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 in to Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today’s Friday, October 11th, and you’re hearing from Alyssa Badger and Cara Murphy. The HighGround team is hard at work preparing our Monthly Global Dairy Commodity Price Forecast, which will be published on the HighGround Dairy website Tuesday, October 15th. And don’t forget, our team will be hosting a live webinar the next day, Wednesday, October 16th at noon central time, where we will dive into the most important topics impacting the dairy industry today in the US and across the globe. Until then, we’ll cover this week’s recent developments today, starting with the CME spot market recap. Cara?
(0:59) Cara Murphy:
Alright, the block-barrel inversion, which has persisted since September 8th, finally came to an end this week. Then it almost came back today, and then both markets closed at $1.8875 per pound today. Blocks traded more hands this week than barrels, with a total of 19 trades, while the barrel market continued to sink lower, but only saw 6 trades in total. Butter moved lower yet again, falling to $2.62 per pound today, with 90 trades in all. Buyers are definitely interested in purchasing at these price points, particularly as the holiday demand season approaches. We’ll get into some of the data released this week in just a bit, which definitely helps explain some of the market movements we’ve seen over the past few weeks. Nonfat dry milk and dry whey seemed to be in the same boat, relatively speaking. Both markets saw very little movement this week. Nonfat dry milk closed at $1.3525 per pound, but trading picked up a bit, printing a total of 13 trades on the week. Dry whey has remained in a tight $0.02 price band since mid-September, around the $0.60 per pound mark, with minimal trading occurring overall, just two trades made this entire week.
(2:07) Alyssa:
Thanks, Cara. Yeah, so that data that you mentioned, I know last Friday the August Dairy Products Production Report was released. While we didn’t cover those outcomes on last Friday’s podcast episode, listeners are able to check out the Dairy Skim, which provides our initial thoughts on that report, and subscribers are able to read the more in-depth analysis published on the HighGround Dairy website. Then, US Trade Data was released on Tuesday of this week. What were some of your takeaways from that report?
(2:36) Cara:
Well, August cheese exports surpassed 90 million pounds for the fifth time in 2024. Mexico and South Korea, the top two destinations for US cheese, recorded larger shipments than a year ago, bolstering total volumes. When looking at exports, we have to remember that sales are typically booked one or two months in advance, so contracts for August deliveries were likely made around the time when US cheese prices were around $2 per pound, and global markets were just starting to take off. Butter exports rose on an annual basis and eclipsed 6 million pounds for the third consecutive month. Still, the US remains a net importer of butter. Butter production rose substantially in August as plentiful cream found its way into churns, and with more butter on its way, prices began to fall.
Moving on over to nonfat dry milk, August sailings were still below 2023, but marked the second highest month for the year, indicating that demand improved in late spring when these sales were made. Lastly, dry whey volumes increased year over year, but did fall to the top destination country, China. It would appear that although Chinese demand for dry whey has waned, they continue to want high protein wheys, as whey protein concentrate, >80% exports to the country, marked an all-time high in the month.
(3:49) Alyssa:
Amazing! And while we are discussing US fundamentals, we would be remiss not to mention and cover the latest developments of bird flu, especially as it’s reportedly spreading quickly throughout the state of California, the largest milk-producing state.
(4:05) Cara:
Yes, 92 cases of bird flu were officially recorded in California in the last 30 days. With 100 cases in total, California now accounts for one-third of all reported bird flu infections in dairy cattle since the outbreak began in March. It’s been quite hot in the Central Valley this past month, which likely exasperated issues and weighs on milk output. Cows don’t tend to fare very well in the heat, nor when they are sick, and combined, it’s a little rough. We hear reports of lessening milk due to the disease, but it’s still too early to understand what the full impacts will be. Milk production was ample in the state in August, which helped to make more cheese and butter during the month, but going forward, things might not be as cheery.
(4:48) Alyssa:
We did see some interesting figures in the Weekly Slaughter Report that may indicate just how impactful bird flu has been, didn’t we?
(4:56) Cara:
Absolutely! While the whole United States and other major dairy-producing regions continue to report negative dairy cow slaughter volumes compared to the prior year, as replacement heifer costs are none too cheap, Region 9, the West, including California, reported a positive year-over-year slaughter figure for the first time since September 2023. It’s likely older cows, and those who may be more susceptible to infection, are being culled. Now, as a reminder, the USDA and FDA continue to stress the safety of the US milk and meat supply. If you are worried, you know what I gotta say, Alyssa. Cook. Your. Beef. 145 degrees Fahrenheit for roasts and 160 for hamburgers.
(5:35) Alyssa:
Thanks for the reminder, Kara. It does seem like the markets have gotten a bit numb to this bird flu news. It wasn’t that long ago that it was found in Texas, and the markets rocketed higher. It’s very interesting to me that California has the most cases now of any state, and it’s kind of getting brushed off. I guess we’ll see in a few weeks how much of an impact this truly had on milk production from the state.
(5:58) Cara:
Absolutely. I think that sums up the key news for the domestic market this week. What’s the word on the international markets, Alyssa?
(6:05) Alyssa:
Well, the top 5 fundamentals to watch right now, in our opinion, are global milk production numbers, which are a bit of a mixed bag right now, depending on which region you focus in on. The second is the economic situation in China, as they injected stimulus, but it may just be a band-aid on an open wound. Third is all the conflict in the Middle East, as the geopolitical landscape remains tense, which has added to global market uncertainty. The other thing worth discussing is the European market correction. Better weather and healthier cows should boost production and balance out supply a little bit. Lastly, there’s been some counter-seasonal strength on Fonterra’s whole milk powder prices. Can it continue into next week?
(6:47) Cara:
That’s a solid rundown. Let’s talk more about China.
(6:51) Alyssa:
Sure, I’d love to. There’s always a lot to say on China. In recent weeks, Beijing has reiterated its commitment to achieving its economic goals for 2024, but really stopped short of introducing any significant stimulus measures, which has disappointed investors that were hoping for some more aggressive fiscal support. The National Development and Reform Commission emphasized plans to accelerate infrastructure investment and provide targeted support to low-income groups and new graduates. But despite these efforts, the Chinese stock market reaction was rather muted because ultimately, analysts don’t believe that these measures can really fix ongoing weak consumer demand, a prolonged property downturn, and rising trade tensions. With China imposing tariffs on EU brandy in response to the EU’s duties on Chinese electric vehicles, the possibility of further retaliation looms over the market. While it’s unclear if China will target dairy, the situation has raised worries within the industry, particularly in countries like the Netherlands and Spain that rely heavily on ag exports.
The last thing I’ll mention on China is that recent data that came out in the last week reflected a 4% drop in their milk production number during August, as well as a 35% year-on-year drop in whole milk powder production. Getting the full data picture sure helps the market understand why China had been so active purchasing on Global Dairy Trade Auctions this past month and a half. For more detail and opinion on all this, though, be sure to check out our forecast report next week.
(8:26) Cara:
That seems like the perfect segue to discuss expectations for next week’s GDT event.
(8:31) Alyssa:
Yeah, let’s do that. So, Fonterra announced yesterday that they made a handful of changes to their Offer Volume Forecast. The 12-month butter forecast has been decreased by a total of 2,110MT to 40,185MT. The 12-month cheddar forecast has also decreased by a total of just 30MT to 14,410MT. They also removed some skim milk powder on offer over the next couple of months and pushed that back further into the season, leaving the 12-month forecast unchanged. As far as prices go, SGX traders are pricing in solid gains for whole milk powder and pricing in a 2.3% rise on C2 regular. They’re also pricing in a 0.4% increase on medium heat skim milk powder and a 3.5% drop on both butter and AMF. So, we can’t wait to see how this shakes out and to see if whole milk powder can really continue on its counter-seasonal trend higher despite strong milk from New Zealand.
Well, that’s all from the HighGround Chicago office for this week, but remember, the dairy markets never sleep. While this podcast wraps up what’s been going on this past week, there’s always more to learn. So, be sure to stay connected with us on our website for the latest updates and insights. Thank you for tuning in and don’t forget to subscribe so you won’t miss next week’s discussion on dairy fundamentals. We appreciate your support. Cheers.
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