Let’s Chat Dairy – 10 January 2025

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:

(0:15) Alyssa Badger:
Hello, everyone, and welcome back to Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today’s Friday, January 10th, and you’re joined today by Alyssa Badger and Cara Murphy. The world got back to work this week after the holidays, and while everyone knows dairy doesn’t sleep, we started off this week with the first US Dairy Products Production Report of the year, US Trade, a Global Dairy Trade event, and much more. So without a moment to lose, we’ll get into it, starting with the CME Spot Market Recap of the Week, Cara.

(0:48) Cara Murphy:
This was the first full trading week of 2025, and we saw a breakout in butter, climbing to $2.60 per pound Wednesday, the highest price since mid-November. Today, butter closed at $2.60 still, with a total of 17 trades on the week. In cheese, block started off the week at $1.94 per pound, the highest price since mid-October of 2024, but moved down throughout the week with a nearly $0.08 fall today to settle at $1.82 per pound, with a total of 19 trades. Barrel spent the week bouncing around the upper $1.80s per pound, closing today at $1.85 per pound, with a total of 5 trades. Dry whey has been pretty quiet this week. Last week it closed at $0.75 each day, while this week it stepped back a penny to settle at $0.74 per pound, with just 3 trades. And nonfat dry milk is range bound as ever between $1.35 and $1.40 per pound but hanging around the lower end of that range this week, today it closed at $1.36 per pound, with 34 trades in total.

(1:47) Alyssa:
Alright, we mentioned earlier the November 2024 US Dairy Products Production data was published this week, with some much-anticipated news for butter production, given milk production in California was down over 9% during the month, and the state represents nearly a third of total US butter supply, so expectations were for lower output. What did you find, Cara?

(2:08) Cara:
While those expectations were right, Alyssa, California butter output fell by 12.8% compared to the prior year, a loss of about 6.6 million pounds. While milk fat levels were surprisingly strong during the month despite the impacts of bird flu, they could not offset the substantial decline in milk volume seen out of California. But here’s where things get interesting. Western region butter output was only down 2.2%, while total US butter production was up 4.4%. What this means is butter output from the rest of the country excluding California was quite strong. If we remove California from the western region total, western output was up 12.6% year-over-year, truly an impressive number from states like Idaho and Washington. Then there is the central region, which has pumped out butter like no tomorrow in 2024. In November, the central region made 71.6 million pounds of butter, the largest November volume on record with data back to 2005. Milk fat tests in central states like Texas, Kansas, Minnesota, Wisconsin, and Michigan have printed new highs every month so far in 2024 through November. Fat pounds were up in these states compared to the same time in 2023, with Texas producing an additional 7.4 million pounds of butter fat compared to last year. In places like Texas and Kansas where milk volumes have soared, the combination of more milk and greater component values have contributed to plentiful cream in the region likely making its way into butter churns.

(3:36) Alyssa:
That was a surprising outcome, but does help us to understand why butter prices were relatively stable in November and December. But there was a large drawdown in butter stocks in the November Cold Storage Report. With greater output, this would signal that demand must have been incredibly strong. Thoughts?

(3:54) Cara:
Yeah, we discuss this topic in greater detail in this month’s Global Dairy Commodity Price Forecast. The dynamics of the US butter market have been quite interesting this year, between higher production, robust demand, and record imports. If you’re a subscriber and want to learn more, the Global Dairy Commodity Price Forecast will be published on the HighGround Dairy website on Tuesday, January 14th, and we’ll be digging into the topic further on the live webinar held the following day, Wednesday, January 15th at 12pm CST. If you’re not a subscriber, head on over to the website to request a free trial today.

(4:26) Alyssa:
And I hear you and Betty will be covering cheese as well?

(4:30) Cara:
Right you are. Speaking of which, cheese production in November was similar to prior months in that the US made more mozzarella and less cheddar. However, total cheese production fell from a year ago, kind of a surprise. Cheese production was down across all three regions in the US, with the majority of losses seen in cheddar and natural American varieties such as Colby. While more at hard Italian varieties like Parmesan were made, it wasn’t enough to offset those steep losses.

Quickly covering a few other products before taking a look at the November trade data, nonfat dry milk output was marginally higher, but skim milk powder production was poor to say the least. Manufacturer shipments of nonfat dry milk were the smallest since November 2018, indicating subpar demand, which is prevalent in this data set, as despite poor production, nonfat dry milk stocks rose from the prior month and year over year, though it was against a rather weak comparable. Nonetheless, the point is this, demand for US milk powder is bad. Since October, CME spot nonfat dry milk has held within a tight 5-cent price band between $1.35 and $1.40 per pound, and at a premium to the rest of the global market, which has kept international buyers at bay.

Dry whey output was up month over month, though still below prior year levels, but stocks built, which suggests the market could be near its zenith, at $0.75 per pound. Whey protein concentrate production was short of prior year levels, but stocks improved as well, so it seems high prices for those whey protein concentrates and isolates may have soured on some buyers’ tongues. Lastly, milk protein concentrate output is chugging along well above prior year levels, as well as low-fat cottage cheese and yogurt output.

(6:06) Alyssa:
Those last categories have been really interesting, of course, to watch this year. I suppose you’re going to tell me that you and Betty discussed the driving forces behind greater output of Class II and MPC as well in the forecast next week?

(6:20) Cara:
You beat me to it there. We absolutely will cover this topic, as strong demand for products like yogurt and milk protein concentrate are likely to persist throughout 2025 as well. Now for a recap on US Trade, if you don’t mind, there’s so much to say and so little time to say it. Big takeaways from the November US Trade volumes were, nonfat dry milk and skim milk powder exports were the smallest on a 30-day adjusted basis since August 2019 on lower sales to Mexico and Southeast Asia. We said before, demand is poor, and it shows. Cheese exports maintained strength, and after five months of lackluster levels, cheddar was better, up 17% from a year ago. Butter exports climbed, with the lion’s share headed for Canada, while dry whey and low-protein whey protein concentrate struggled. WPC >80% shipments, however, are still going strong, with the bulk of product headed for China. I’ll say 2025 is looking like it will be a volatile year for trade given the stance the incoming Trump administration has taken on relations with Mexico, China, and Canada, the top three trading partners for US dairy. In recent weeks, Trump has also threatened tariffs on European products, which is where roughly 70% of US butter and cheese imports originate from. We’ll be monitoring these situations closely this year, so stay tuned. And with that, Alyssa, what is going on in the rest of the world?

(7:37) Alyssa:
Well, we put out three international reports this week. On Tuesday, as we mentioned, we did a deep dive into the first Global Dairy Trade Auction of 2025. Wednesday, as always, we pushed out our weekly European Dairy Prices Report. And yesterday, Stu Davison sent out his New Zealand Milk Price Market Commentary. Let’s talk a little bit about that GDT event. So the expectation for this event was that prices would continue to tumble lower, driven by weak demand from the North Asia region, which we presume is mostly China. And of course, limited interest from currency-sensitive regions, such as Southeast Asia. While much of this expectation held true, with North Asian buyers showing significantly less engagement, Southeast Asian buyers remained somewhat steady, though less aggressive than in recent auctions. This created an opportunity for Latin American buyers, who marked their largest participation ever for the first event of a calendar year. Unexpected upside surprises in this auction also raised further questions for the market, as butter and cheese recorded better-than-anticipated results, potentially suggesting near-term demand remains firm despite these price levels. On the powder front, declines in both whole and skim milk powder had been largely expected, though they actually performed slightly better than the futures market anticipated.

(8:58)
Moving on to Europe, since the end of October, the UK’s milk collections have posted above 4% year-on-year growth every week through the end of December, which goes to show you how productive UK farmers can be when incentivized by higher milk prices. In contrast, French weekly milk collections turned negative compared to the prior year in late November and have trended below 2023 levels through the end of December, despite the seasonal upswing in milk production. Struggles for German weekly milk output also persist, although production is moving seasonally higher as well. Looking ahead, farmers race for freezing temperatures, snow, and ice, with strong winter storms expected to move across the continent throughout this week. During periods of extreme cold, cows direct more energy into maintaining their internal body temperatures, which could weigh in milk flows and component values in the short term.

(9:55)
Something to note that we mentioned in our New Zealand Milk Price Market Update, China’s whole milk powder inventories are lower than normal, which isn’t anything new, but they are down 88% from prior year as of November, with slightly lower imports and low local production driving the decline. Skim milk powder stocks are also incredibly low, but the other concerning number is on the domestic consumption side. For whole milk powder, domestic consumption is the lowest that has ever been reported. Numbers have been seen this low once before, and that was in February of 2020. Skim milk powder consumption is also at all-time lows, though data is only available back 8 years, but these are still some very concerning numbers that continue to trickle in.

Of course, there’s so much more to cover on international markets, so be sure to keep your eyes peeled for our Global Dairy Market Forecast, which again will be out next Tuesday the 14th, and really everything we covered here today is just the tip of the iceberg, as there is so much more to discover on our dairy market dashboard. If you’re not yet a customer receiving our timely and informative global dairy analysis, be sure to head to our website and request a free trial today for immediate access. Have a great weekend, and don’t forget to subscribe so you won’t miss next week’s discussion on dairy fundamentals. Cheers!