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) Cara Murphy:
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 is Friday, August 23rd, and you’re hearing from Cara Murphy and Betty Burning. Lots of things are moving in the dairy world this week, from some major revisions in the July US Milk Production Report, to China opening an investigation into EU dairy product subsidies, to Fonterra lifting their Forecast Farmgate Milk Price for the season, and much, much more. Betty is going to walk us through the domestic market, then we’ll take off across the globe. But as always, we’ll start with the CME Spot Market Recap of the Week. Betty?
(0:51) Betty Berning:
Thanks, Cara. Things took a step back this week for cheese, with blocks moving back from $2.10 per pound to close at $2.0375, with a total of six trades on the week. Barrel cheese climbed to $2.2875 on Wednesday, before falling back $0.06 on Thursday and a whopping $0.1275 today. This is the biggest single-day loss in barrels since November 2020, and the market’s finished at $2.10 per pound on just two trades on the week. Butter slid from starting at $3.18 on Monday to settle today at $3.13, with 54 trades on the week. Dry whey appears to be supported around the $0.55 per pound mark, with two trades, and not that dry milk is a bit of an outlier, moving up this week to $1.2850 per pound, but closing today at $1.2825, with 22 trades.
(1:48) Cara:
Alright, Betty, I feel like the July US Milk Production Report was the talk of the town this week with some wild revisions. Fill us in. What happened?
(1:57) Betty:
Yes, the market expected a relatively calm report for July, as the USDA typically makes the most revisions at the end of the calendar quarter, but this was not the case. This month, June’s milk production was revised down 0.7%, which is 137 million pounds. That’s a lot. This was due to fewer cows in the US and lower milk yields than initially thought. June’s milking cows were taken down by 15,000 head, with declines in Arizona, California, Idaho, Iowa, Michigan, Minnesota, Oregon, and Wisconsin. The USDA also clipped June’s milk per cow significantly. Iowa milk per cow was revised downward 50 pounds, Colorado 45, Idaho 35, and Wisconsin 25, among others. It is suspected that hot summer temperatures and bird flu were the likely culprits behind the lower output and hence the revisions.
(2:59)
Ok, now on to July, which is what the report was supposed to be about. Milk production declined for the 13th month in a row, and gains were seen in the southern plains, which is not totally surprising. There’s a lot of new cheese processing capacity coming online there. Texas posted a huge 6% year-over-year rise, and Kansas volumes were up 3%. Those states are starting to recover from bird flu as well. The total US number of milking cows is up 5,000 from June, which is a counter-seasonal move, and milk per cow rose by 1 pound compared to the previous year. Overall, this report was bullish to our expectations, and that was almost completely due to June’s massive downward revision, and I’m also eagerly awaiting July’s Cold Storage later today.
(3:50) Cara:
Thanks, Betty. Yes, that Cold Storage Report will be out at 2pm Central (3pm Eastern time) and inquiring minds will want to see if inventory is dropped, possibly due to these lower milk flows. It seems like milk is still tight seasonally, though, doesn’t it?
(4:04) Betty:
Yes, it’s summer, so typical to have less milk, but this certainly feels a little different. The midpoint of the upper Midwest Spot Basis was $2.63/CWT over Class III pricing this week, and that is a pretty high mark. Even for this time of the year, it is the highest for Week 34 since 2001. We are hearing anecdotally that milk is becoming a little more available, and Dairy Market News reported this week that milk should become more available after Labor Day. Livestock Slaughter also continued to drag. Week 32’s total of 50,200 head was down 19% from the same week in 2023, the lowest for the week since 2009. Farmers are finding different ways to be efficient, given the light heifer inventories, and one of them is to hang on to older milk cows.
Cara, you had a lot to do this week with international. There was news and data from Europe, New Zealand, and China. Should we start with the EU Milk Production Report?
(5:09) Cara:
Absolutely. Well, milk supplies are also tightening seasonally, but June’s Milk Production figure for the EU-27 block plus the UK was up 0.9% year-over-year from stronger-than-expected output in France, Poland, and Italy, while Germany and the UK held flat against the prior year. That said, weekly milk collections figures in France and Germany took a sharp fall in the start of July, reflecting the impacts of a hot summer and an outbreak of blue-tongue infections in the two countries. The disease, which poses no risk to human welfare, seems to be impacting Germany the most. Ruminant animals—cows, goats, and sheep—become tender around the mouth, which causes them to go off feed and, as a result, their milk production drops. The good news is that the disease isn’t new to Europe—the Netherlands weathered an outbreak last year—and there is a vaccine, but it will likely put a damper on milk flows when milk availability is already limited. For dairy products, less butter was made in the first six months of the year, driving prices to highs we have not seen since 2017 on the European Energy Exchange, or the EEX. Cream prices keep climbing, which means butter will as well, to remain economical to produce. The Netherlands and Ireland ramped up their butter production in June, and with more butter comes more skim solids and more skim milk powder output from places like the Netherlands and Denmark. Lastly, after impressive year-over-year growth in April and May, cheese output in France and Germany took a nosedive. Tighter cheese inventories heading into the holiday demand season will likely see cheese prices grinding higher in the coming weeks.
(6:43)
Alright, can’t forget EU exports released this week as well. Exports in June were a bit lackluster, with most products recording a loss compared to the prior year. Skim milk powder exports plummeted to the lowest June volume since 2016 on losses to Algeria, China, and Malaysia, while more cheese made its way to Australia, almost offsetting the declines to Japan and Chile. But alas, not enough to push totals above the prior year.
(7:08)
The big thing on the radar this week is rising EU trade tensions with China. Back in June, the EU announced plans to raise tariffs on imported Chinese electric vehicles, which prompted China to retaliate with an investigation into EU pork subsidies. Well, this week the EU released a draft of those tariffs, and China responded with an anti-subsidy probe into European dairy exports, starting with cheese, fluid milk, and cream. So what does this mean? Well, if you’re looking for a comprehensive breakdown, you can find those details in our July China Dairy Import Volume Report, available to subscribers. But I’ll do a short summary here. European dairy exports to China have been on the decline over recent years, and China only accounts for about 8% of EU dairy exports. In the grand scheme of things, this dispute will likely have a mild impact on Europe in the interim, with an expectation that Oceania commodities will find greater support.
(8:02) Betty:
OK, that’s a lot, and I think we only got through the EU there. You guys were really busy this week. But we can’t forget about Oceania and China. We had trade data from both places, plus there was a GDT, New Zealand Milk Production, and an update from Fonterra. Do tell, Cara.
(8:20) Cara:
All right, let’s keep it going. Chinese Dairy Imports in July looked grim, with the brunt of losses showing up as fluid milk and cream, followed by skim milk powder and anhydrous milk fat. Whole milk powder volumes remained subdued but improved slightly from the weak Q2 figures. On the plus side, demand for whey, casein, and infant formula improved from the prior year. It’s not all peaches and rainbows, however, as China’s ongoing economic pressures plague consumers, ultimately tempering total growth in demand despite the anticipated reduction in Chinese domestic inventories.
(8:52)
Rounding out this podcast, in the Land of the Long White Cloud, also known as Middle Earth for all my fellow Lord of the Rings fans, the 362nd Global Dairy Trade Event was held this Tuesday with some bullish results across the board, except for cheddar cheese. Nearby whole milk powder contracts saw the largest jump as buyers showed desperation for nearby delivery, and market chatter says Chinese resellers are filling pipelines. Arla, Fonterra, and Soleric skim milk powder recorded impressive gains, with European product maintaining a premium over Oceania. Fats remain red-hot globally, with Europe leading the charge. Recent price indices on the European Energy Exchange show European butter at a nearly $0.80 per pound premium to New Zealand. In a similar vein, mozzarella marked an all-time high on the global dairy trade platform since the product went on offer in December 2023. Interestingly, European-offered mozzarella was entirely bought by European buyers, and at a premium to the values on the EEX.
(9:51)
Overall, global milk supply is far from ample, meaning any surge in demand, especially from emerging markets, will have supportive effects on prices. And speaking of demand, total dairy exports from New Zealand leapt year-on-year in July on greater shipments to China and Southeast Asia, while sailings to Algeria tanked, bringing year-to-date volumes to the third-largest destination country, down 18%. Whole milk powder exports moved up on gains to Indonesia and Saudi Arabia, and cheese shipments marked an all-time high in July, with more cheese headed to China, Saudi Arabia, and the United Kingdom.
(10:26)
And at last, yesterday, Fonterra lifted its 2024-2025 Season Forecast Farmgate Milk Price midpoint by NZ$0.50 to NZ$8.50/kgMS, with the new season forecast range between N$7.75 to NZ$9.25/kgMS, up from NZ$7.25 to NZ$8.75/kgMS.
Whoo-wee! Well, that about covers it for the week, folks. 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 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 – 23 August 2024 appeared first on HighGround Dairy.