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 is Friday, October 18th, and you’re hearing from Alyssa Badger and Cara Murphy. This week we released our Global Dairy Price Forecast, available now on the HighGround Dairy website, along with the webinar recording, where our team dove deep into the major topics impacting the dairy markets today. Along with that this week, there was a Global Dairy Trade event, US Dairy Supply and Utilization figures, and some very interesting data out of Europe. We’ll get into all that in just a minute, but first, the weekly CME Spot Market Recap. Cara?
(0:55) Cara Murphy:
Butter opened this week at $2.6150 per pound and closed at $2.66 per pound. In that time, we saw 33 trades on Monday, 46 on Tuesday, 48 on Wednesday, 33 on Thursday, and just one today, for a total of 161 trades—a new all-time high for weekly traded butter volume. But wait, not only was it a new record for weekly trades, it may only be the 18th of the month, but at 294 trades, this is a new all-time high monthly traded volume as well. With the holiday season fast approaching, buyers are more than happy to purchase butter at these prices, and sellers seem to have enough in inventories to sell as well. The cheese market has also made some moves, heading back to the $2 per pound range. Market fundamentals, such as lower stockpiles, upcoming holiday demand, and competitively priced product compared to the global market, support a market closer to $2. Blocked cheddar closed today at $1.9250 per pound with a total of 16 trades, while barrel settled at $2.01 per pound with 8 trades in total, re-establishing the block barrel price inversion for now. The two remaining markets are rather range-bound. Nonfat dry milk is bouncing between $1.35 per pound and $1.38 per pound for the past month, closing today at $1.38 per pound with 24 trades, while the dry whey market is very comfortable near the $0.60 per pound mark, settling today at $0.6025 per pound with 21 trades, the highest weekly traded volume since April 20th of this year.
(2:27) Alyssa:
Butter is certainly hot right now, and the US Dairy Supply and Utilization Report provides some info into those dairy demand trends, Cara. What do these look like in August?
(2:38) Cara:
Total cheese consumption continues to be supported by robust demand for other cheese, both domestically and internationally. Mozzarella reigns the king of cheese in 2024, as more Americans are making pizza at home, and with cheaper prices in the US compared to the rest of the globe, particularly Europe, buyers are looking to the US to fulfill demand abroad. That said, demand for American cheese narrowly eclipsed prior year levels, as the onset of the autumn sports season has provided a bit more impetus for cheddar demand. People sure do want butter, boy howdy, domestic consumption in August marked the highest volume for the month back to 2014, besting the 2021 record by over 10 million pounds. Exports logged their third month of growth as well, although the US certainly remains a net importer of butter. The USDA revised July total whey use down 15.1% to 69.7 million pounds. Then in August, total disappearance of whey sank another 15.5% year-over-year to 67.8 million pounds, the lowest monthly volume since April 2023. Plant outages in August limited dry whey production, supporting a CME spot price near $0.60 per pound, but dismal domestic consumption curbed further price gains. Exports were up marginally, heading to Asian nations like Indonesia and Japan. And lastly, nonfat dry milk and skim milk powder utilization had another poor showing in August. Use was lower for both exports and the domestic market, although domestic utilization did rise from the dismal total logged in July.
(4:10) Alyssa:
The Fluid Milk Sales Report was published for July this week, with an odd counter-seasonal increase. It sounds like demand for cheese and butter is going strong. What can fluid milk sales tell us?
(4:22) Cara:
Well, you’re right. Total fluid milk sales did rise 4.3% year-over-year in July, the highest volume for the month since 2021, and a counter-seasonal move upwards from the prior month. The gain was primarily due to a 4.7% year-on-year increase in whole milk consumption. Full-fat milk provides a wealth of nutrients like protein, essential fats, calcium, and improved satiation. Organic milk sales also rose 11.7%, while total reduced fat sales slumped 1.5% as consumers’ preferences shifted to full-fat milk. One of the drivers of this unexpected move could be the USDA SUN Bucks program, started this year. The program is part of EBT benefits and is intended to provide children with adequate nutrition during the summer months when school is not in session. Fluid milk ranks the second highest amongst the top purchased food items via food stamps, and with $40 per month for three months during the summer, it’s likely more children were drinking milk in July. And good for them. Healthy kids are happy kids.
Diving into the data, we also noticed something rather interesting as well. Other fluid milk sales are climbing rapidly, up 43.7% year-to-date through August compared to 2023. Other fluid milk includes lactose-free milk and protein-enriched milk, as well as reconstituted milks and fortified milks. While the other milk category accounts for just 5% of total fluid sales, the substantial increase over the past year highlights the rising demand for specialty health-related milks. This is likely driven by the same consumer health market, which is behind the greater demand for whey protein concentrates and isolates. Consumers have caught on to the benefits of protein and certainly want more. Safe to say the dairy industry has them covered.
What else do we have on the docket today, Alyssa? We have to talk Europe. Those August cheese exports were bonkers, and that milk production report was rough. So, what’s the sitch?
(6:13) Alyssa:
Yeah, Cara, let’s start with the Milk Production figure. So, August milk from the European Union, including the UK, came in at 1.7% lower than prior year. However, there is cause for concern in the German production number, with a significant discrepancy between Germany’s figures reported by Eurostat and those from ZMB’s weekly reports. Based on ZMB data, Germany’s year-over-year losses would be closer to negative 1.2%, while Eurostat is reporting a 5.4% drop. That’s a really wide range, so we’ll continue to gather intel on where the truth lies, which is probably somewhere in the middle. That being said, Dutch production figures were also steep, down 3.9% from prior year. Italy dropped more than 5% below year-ago levels. Ireland was down 2.2%. And perhaps it’ll be easier to mention which main countries were positive, which was just France up a minimal 0.8%, and Poland up an impressive 3.5% from a year ago.
When it comes to the export data, it was pretty red hot, with cheese shipments skyrocketing to an all-time high, and not to the destination markets one would think. No, it was actually growth into Vietnam and Colombia that really contributed to the strength. The substantial increase in cheese exports helps explain the rampant rise in European cheese prices on EEX throughout September, as seasonally limited milk supplies combined with low cheese inventories clashed with a strong spike in demand. Infant Formula also experienced a notable jump in exports, with shipments to China up 2,447MT from prior year and accounting for 39% market share, while other small gains were shown from Egypt and Thailand. However, volumes were still well below two years ago. Skim milk powder exports were mixed, but shipments to Algeria were very large, up 93.5% from a year ago. There were also incredible gains to Egypt and Nigeria. But despite those strong gains, they weren’t enough to offset the fall in shipments to China and Southeast Asia. But be sure to check out our in-depth analysis next week for more insights and opinion on the region.
(8:29) Cara:
And I guess the only other big event to happen this week internationally was the Global Dairy Trade Auction, right?
(8:34) Alyssa:
Yeah, and that’s certainly worth discussing. While whole milk powder did not fully reflect the bullish expectations priced in by SGX traders prior to the event, it still found support despite the seasonal increase in milk availability from New Zealand. North Asia delivered strong demand, taking on 50% of the market share following declines in milk production and powder inventories throughout Q3 within China. Additionally, Latin American demand surged, with purchasing from the region quadrupling versus a year ago and nearly doubling from last event. Fonterra’s skim milk powder prices dropped against expectations, but European skim fell even harder, handing the premium back to Fonterra for the second straight event on the auction platform. Also of note, Fonterra cheddar prices jumped higher, with the big buyer actually being Africa, with the region’s market share reaching historically high levels. While New Zealand cheddar is priced above US offerings, it remains more affordable compared to European cheese. Mozzarella saw a notable decline, hitting three-month lows, likely due to expectations of increased availability in the near future and fulfillment of immediate needs met. Fats were neutral because of the expectation that both products would fall, but North Asian demand for fat returned, especially on AMF. There was also a nice boost from European buyers on butter that helped to support the market.
Well, that’s all from the HighGround Chicago office for this week, but remember, the dairy markets never sleep. While these podcasts wrap up what’s been happening this week, there’s always more to learn, so be sure to stay connected with us on our website for the latest updates and insights. Thanks for tuning in, and don’t forget to subscribe so you won’t miss next week’s discussion on dairy fundamentals, and we thank you for your support. Cheers.
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