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) Betty Berning:
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, September 13th, and Alyssa Badger and Cara Murphy are out of the office. Instead, today you are joined by me, Betty Burning, HighGround’s Contributing Dairy Economist, and Stu Davison, Resident Kiwi and Senior Manager of Global Market Insights. We had a lot of fun discussing what we were going to talk about this week, and ruled out cameos from our loved ones, comparing our accents, swapping Kiwi and Midwestern recipes, and discussing Sunday’s football picks. We will do our best though to stick to what we know, which is dairy markets.
(0:59) Stu Davison:
Yeah, I think sticking to dairy markets is key here, Betty, but I’ve yet to pick an American football team, so I have the pleasure of backing whoever is winning this week, which is a better position than my normal situation of supporting the All Blacks, New Zealand’s rugby team, which have not had the best season thus far. But something that is on the move higher is the CME spot market. What’s happening there, Betty?
(1:22) Betty:
Well, it is an exciting time to be following CME spot markets. Today, barrels settled at $2.4850 per pound, and this is their highest price since November 5, 2020. Blocks also continue to trend higher, surpassing the $2.30 per pound mark on Tuesday and Wednesday this week. They did step back before week’s end and settled at $2.2750 per pound today. Cheddar supplies have languished in 2024, and these small supplies are creating the current run-up in the market. Milk is very tight, with Upper Midwest Spot Basis’s Midpoint rising to $2.50 CWT over Class III pricing, and that is actually the highest week 37 price since 2010—pretty notable. Elsewhere in the Class III complex, whey was stagnant at $0.59 per pound from Monday to Thursday, but it popped today, went over $0.60 per pound, settling at $0.6050 per pound. And this is the first time that whey has eclipsed that level since early August.
(2:31) Stu:
What about Class IV commodities? It seems like the butter and powder markets are really heaping up globally. What about here?
(2:38) Betty:
Yes, definitely. After talking and worrying about butter ad nauseum for most of 2024, it has backed off a little bit, or at least some orderliness has returned. And let me clarify, by little, I mean it dipped below $3.10 per pound for one day this week. Still, as I look at the comparable week in 2023 and 2022, this is the first time in awhile that one of those years has had a higher butter price. In 2023, butter did not go to $3 per pound until September 22nd, but that mark was broached much sooner in 2022. It was actually crossed in August. And if we look at the second week of September in 2022 and compare it to the second week of September, which we just completed, 2022’s prices exceeded 2024’s every day. So what does this tell us? It could be indicative that prices may not have as big of an October price spike this year as they did the last two years, but we do expect that they’ll remain supported until at least holiday buying is over, and they did settle the week out at $3.13 per pound.
(3:47) Stu:
Now, me and you can talk forever, Betty, but we did promise to keep this podcast under an hour. So what’s going on with nonfat?
(3:53) Betty:
It was your idea to keep it short, Stu. Alright, CME Spot nonfat dry milk neared $1.40 per pound this week, and the breakout in this market is unbelievable. After trading in slightly more than a $0.20 range for over a year and a half, this market broke out in late August and has moved over $0.13 per pound since then. That’s a 10% gain in a month. This week, nonfat climbed to $1.3975 per pound on Wednesday, and that’s its highest price since November 2022. The market did slide back a little bit in the week, settling at $1.3925 per pound today. Prices of both butter and powder are escalating in the global marketplace.
Stu, what can you tell us about things going on outside of the US?
(4:40) Stu:
Yes, there is a lot happening outside the US currently. Let’s start across the pond in the European market. That market is running red hot, with prices ramping higher on the back of the fear of the impacts of the spread of Blue Tongue, an animal disease, which is running throughout Western European dairy farms, and subsequently having quite the impact to milk production.
(4:59) Betty:
So we have animals diseased and holiday buying ahead. Help our listeners understand why both of these things matter right now and why they are important to markets.
(5:09) Stu:
Yeah, that’s the kicker. The timing is the paramount point when understanding the why of this price run-up. Holiday buying is top of mind right now for buyers. We’re very close to the Christmas-New Year period, and this fear of being caught short of product in the months ahead has understandably shifted these markets dramatically higher. Backing up the fear factor and the solidification of that fear of Blue Tongue is the German weekly milk collection data. It’s highlighted just how weak German milk flows have been during August, with one week as much as 1.6% behind the year prior, with the trendline currently running well below the three-year average. This reinforces the spread of the disease the officials have shared. Just for a little bit more clarity, next week during our forecast webinar I will share the maps of the infection spread over the month, and to be honest, they’re pretty surprising. So join us next week for that, and we can show you the insights of those maps.
(6:01) Betty:
Wow, well it’s really ramping up over there. How much have prices moved as a result?
(6:07) Stu:
Yeah, prices across the board have moved strongly higher. European Energy Exchange (EEX) cheese prices have all jumped higher, with EEX mild cheddar prices climbing a whopping 3.6% in the last week alone. Dutch coated butter prices climbed another 1.3% over the last week, blitzing their way through the €8,000 per tonne mark, or, in local money, $4.03 per pound. With the fresh cream market still floating near the €10,000 per tonne mark delivered, the cream market’s no less wild than it was last week. Not to be outdone, the European skim milk powder price is still shifting higher, moving 1.4% over the week, priced at €2,858 per tonne, or $1.30 per pound. Still lagging the CME spot nonfat dry milk price, but strongly moving in the same direction.
(6:56) Betty:
So the northern hemisphere is tight on milk, but what about in Kiwi-land, which you know all about?
(7:03) Stu:
Yeah, let’s go down south of the equator. New Zealand’s milk is flowing and spring has sprung early. For the pasture-based production systems of the southern hemisphere, this is a positive indicator of current milk production, with expectations and reports of strong milk growth figures being printed out of New Zealand for both August and September. Our Aussie cousins across the ditch are also off to a good start, with solid production figures also expected for the early stages of the season. With such strong milk production expected in the southern hemisphere, there are some expectations that buyers will need to lean on Oceania dairy exports a little more than expected. As such, the Oceania market has followed the US and EU markets higher over the last six weeks, with the previous three global dairy trade auctions really surprising us to the upside.
(7:48)
The second GDT auction for the month of September takes place next week and is eagerly awaited by the market. SGX futures have shifted higher in anticipation, with positive expectations across each key commodity. Whole milk powder futures, for example, are currently implying a 2.6% gain for physical prices next week, while skim milk powder futures are pricing in a 2.9% gain currently.
Betty:
So strong milk and bullish price expectations for New Zealand.
(8:16) Stu:
Yeah, that’s right. This is quite the conflicted outlook. Often, strong milk production expectations from New Zealand will depress whole milk powder prices, so there is some apprehension on next week’s outcome. However, it is really hard to argue that the skim milk powder price expectation will not follow through. We also expect to see some support for butter and AMF next week. As mentioned before, that cream market globally is pretty impressive. Now, not to forget about GDT cheddar either. Considering the strength exhibited across the global cheese market, it seems unlikely that GDT cheddar won’t follow suit and push a little bit higher.
(8:48)
With such bullish expectations on the futures market as a whole, the New Zealand milk price future has followed suit and surged dramatically higher, breaking through a $9/kgMS in the last trading session of the week, finishing at $9.01/kgMS on a 331 lot session, which notably followed a 346 lot session the day prior. Those are big volumes. And when we look into the market further and check up on those open interest numbers on the market, we see that the open interest has increased. This tells us that dairy farmers really see that price as attractive, and that’s unsurprising considering that a $9.01 milk price would be the second-highest milk price in the last 25 years in New Zealand. So, markets outside the US are all displaying a bullish sentiment, following suit from what’s happening here in the US. There is little doubt that even though macroeconomic factors are still displaying concerns for consumers, the fuse has been lit for prices. Supplier concerns were the lighter for a change, and now we await to see how demand will react in the months ahead.
Right, Betty, back to you.
(9:50) Betty:
Very good. Okay, Stu, I think we covered almost everything. We have our subscriber-only monthly forecast webinar that’s next Tuesday, September 17th. But Stu, we did forget to mention your webinar that Alysa and you are hosting. Can you give a couple quick details to all of our listeners?
(10:11) Stu:
Yeah, great point, Betty. We are hosting a free webinar for non-subscribers on September the 18th, following our official HighGround webinar the day prior. If you want to find that link, it’s on our website at highgrounddairy.com/globalwebinar. Put your details in there, and you can hear myself and Alyssa Badger update you on what’s happening within the market and see just how good the HighGround team is at what we do. So join us there, and we look forward to having you.
(10:35) Betty:
This all sounds really good. Alyssa and you did a webinar like this last year, and there was great information provided to those that were able to tune in. I’m looking forward to it and learning some new things myself.
I think it’s time to wrap up. Stu wanted me to talk about Jell-O salad, but it is not the right time of the year for that. Maybe Stu and I will get to do a holiday special and we can share all our favorite recipes. But for now, thank you all for listening. Be sure to subscribe to this podcast and join us next week for another discussion on dairy fundamentals. We so appreciate your support, and if you have any questions or topics you’d like us to cover or you want to learn more about HighGround’s products and services, feel free to visit our website at highgrounddairy.com or reach out to us via email at info@highgrounddairy.com. Have a great weekend and cheers.
Stu:
Cheers, guys.
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