Let’s Chat Dairy – 4 October 2024

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!

Listen on Spotify | Listen on Apple Podcasts | Listen on Amazon Music

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, October 4th, and you’re hearing from Alyssa Badger and Cara Murphy. Spooky season has officially begun with cooler temperatures coming to Chicago and the rest of the Upper Midwest, which we’ve heard has contributed to improved cow comfort levels and thus stronger milk components. I’m sure the cows are enjoying pumpkin season as much as we are, but I digress. Well, we have lots to get into today, so let’s start off with that CME spot market recap of the week, Cara.

(0:51) Cara Murphy:
Yeah, so the butter market started off this week moving higher, but quickly took a turn and closed at $2.68 per pound yesterday, the lowest price since late January of this year. It moved up just a tad today, settling at $2.6875, with a total of 59 trades on the week. Buyers clearly remain interested in purchasing at these lower price points. Cheese is also headed lower, with both block and barrel cheese settling below $2 per pound today. Blocks closed at $1.9475, with 12 trades on the week, while barrels came screaming down, marking a $0.34 decline since last Friday to close at $1.9550, with very few trades, only a total of four on the week. Moving on to nonfat dry milk, there was little change today at $1.3525 per pound, with 18 trades in total, while the dry whey is back above $0.60 per pound, with 12 trades in total on the week.

(1:47) Alyssa:
Thanks, Kara. It seemed like a relatively quiet week for US reports. The dairy products production report does come out at 2 pm today, though, so stick around for that Dairy Skim that we’ll publish shortly after with our initial takes on the results of that report, and a complete in-depth analysis of the report will be available to subscribers on our website come Monday.

Tuesday next week, we will get US Trade Volumes as well for the month of August, and while those figures won’t include any impact from the recent East and Gulf Coast port strikes, we are monitoring the situation closely. Cara, can you provide some insight into that situation?

(2:23) Cara:
Yeah, we have seen the National Milk Producers Federation and the US Dairy Export Council comment on the strike, with both groups calling for immediate action by the Biden Administration. The International Dairy Foods Association also called for immediate action to avert the strike. The big concern here is that the strike is occurring at a time when US dairy products, particularly cheese and butter, are at very competitive price points, particularly against Europe, and the strike could affect export opportunities. Now, we do know that as a country, we push quite a bit of cheese exports through the West Coast ports, which are not included in the strike. However, as other groups attempt to divert products to the West Coast ports, this does create additional congestion. It is also harvest season, and grain is making its way down the Mississippi River to the Gulf Coast for exports, which is a concern as well. That said, after just three days on strike, workers were called back to work on Thursday, as a tentative agreement has been met between the two parties. So for now, crisis averted.

(3:22) Alyssa:
Well, that’s good. One crisis down and another to go. So the 2018 Farm Bill has officially expired, as Congress failed to extend or replace the bill by September 30th. What does this mean for dairy producers and, well, the market?

(3:37) Cara:
That’s a good question, and it’s a bit tricky. Some programs will be shuttered immediately, as their day-to-day authority depends on the Farm Bill. Now, we won’t get into the specifics here, as we are looking into the bill to see exactly which items will affect the dairy industry and how, but we do know that some animal health programs may be impacted. The Farm Bill funds the National Animal Disease Preparedness and Response Program through APHIS, which helps fund biosecurity programs and vaccines. This could potentially impact APHIS’ ability to respond to the bird flu outbreak we’ve seen this year in dairy. However, the ELA program that provides dairy producers impacted by the bird flu funding will continue regardless of the Farm Bill expiration. Ultimately, depending on how each program is set up and how they are funded, will play a role in their functionality going forward. On the flip side, there are programs that will continue regardless of the Farm Bill, such as crop insurance programs and SNAP food benefits.

Now, one of the big things here is commodity price and margin support programs. Think the Dairy Margin Coverage Program. We are diving into the specific details of what could—emphasis on could—happen with the expiration of the Farm Bill, as Congress could revitalize the legislation this year. And there are reports that lawmakers are pushing for a post-presidential election Farm Bill. Go figure. The USDA also has some cards up their sleeve as well, if no Farm Bill is passed prior to January 1st. Stay tuned for more. HighGround is on the case, and you can be sure we will get to the bottom of it.

Alyssa:
Your detective work is much appreciated, Cara.

Cara:
Thank you. I’m here to serve.

(5:07) Alyssa:
Is there anything else in the domestic market this week before we move on to the international side?

(5:12) Cara:
Not a ton of new things. The USDA reports that optimal weather in the Midwest has expectations that milk output will grow in the region, while combines are hitting the field for a banger harvest. Cream is widely available and butter churns are moving. Cheese processors have reported demand is quieted down just a bit recently, but export interest is on the rise, likely as prices have fallen in the US recently, and the discount to Europe has become more attractive to buyers.

(5:38) Alyssa:
Well, there is a lot going on globally. While geopolitical tensions remain high, particularly in the Middle East, where the impacts of ongoing conflicts are still uncertain, positive stimulus news from China last week has raised expectations that dairy consumption there could begin to grow again. The dairy market is certainly never quiet or boring.

From the supply perspective, though, in New Zealand, the 2024-25 season has had a remarkable start, warmly welcomed by most, with the exception of those in Southland. With peak milk currently being collected in New Zealand, there is still a significant portion of the season left to unfold, so we’ll keep you informed on that.

What’s interesting, though, is that we are in peak milk in New Zealand. Nonetheless, we saw a 1.2% gain on the Global Dairy Trade Index, which is a great outcome for this time of year and rather uncommon, especially considering the significant increase in milk that we’ve been seeing in the latest data. Most of the increase was due to the lift in whole milk powder prices, which usually react negatively to strong milk production because of the strong price elasticity of the commodity, but alas, we stretched to a two-year high. North Asian buyers, whom we presume are most represented by China, really led the charge here, taking more than half of total whole milk powder that sold. Latin American buyers also stepped up, likely due to tight supplies in their region. HighGround is under the impression that Fonterra’s move away from whole milk powder production in favor of higher-value products like cheese and dairy ingredients are also adding to this upward pressure on prices. Even with strong milk production in New Zealand, it’s clear that demand is keeping prices elevated for now. Butter, on the other hand, took a step back on GDT, with both European and New Zealand offerings seeing price declines. It looks like the holiday demand pipeline has been filled, and we’re starting to see some price resistance here. Skin milk powder softened as well, but cheddar prices actually jumped. We saw contract one cheddar surge nearly 30%, and that was really driven by strong demand from Africa as well as Latin America.

(7:52)
Now, turning to the EU market, we’re seeing some interesting developments there as well. Butter prices in the EU have started to follow the downward trend seen in other regions, falling about 9% at the latest auction, but around 4% on the official EEX index. This comes after a significant run-up, but it seems the market has finally hit a ceiling, as we mentioned earlier. There’s also some recovery in European milk production, this cooler autumn temperature set in, which is helping to alleviate the supply-side pressure that had been driving prices higher. Cheese is still holding strong in Europe though, with tight inventories and healthy consumer demand, as European cheese remains the most expensive on the world stage. And while skim milk powder is grinding lower in Europe due to weaker demand, we might see a boost from Middle Eastern buyers as they prepare for Ramadan shipments. So, both domestically and globally, we’re seeing a lot of volatility as we approach the end of the year.

That’s all we have from the HighGround Chicago office this week. Thanks again for tuning in, and be sure to subscribe to the podcast and join us next week for another discussion on dairy fundamentals. We appreciate your support. Cheers!

The post Let’s Chat Dairy – 4 October 2024 appeared first on HighGround Dairy.