Let’s Chat Dairy – 14 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!

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Transcription:

(0:14) Alyssa Badger:
Hello, everyone. 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 14th, and you’re hearing from Alyssa Badger and Cara Murphy. Registration has officially ended for our Global Dairy Outlook Conference, which kicks off this next Tuesday, the 18th, in Chicago with a Welcome Reception. We are so excited to see you there and could not be more proud that we have record attendance this year. If you’re a subscriber or customer but were unable to attend this year, we understand there’s always next year. And not to worry, we have something for you as well. Our June 2024 Global Dairy Price Forecast will be published on our website on Friday afternoon by end of day. As a reminder, due to the conference, our team will not be hosting a live webinar this month. But if you have any questions, feel free to contact us at info@highgrounddairy.com and we’ll get you those answers as quickly as possible.

Well, with that, let’s begin with the CME spot market recap, Cara.

(1:19) Cara Murphy:
Absolutely. The cheese market is moving up. Blocks climbed to $1.9825 per pound on Thursday, the highest price of the year, but settled today at $1.97 with a total of 17 trades. Barrels also moved higher, closing at $2.02 today with 13 trades on the week. Dry whey now at $0.47 per pound up from the prior week, but with little volume, just 3 trades. Nonfat dry milk remains ever in its range bound world of $1.18 to $1.20 per pound, settling today at $1.1925 with 26 trades. And lastly, butter moved a bit lower to $3.09 with a total of 10 trades.

(1:57) Alyssa:
Thanks for that, Cara. I heard there was some interesting outcomes from the April Supply & Utilization Report. Can you elaborate on that?

(2:04) Cara:
You bet. Total cheese consumption was up over the prior year with greater exports and domestic utilization. But here’s where it gets interesting. The bulk of support came from the other cheese category, which narrowly missed the record high set in March 2022 by just 500,000 pounds. Both other cheese exports and domestic use set a record high for April. Things were quite a bit different for American cheese, however. Overall utilization declined, dragged down by poor domestic demand, which was the lowest April since 2020. Although exports were higher year over year, overseas sales only account for 5% of total American cheese use.

Looking to butter, another round of data that doesn’t align with the current $3+ prices. Remember, in April, CME Spot Butter climbed above $2.90 per pound, which was surprising for that time of year. Well, at that same time, domestic consumption, which makes up about 96% of total use, declined by 6.3% year over year and 11.1% for March. Production has been up, stocks as well. So this is just another example that external influences are impacting this market outside of the traditional supply and demand fundamental principles.

In the nonfat dry milk world, things are looking rough. Nonfat dry milk utilization plummeted to its lowest level since November 2018. Year-to-date domestic use is at its lowest on record back to 2011 and exports held below the prior year, albeit at a much smaller margin than seen in March. Lastly, dry whey. What a jump! The highest since January 2020, completely negating the prior two months of losses versus 2023. The gain was almost entirely due to soaring domestic consumption, up 68% year over year, which helps to explain the sizable drop in inventories we saw in the dairy products report last week.

(3:56) Alyssa:
That is wild. Thanks, Cara. Is there anything else to mention on the domestic market before we move on to international?

(4:02) Cara:
Well, if you are attending the Global Dairy Outlook conference this week, you’ll get plenty. And we dive a bit deeper into these topics in our Forecast Report published later today, but I’ll give a quick taste here. On the macroeconomic environment, consumer spending isn’t doing so well, leading to lower traffic and sales at restaurants, while some major retailers have even resulted to lowering prices. Multiple years with high interest rates and inflation have weighed on consumer finances. Credit card debt is incredibly high, with the average debt per borrower climbing 8.5% in Q1 2024 from a year ago, while the highest number of balances transitioned into delinquency in Q1 of this year since 2011. Ouch. On the farm front, it’s a banger start to the growing season this year. Over 70% of corn and soybean acres are in good to excellent condition, in the U.S. the most since 2018. And with pasture conditions the best they’ve been in the past five years, feed costs are low, which is looking pretty good to dairy producers. In the forecast this month and at the conference, we will also discuss impressive cheese exports, rising component levels, and an outlook for dairy herd that faces a tight replacement heifer inventories. If you’re a subscriber, head on over to highgrounddairy.com to read more, and if you’re a conference attendee, we’ll see you there. Thank you, Cara.

(5:20) Alyssa:
All right, let’s get into the international markets. Data was light, but we did have a Global Dairy Trade Pulse event on Tuesday, with C2 regular whole milk powder dropping 0.6% from the last auction, with instant whole milk powder deteriorating quickly, down 11% from the prior auction. This could imply that the desperation for instant whole milk powder has certainly dissipated, and as such removes the relative value of regular whole milk powder. Fundamentally, supply and demand remains pretty similar to the last event. There is chatter though that Chinese inventories are lighter than earlier in the year, supported by some April data that came out from China last week. There has also been ongoing reports that promotional activity in China has helped to spur on some increased homework powder consumption, resulting in more product being sold than expected.

(6:11)
Weakness also prevailed on skim milk powder with C2 medium heat down 3.3%, and that brings me to our expectations around next week’s big Global Dairy Trade Auction. As you may know, those GDT auctions have been bullish over the last five events, led by strong milk fat price gains, but also reinforced by some pretty solid movements for whole milk powder pricing. However, the SGX futures are now pricing in a slight correction for next week’s event. I think it’s important though to remember that Offer Volumes are seasonally light, so you never know what’s going to happen, but milk fats are likely to continue to defy gravity, whole milk powder is likely to meet a bit of resistance, while skim milk powder prices will likely fall back into that boring range that they held for so long.

(6:58)
Looking at the European Union, the skim milk powder market fell quiet once again as buyers maintain a wait-and-see attitude. Then after six consecutive weeks of higher prices, butter has finally hit a point of resistance, and a steady domestic consumption, rising holiday demand, and improved interest for exports has kept the European cheese market steadily moving upwards. But concerns are rising over possible retaliation measures from China, with Reuters reporting that Chinese companies intend to ask authorities for an investigation into some dairy imports from the European Union. That could get ugly.

(7:34)
I think I’ll close this out with a recap of what else we’re watching on the international level, as reported within our massive Forecast Report. In recent market discussions, India has become an unavoidable topic. If not for the fact that it is the next big focus area for demand over the next decade, then it would be to discuss the crippling heatwave that has killed dozens of people in June alone. This severe weather has significantly impacted milk production and prices, intensifying the demand conversation for a country that already has very expensive milk. Additionally, Stu Davison digs into whether these recent Global Dairy Trade bull runs have legs to them or not. Next, given the generally tight atmosphere, analysts are anxiously waiting to see how Oceania milk collections will shake out into Q3 and Q4. Fourth, Mexico’s demand has been on fire as their economy and peso have been very strong, but as global dairy prices continue to move upward as of late, the local currency has started to deteriorate, creating concerns about future demand. Lastly, China may have been moved to the bottom of the list as fundamentals are rather unchanged, but continuing to wait and watch for developments from this country will remain top priority this year. The latest chatter has been focused on further consolidation in powder inventories, as we mentioned earlier, and China’s effort to export.

Well, thank you for tuning in to this week’s episode of Let’s Chat Dairy. I can’t wait to see our customers and colleagues in Chicago next week for our Global Dairy Outlook Conference. It’s going to be an incredible opportunity to connect, learn, and share insights about the future of our industry. Until then, stay passionate about dairy and keep the conversations going. See you in Chicago.