Let’s Chat Dairy – 10 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!

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

Early Bird Registration ENDS TONIGHT AT MIDNIGHT CDT for HighGround Dairy’s third annual Global Dairy Outlook Conference this June in Chicago! Space is limited at the historic Union League Club so be sure to register soon 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.


(0:15) 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, May 10th and you’re hearing from Cara Murphy and Betty Burning. Alyssa is out on a much-deserved day off and I can’t blame her. The sun is out, the sky is blue, and it’s a beautiful day here in Chicago.

As a reminder, if you are planning to attend HighGround’s Global Dairy Outlook Conference, June 18th through the 20th, Early Bird Registration ends today. You won’t want to miss it, so get your registration before the deal runs out. But don’t worry, tickets will still be available for purchase through June 14th until 2pm Chicago time.

(0:56) In other news, it’s been a full year since the National Milk Producers Federation submitted its initial proposal to update the Federal Milk Marketing Order pricing formulas. A lot has happened since then and while we await the USDA-recommended decision expected in July, it can be tricky to nail down what that could potentially mean. Thankfully, our talented producer services manager, Alex Gambonini, put together a comprehensive White Paper covering the timeline of the amendment process, a concise summary of each proposal and its implications, revised pricing formulas and their impacts, general price direction outlook post-changes, and a closer look at organizations and arguments surrounding each proposal. As always, this analysis is available to our subscribers on the HighGround Dairy website, and if you are not a subscriber, the report is available for a one-time purchase at highgrounddairy.com/fmmo.

(1:53) Alright, let’s hop into the CME Spot Market recap of the week, and what a week it was. After climbing to a high of $3.07, the butter market dipped below the $3 mark yesterday and closed today at $2.99 with 14 trades, 12 of those occurring on Thursday. Dry whey remained in the $0.38 per pound range for the week and saw 11 trades. Nonfat dry milk jumped to $1.1525 today, the highest price since mid-March, with 9 trades in total.

Now for cheese, that market has been on quite a tear, an unrelievable one to say the least. But back to cheddar, Betty, what’s going on?

(2:46) Betty Berning:
At an astounding $1.98 per pound, almost a 20-cent gain over the course of the week, and this $1.98 per pound is the highest price since August 31, 2023, with a total of 6 loads traded on the week. The block-to-barrel price spread has been inverted for the past couple weeks, but that ended on Wednesday, even as barrels climbed above $1.90 per pound. Today, barrels closed at $1.9125 per pound and marked their highest price since March 28, 2023, with a total of 6 trades as well. Overall, the cheese market has spiked an impressive 53 cents in a little over a month, from March 28 to May 8, 2024. So, what is going on and why are things bouncing?

Well, below-average CME spot prices between late 2023 and early 2024 prompted stronger-than-expected export volumes and also pivoted domestic cheese production into non-cheddar varieties like hard Italian styles, mozzarella, and gouda. March Dairy Products Production data released this week showed gouda output up 41.5% year-over-year in March, and mozzarella production was up 6.8% year-over-year. That’s a new all-time high, too—it bested the previous record by 1.5 million pounds. USDA data also indicates that retail demand likely picked up with increased promotional activity, even as quarterly financial releases from large, quick-service, and casual dining brands report a pullback in traffic and consumer spending at restaurants.

Lastly, US Milk Production has fallen below prior-year levels since last June, but acute declines in milk flows in March and April, particularly in areas impacted by High Pathogenic Avian Influenza (HPAI), have tightened milk in cheddar-producing regions like the Southwest.

Read more about the US cheese market in Eric Meyer’s blog post: The Guardrails for the US Cheese Market are Taking on Extremes.

The guardrails of support and resistance in the U.S. cheese market appear to remain much wider than the team at HighGround anticipated, but it is our belief that demand continues to be the primary driver of the cheese market, and periods of opportunistic buying will cause squeezes like we’re having right now to occur.

(5:11) Taking a look at March production of other top dairy commodities, dry whey was bearish to our expectations as production and stocks grew, while the rest of the whey complex with high-protein whey concentrates and isolates were bullish, as consumer demand for protein is insatiable to say the least. Nonfat dry milk and skim milk powder output continues to struggle on weak demand, and butter fundamentals and prices remain at odds. Churns grew volume in March, rising from the prior year for the fourth month in a row.

(5:46) Cara:
Thanks, Betty. Always a delight to get your perspective on these market movements.

We’ll hop now across the Atlantic, where butter production falls more in line with elevated price points. European butter fat output continues to lag the prior year, with all of the top 10 butter-producing countries recording lower volumes in February 2024 on a 30-day adjusted basis compared to the prior year, exasperating concerns over product availability in the autumnal months and pushing prices higher.

In contrast, only five countries reported lower cheese production than in February 2023, but strong demand keeps the market in equilibrium for the time being, while milk continues to push seasonally higher through spring flush. That said, rain and crummy weather weighs on milk flows.

(6:35) Weekly milk collections data from the week of April 27th saw French output dropping 1.2% below the peak week last year, while UK weekly collections plummeted, still climbing towards their zenith but at a substantial 1.5% loss versus 2023. German weekly milk production remained strong, but the 1% growth observed over the past three weeks is now just up 0.4% year-over-year.

(7:02) Let’s wrap up today’s episode in the hemisphere. After an extended break, the 355th Global Dairy Trade Event was held on Tuesday. Before the auction, the market was overwhelmingly pessimistic, with future traders dismissing any potential gains and industry commentators echoing similar sentiments, which left everyone puzzled when the event yielded an almost entirely positive outcome. Offer volumes were significantly lighter than the prior year, with whole milk powder and skim milk powder down 5.6% and 30% respectively from the same auction last year. But even with less product on offer, the origin of demand continues to add more color to the situation, with dismal purchasing from China but stronger apparent demand from Southeast Asia. While the boost in whole milk and skim milk powder results were surprising, fundamentally it’s hard to fathom what has caused the bump higher. But a market correction to the downside is certainly not out of the question at future events. In fats, both butter and anhydrous milk fat rose, exceeding bearish SGX trader expectations. The average AMF price marked a record high, while butter prices recorded their 6th highest price ever on the Global Dairy Trade Auction.

Before we go, HighGround will be publishing our May 2024 Global Dairy Commodity Price Forecast report next week on the 15th, and as always with our live webinar at noon Chicago time the following day. The team will not be hosting a webinar in June in lieu of our Global Dairy Outlook Conference. Early bird registration for the event ends today. I assure you, you won’t want to miss it.

And with that, thank you for joining us on Let’s Chat Dairy and an even bigger thank you to all of the mothers in the world. Dairy or not, none of us would have gotten this far without you. So please, have a fantastic weekend and a wonderful Mother’s Day. We’ll see you again next week on Let’s Chat Dairy. Cheers!

Be sure to subscribe so that you never miss an episode. And if you’re interested in receiving more information, as well as our analysis, please visit highgrounddairy.com to request a free 30-day trial today. Futures and options trading involves substantial risk and is not suitable for all investors.