result is smaller cheese output right at the time when seasonal demand is about to pick up, and thus higher prices.
Additionally, one of the things we take a look at this month were the Q2 winners and losers in the food service game, with many companies reporting negative quarterly earnings as consumers pull back spending and eat at home. Value is the name of the game at the moment, and to spur consumer traffic, companies like McDonald’s, Wendy’s, and Burger King, among others, have released $5 meal deal promotions. Executive teams report that these are working to drive higher foot traffic, with several extending the offers into October. This may have lifted processed cheese demand as well, and could be a contributing factor in the recent spot barrel cheese squeeze.
(2:57) Alyssa:
It’s pretty interesting to see how each company is responding to the lower consumer spending. My question is, if more people are eating at home, are they eating more cheese at home?
(3:07) Cara:
To answer that, yes. Retail data from Dairy Management Inc. shows that retail cheese volumes are up compared to last year, with demand for mozzarella skyrocketing. That said, while Americans do love their cheese, Class II dairy product consumption stands out as the thing consumers want most, with impressive growth seen in cottage cheese, whipped cream, cream spreads, and yogurt unit sales up from last year. When we think about how high the spot butter price is for this time of year, we have to remember that these products, these high cream products, compete with butter churns for cream. Currently, with demand for butter and cream-based products both up year over year, and the holiday season fast approaching, when butter consumption typically jumps, we can start to understand why buyers are a bit anxious to get coverage to avoid paying an even higher price come October, even though butter ending stocks as of June sit at the second highest level in 30 years.
Alyssa:
Alright, so we know what’s going on in cheese and fat markets. What’s happening in the other two, nonfat and dry whey?
(4:07) Cara:
Well, after hitting a two-year high of 62.5 cents per pound on August 1st, dry whey prices have stepped back as some supply concerns have eased. Still, with the whey stream is tight as, being a byproduct of cheese production, lower cheese output means less whey. Sweet whey demand isn’t overly strong, as shown by a 6.5% year-over-year loss in June’s Dairy Supply and Utilization data, but consumption of high-protein whey (whey protein concentrates and isolates) certainly is up. As prices for these high-protein wheys keep rising, it encourages suppliers to prioritize their production instead of dry whey, leaving supplies to shrink.
(4:46)
On the nonfat side, spot nonfat has rallied as of late, climbing to $1.2550 per pound today, the highest price since February 2023. Global demand has been rather lackluster for a while now, and manufacturers have dialed back production and pulled more from stocks. With smaller inventories, pockets of demand may provide a temporary boost in prices, but that is exactly what we suspect this rally to be—temporary. And that’s the US dairy markets in a nutshell.
With that, let’s hop abroad and see what international markets have been doing, shall we? That US unemployment data released last week seemed to send the stock market and global currencies into a tailspin. What was that all about?
(5:27) Alyssa:
The key trigger was actually the Bank of Japan’s unexpected decision to raise interest rates, which caused the yen to strengthen significantly against the US dollar. This move caught many investors off guard. Japan’s Nikkei experienced its worst single-day decline since the 1987 Black Monday crash. This plunge set off a chain reaction in other Asian markets, with significant drops seen in South Korea, Taiwan, and other regions. European and US markets also felt the impact, with major indices experiencing substantial declines. In summary, Japan’s rate hike, the strengthening yen, and fears of a US recession basically combined to create a perfect storm that led to the global market downturn. From there, we can get into some of the other key fundamentals that we’re tracking and that we factored into our forecast report.
(6:19)
The first key fundamental is that economic anxiety that we just went over, alongside a lot of political turmoil that has created global unrest, from Kenya increasing taxes to Bolivia facing gas shortages, protests in France from farmers, Poland, Argentina, Pakistan, Sri Lanka. There’s some mass protests everywhere, as citizens in many countries have lost faith in the ability of their governments to cope and are pushing back. Second, we discussed freight rates, that they’ve been rising all year because of the tension and turmoil in the Red Sea. We also saw an explosion happen at a huge port in China that certainly didn’t help the situation. We’ve seen global shipping rates up around 200 to 250% from prior year, and they’re supposedly peaking right now, but still causing issues with moving product globally, but also lending to the fact that inflation will remain elevated because of this. Third, it’s August, which means milk is ramping up in the Southern Hemisphere. There should be plenty of milk coming from New Zealand and Australia due to decent weather expectation, but also a very high milk price out of New Zealand for this time of year, which might push farmers to feed more supplements like palm kernel to get as much milk as possible. Fourth, we discussed China’s volatile weather that they’ve seen this year. It continues to bring self-sufficiency in question, especially from a feed perspective. They are dealing with flooding in some regions and heat waves in others, and ultimately they’re concerned about corn, soy, and rice yields. Lastly, and this kind of ties into the first one, is that global unrest that just keeps ramping up, and as a result, central banks will be looking to actively try to find ways to ease pressure on consumers.
(8:02)
Other things worth noting, and specifically in China, this has been increasingly important, and we cover this every month, but there’s certainly been heightened attention here to the stronger-than-expected homework powder result on last GDT event. China’s powder inventories are now at the lowest level since December of 2021, so pretty near three-year lows, and consumption isn’t very impressive, still hanging below the strength that we saw during the pandemic, but the chatter is that Chinese resellers need more whole milk powder inventory from New Zealand, so they’ve been refilling pipelines, and that has the potential to last into next week as well.
(8:39)
Speaking of next week, Fonterra did not make any changes to their Global Dairy Trade Offer Volumes. After that upside surprise at the first August auction, the market has spurned into action with a very bullish tone erupting across the SGX markets. Pundits from all corners are trying to make heads or tails of what’s around the corner, as the previous GDT event refused to follow the script. Whole milk powder futures trading on SGX have been nothing short of impressive. Adding to the confusion was the announcement of the ONIL tender from Algeria, with reports of larger-than-expected volumes being accepted by the government buying agency, and at prices that play into the bull’s storyline. So it is easy to understand the bullish argument, however, none of these dynamics paint a changing picture for the consumer, who again remains under economic pressure, and for some nations, political pressure as well.
Well, that’s all from the High Ground Chicago office this week. Thanks again for tuning in, and be sure to subscribe to this podcast and join us next week for another discussion on dairy fundamentals. We appreciate your support. Cheers.
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The post Let’s Chat Dairy – 16 August 2024 appeared first on HighGround Dairy.