Let’s Chat Dairy – 7 June 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

Registration ENDS IN 1 WEEK for HighGround Dairy’s third annual Global Dairy Outlook Conference June 18-20 in Chicago! Space is limited at the historic Union League Club – register now to secure your spot! Click here for more details, including the agenda, expert speakers, and more.

HighGround Dairy’s Navigating HPAI Dairy Market Resource Center offers insights and updates from trusted sources on the ongoing Avian Flu outbreak affecting dairy cattle in the US. Stay informed with real-time updates as we continue to provide crucial information and analysis to the dairy industry amidst this challenging situation. Click here to read the latest now.

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, June 7th, and you’re hearing from Alyssa Badger and Cara Murphy. There’s just one week left to register for our Global Dairy Outlook Conference here in Chicago, so get your spot today before time runs out. This is an event you just won’t want to miss. Well, let’s get into things, shall we? Cara, if you will, kick us off with the CME Spot Market Recap of the Week.

(0:46) Cara Murphy:
Absolutely. Dry Whey was on the upswing this week, closing at $0.47 per pound, the highest price since late February this year. The other markets saw the opposite this week. Block Cheese sank to $1.8450 on Friday, with a total of 13 trades, while Barrels also headed lower until Thursday, where it bounced, but closed today at $1.9550, with 13 trades as well. Nonfat Dry Milk remains range-bound as ever, but at a slightly higher price point, near $1.20 per pound. Today it settled at $1.1950, with 31 trades. Finally, Butter. The market hit a new high for this time of year on Tuesday at $3.1625, also the highest price since October 31st of 2023. There was a bit of a dip in the middle of the week to $3.05, but we roared right back to settle today at $3.0925, with 4 trades in total.

(1:39) Alyssa:
You know, I’m still shocked to see Butter above $3 per pound in June. From a fundamental standpoint, this price point suggests a lack of availability, but that wasn’t the outcome from the April Dairy Products Production Report released this week. Cara, what were your big takeaways from that report?

(1:56) Cara:
You’re absolutely right, Alyssa. Butter is batty. April’s production ranks as the second highest of all time, not just for April, but ever. The number one? Well, that was April 2020, the month when the world came to a screeching halt. This year, there seems to be enough to go around, at least in the data. The USDA even revised March output up an additional 2 million pounds as well. Domestic demand is good, and April exports were up, but not to the extent that would explain these prices. From a global perspective, Butter is tight in Europe and Oceania, and it seems that even at these levels, buyers are interested in getting coverage to possibly avoid the price spike we have seen over the past two years in the autumn.

There were two big other takeaways we have to talk about from this report. The first, still in the Class IV complex, was Nonfat Dry Milk production, which plummeted to the lowest level since 2013. Additionally, manufacturers’ shipments tanked 34% year-on-year to the lowest April volume since 2011. In contrast, stocks built a massive 47.4 million pounds from the prior month. Both lower production and soaring inventories points to horrible demand for powder.

The other big takeaway from this report was cheese. Total production was up 1.8% year-on-year, but the real news is in the product mix. Cheddar output fell for the sixth consecutive month, and the April decrease of 8.6% is one of the most significant annual declines in the past five years, leaving the monthly volume of 322 million pounds as the lowest April since 2019. So what were we making instead? Well, that’s got to be Italian varieties, parm, gouda, and most notably mozzarella. Mozzarella output marked another new all-time high this month, eclipsing 400 million pound mark for the first time ever.

(3:47) Alyssa:
Cara, we hear that pizza demand has stepped back as more consumers are eating at home. I can’t imagine all of this is for retail consumption, though. So exports must have been robust as well.

(3:59) Cara:
You beat me to the punch there, Alyssa, and you’re absolutely right. April’s total cheese exports were the second highest of all time on record-breaking shipments to Mexico. Mexican demand was primarily for fresh and grated cheese, as exports of cheddar to the country were down year on year. However, more cheddar did move to Japan, South Korea, and Canada. Sticking with trade, nonfat dry milk and skim milk powder exports were down again this month due to falling sales to Asia, but that region of the world did help to boost dry whey shipments, as more product headed to China, Japan, and South Korea. Interestingly, the U.S. was a net importer of butter, but exports rose above the prior year in April. 124 metric tons more butter moved to Canada, and we are hearing reports that demand for butter in the country is quite healthy.

(4:46)
Before we move on to the international markets, Alyssa, I’d be remiss if we didn’t mention a brief update on the Highly Pathogenic Avian Influenza in dairy. Local governments confirmed that new cases of the disease in dairy cows were discovered in Iowa and Minnesota this week, bringing that to a total of 11 states with infected herds. As more data is released, HighGround continues to monitor the impacts of this disease on the US milk production and dairy industry. Of note, the USDA reports that bird flu in dairy cows has a very small, if nonexistent, mortality rate, meaning that infected cows do recover from this disease. Tight replacement heifer inventories and high costs for those animals means producers are keeping those cows in the herd, and this is evident by the significantly low dairy cow slaughter volumes. Through the week ending May 25th, total US Dairy Cow Slaughter marked just 47,600 head, which is low, low, low. I’m talking lowest week 21 since 2008. Can you believe it?

(5:46) Alyssa:
Wow, Kara, those are some stark data points, and it really does make sense when you break it down that way.

All right, let’s talk global markets. So Tuesday’s Global Dairy Trade Auction was all anyone could talk about throughout the first half of the week, as market expectations were surpassed across the board. With the lowest offer volumes of the calendar year taking place this week, there was a good chance that the auction result would be positive, and not only are offer volumes seasonally light, but volumes sold were down 24% from a year ago. Southeast Asia-Oceania maintained the top position for the third consecutive event, which is somewhat seasonal, but North Asia followed very closely behind. While North Asian buyers, typically represented by China, were certainly present, market share dipped slightly from the last event, as the region secured less whole milk powder and AMF than two weeks ago, reflecting a slight increase in demand for skim milk powder and butter.

One of the more impressive settlements was skim milk powder, as Fonterra’s C2 medium heat jumped 6% and Arla’s German C2 medium heat contract increased 2.9%. Milk fats also maintained a strong move higher, with AMF and butter nearby pricing surging to the upside, while buyers were unwilling to be aggressive on deferred contracts. Buyers look to be leveraging the expectation that the Oceania cream market will rebalance during peak New Zealand milk in the upcoming season. For more details by commodity, be sure to check out our comprehensive analysis on the dashboard.

(7:24)
Quickly, on China, the entire market has been keeping a close eye on Chinese milk powder inventories over the last 18 months, as excessive volumes in storage amid strong milk production growth slowed demand for imports. Fresh data shows that inventories of both whole and skim milk powder declined in April, a positive development for the market and reflects some of the chatter throughout the market recently that we’ve been hearing. However, whole and skim milk powder production in China also got a boost higher in April, aligning to chatter in the market as well, and not so positive, so those two fundamentals are really balancing each other out at the moment. Also, at the same time, China reports that local milk prices continue declining, falling to the lowest point since November of 2012. It will be interesting to see what sort of impact this will have on domestic production into the back half of this year.

(8:18)
Moving on to Europe, there have been some big moves in butter. Prices have yet to break 2022 levels for this time of year but are certainly climbing quickly. With milk output across the region mostly past its zenith and now on a seasonal decline, there is less milk flowing into churns and subsequently less butter, which only bolsters this market more. The cheese market in Europe continues to grind higher as well, but not at the rate observed over the prior week. Although there doesn’t seem to be as much interest in cheddar, the young gouda price on the European Energy Exchange jumped to its highest level since January 2024, while mozz marked its highest price since December of 2022. And now the market anxiously awaits as Europeans flock to the voting booth over the next few days to elect 720 new representatives to the European Parliament. The election takes place every five years, with the last one held in May of 2019. Many things have changed since then, and potential candidates face new challenges moving forward, such as climate initiatives, elevated inflation, and heightened geopolitical tensions.

Well, that’s it for this week, thanks for tuning in, and if you’re in the Chicagoland area, you’ll be happy to know that we are finally past peak with these cicadas, and the die-off will be coming soon so hold out hope to stop having to swat these giant bugs away. All right, we’ll see you next week on Let’s Chat Dairy. Cheers!

The post Let’s Chat Dairy – 7 June 2024 appeared first on HighGround Dairy.