Let’s Chat Dairy – 17 May 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!

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Transcript:

(0:14) Alyssa Badger:
Hello everyone, and thank you so much for tuning into Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today’s Friday, May 17th, and you’re hearing from Alyssa Badger and Cara Murphy. Well, folks, if you can believe it, this is the 200th episode of Let’s Chat Dairy, and it’s been a wild ride over these past couple years together, but as long as the dairy world continues to move, we’ll be here to cover it.

Speaking of, HighGround published our May 2024 Global Dairy Price Commodity Forecast on Wednesday, as we do on the 15th of every month, and held the live webinar with our executive team on Thursday to get the rundown of those topics. The forecast and a recording of the webinar is available to subscribers at highgrounddairy.com.

As a reminder, we will not be hosting a monthly webinar in June, because we will be presenting live at the HighGround Global Dairy Outlook Conference here in Chicago, June 18th through the 20th. Registration is open until June 14th, so get your tickets today, you won’t want to miss this amazing event. Well, with that, let’s start off with the CME Spot Market Recap of the week.

(1:28) Cara Murphy:
The Cheese market continues to soar with Barrel Cheddar closing today at $2.1250, the highest price since October 20th, 2022. Blocks moved up as well, settling at $1.9425 with a total of 34 trades. Barrels saw just 10 trades on the week.

Butter is also sustaining an elevated price point, ending the week at $3.07 per pound. The weekly average has maintained a price point above $3 for the past three weeks. There were 20 trades in total in butter, with 17 of those occurring on Tuesday.

Some bullish price momentum is seen in the Dry Whey and Nonfat Dry Milk markets. Dry whey closed at $0.4150 today, the highest price since mid-March 2024 with 12 trades, and the nonfat dry milk climbed back to settle at $1.1675 with 30 trades in total.

(2:20) Alyssa:
Thanks, Cara. Yes, the rally in Cheese and Class III Milk has been impressive. Between the end of March and the beginning of May, the Spot Block Cheddar price is up nearly $0.60. We discussed this in detail in our Monthly Forecast, but can you give our listeners a brief breakdown as to what has caused this crazy rally?

(2:39) Cara:
Absolutely. There are several factors in play here. First, low cheese prices in the end of 2023 and the start of 2024 prompted additional export business, driving total cheese exports to a new all-time high in March. Then, from a supply perspective, tightening milk flows in the U.S. means less cheese, with year-to-date cheese output down 1% compared to 2023. Lastly, in response to shifting consumer demand, manufacturers changed their product mix, producing more Gouda, Hard Italian, and Mozzarella Cheese, with Mozzarella output marking a new record high in March as well. All of this, of course, was at the expense of Cheddar, which fell by 3.4% in March compared to the prior year. So, in total, greater demand for cheese, particularly from the export market, plus slower supplies of cheddar, drove the market up.

(3:30) Alyssa:
Interesting. Well, what else happened this week in the domestic markets?

(3:34) Cara:
March Supply and Utilization data was released this week and reported a rebound to the positive for domestic Butter consumption. Even so, the minor 0.7% gain doesn’t justify the elevated price point. It’s likely that buyers may be snapping up coverage to avoid paying even higher prices come fall. As well as due to strong retail and bakery demand, which uses unsalted Butter, there may be less CME-eligible product available, holding this market higher for longer.

(4:02)
In other news, total US Dairy Cow Slaughter marked the lowest volume for Week 18 since 2014, as tight heifer inventories and high costs for replacement heifers have producers holding onto cows for longer. Region 6, the Texas-New Mexico area, saw the largest year-over-year decline since March 2 of this year. Initially, when Avian Influenza was discovered in several dairy herds in the area, we thought there could possibly be an uptick in slaughter as producers culled cows who did not recover in milk production due to the infection. But that has certainly not materialized substantially in the data.

(4:38)
On the topic of Highly Pathogenic Avian Influenza, last Friday, the USDA issued an announcement of financial assistance to producers impacted by the disease. Most of the money is for biosecurity and veterinary expenses, but the agency said they are taking steps to make funding available to compensate producers for the loss of milk production.

(4:58)
And lastly, before hopping into some international developments, the National Oceanic and Atmospheric Administration is forecasting this summer to be a hot one. In good news, plentiful spring rains across the Corn Belt have mitigated drought conditions, although plantings are behind previous years in Iowa, Illinois, and Indiana. Farmers are hitting those fields and can make up for the difference in no time.

That said, the heat could weigh on crop conditions this summer, but our interest is really on the cows. Heat stress in cattle negatively impacts milk output and component values. Heat stress is driven by a combination of temperature and humidity, and really begins to take its toll after temperatures break above 70 degrees Fahrenheit. With the tight U.S. milk supply, a hot summer could provide some additional pressure on milk flows and components in the coming months.

(5:48) Alyssa:
Brilliant. Okay, moving on to global markets. There wasn’t a whole lot of fresh data to absorb, but I will start out by recapping the top five fundamental influences that we’ve been watching closely this month and covered in great detail within that Global Dairy Forecast Report. All the buzz certainly really seems to be quite focused on these volatile US markets, but there’s plenty going on on the international side to talk about as well.

(1) We had a lot to say on China this month with all the trade war headlines, fiscal policy updates, and milk production stagnation within the country, which has really been top of mind for us here. (2) The second thing that we’ve been watching is we’ve really dug in on this Blue Tongue situation in Europe, as there is a new strain without a vaccine approval that may be creating some production hiccups, we’ll see. (3) And then that same vein is the EU Milk Production outlook, which is leaning quite flat through the end of the year. There was a moment in time where we thought the region would start to turn quite positive, but weekly indications from France, Germany, and the UK are indicating that growth may remain difficult to achieve for the next few months. (4) Fourth, New Zealand and the United Arab Emirates have announced a pledge to discuss a free trade agreement, which would be quite good for New Zealand. (5) And lastly, Southeast Asian demand. If you looked at the last Global Dairy Trade event, you’d think that the region is seeing a nice uptick in demand, but the trade figures are still pretty unimpressive and being compared to a week 2023, so we aren’t really getting excited about it just yet.

(7:27)
Otherwise, there was a Global Dairy Trade Pulse event on Tuesday with some interesting observations to note. Firstly, over the last two weeks, the market has really experienced a surprising and swift movement higher. The unexpected upside result at GDT event 355 was followed by this Pulse event that printed a rather bold price for Whole Milk Powder. C2 Regular Whole Milk Powder increased another 0.8% from the last GDT event, and what was more intriguing was that Instant Whole Milk Powder also expanded, but buyers took on the largest amount of that Instant Whole Milk Powder ever sold on the Pulse platform. Skim Milk Powder, however, dropped 2.2% following the stronger-than-expected prior GDT event.

(8:13)
But now we are, of course, focusing more on the big auction that’ll take place next Tuesday. And when we read Fonterra’s Offer Volume announcement on Thursday, there were definitely signs now that Instant Whole Milk Powder is getting hard to find, and that’s why buyers turned up at the Pulse event to lock product in. As a matter of fact, Fonterra will be restricting the Offer Volumes for instant Whole Milk Powder over the next seven auctions, and they reduced the overall 12-month forecast volumes of Whole Milk Powder by a little more than 7,000 metric tons.

The milk fats continue to garner a lot of attention, Anhydrous Milk Fat prices surging to a record level at the last event, while Butter prices are not far away from their own zenith. Offer volumes for Butter and Anhydrous Milk Fat are unchanged, but below year-ago levels still. Demand for milk fats looks unlikely to abate over the low level of the milk supply in New Zealand. For more details as well as our opinion, be sure to head to the dashboard and read the full Pre-GDT Report there.

(9:17)
Last but not least, we can cover off a bit on Europe. Weekly European Energy Exchange Indices were generally supported, Butter prices continue to grind higher on robust demand and limited availability, and it’s smooth sailing on European Cheese markets, as it has been for several weeks now, and Skim Milk Powder demand for the third quarter appears to be on the rise, nudging prices to the highest level we’ve seen in over a month.

Well, that’s all we have for this week, and we hope you enjoy this beautiful, sunny weekend. We look forward to chatting with you next Friday. Cheers.

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