Let’s Chat Dairy – 21 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, 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, June 21st, and you’re hearing from Alyssa Badger and Cara Murphy. Oof, what a week! Thank you to everyone who attended the Global Dairy Outlook Conference with us in Chicago this past week. I think it’s safe to say it went off without a hitch. And we have to take this time to also thank Becca Kelm, our Senior Manager of Customer Success and Marketing (also the producer of this podcast) for all her work to put this conference together. She really does an amazing job, and we couldn’t be more thankful. Additionally, thank you to all of our incredible speakers for coming all the way to Chicago to share their expertise and opinions with everyone in attendance. We’ve already received valuable feedback, and we’re excited to continue to expand our global coverage of dairy markets at these events.

All right, let’s get into it. Lots of data came out this week, despite everything else that was going on with the team. But let’s cover off on the CME Spot market first. What do you say, Cara?

(1:19) Cara Murphy:
Sounds good. It was a shortened trading week as markets were closed on Wednesday in observation of the Juneteenth holiday, but they were on the move nonetheless. The cheese market is headed back down, dipping from the $1.97 per pound mark last Friday into the $1.80s by Thursday and closed today at $1.8450 with a total of 34 trades—13 of those occurring yesterday and 11 today. Barrels also on the decline below the $2 per pound mark to settle at $1.92 today with 24 trades in all. Butter popped to $3.1075 on Monday, but slid lower to end the week at $3.09 with 12 trades in total. Nonfat dry milk rose to $1.2075 on Thursday, the highest price since February of this year. It closed today at $1.2050 with a total of 6 trades. And dry whey spending the entire week at $0.48 per pound until today where it dropped to $0.47 per pound with 2 trades in all.

(2:14) Alyssa:
Thanks, Cara. So, before we get into the conference, the May US Milk Production data just came out with collections falling 0.9% from prior year, which was neutral to our expectations. US milk cows increased 5,000 head from a month ago with US milk per cow still slightly negative down 0.1% from a year ago. California did experience a notable drop from April and fell 1.5% from prior year. Idaho fell back below prior year down 0.6% and Texas recovered slightly almost back to parity down 0.3% from a year ago. Of the top five producing states, Wisconsin was the only one to report gains up 1.1%.

So, tell us what were some of your big takeaways on the domestic markets from this week’s conference, Cara?

(3:05) Cara:
Well, to begin the conference, our lovely Betty Burning kicked off the domestic markets with an overview of the macroeconomic environment, consumer dining habits, and of course, the dairy market outlook. Betty and I spent quite a bit of time ahead of the conference discussing what our thoughts were, which we put into HighGround’s Global Dairy Commodity Price Forecast we published on Friday. Big things were consumers are under financial pressure and are adjusting their eating habits accordingly, eating at home and focused on value when dining out. Our Protein Panel also highlighted consumer desire for functional proteins continues to rise and dairy provides the ability to meet that demand in a variety of ways. But all in all, they definitely provided a great understanding of the international demand for protein and the value stream of high protein whey in particular. Tom Bailey gave our audience an update on changing demographics at the grocery store and consumer purchasing priorities.

On the producer side, heifer inventories are tight and prices are high, which has farmers keeping cows in the herd longer and why cow slaughter volumes are low. But even with less cows in the herd, they continue to perform well with component values at impressive levels. This might change in the coming weeks, however, as the heat waves sweep across the country. We felt the heat earlier this week in Chicago and the Weather Outlook Session with Drew Lerner showed us that the heat is likely going to last longer than most of us would like. I quite enjoyed his deep dive into the effects of El Nino-to-La Nina weather patterns as well. The Producer Panel is always one of my favorites and I think their sentiment on the market landscape and conditions was reiterated by our wonderful speakers in our Ag Lending Panel. With tighter operating margins in 2023 and high interest rates, producers are focused this year on paying down debt, more so than expansion. That does not necessarily mean they aren’t interested in expanding, but expensive replacement cow costs, land prices, financing costs, and processing constraints are challenges that have producers on the fence about expanding this year.

Alyssa, I know there was a bit more data out this week for the international markets, but before we get into that, what were some of your highlights of the conference? I have to say I love, love, loved the session on China and Europe and of course New Zealand from our in-house Kiwi expert.

(5:16) Alyssa:
Yeah, Stu Davison did a great job going over global supply and demand trends, digging into our own forecasts for New Zealand production and milk prices, an update on Argentina, Australia, and Europe. We also discussed Middle Eastern demand expectations, Southeast Asia, China, and India. A more in-depth look at the Chinese domestic market was presented by Jeff Goodwin, who shared the stage with Nancy Qian as she went over her current views on China’s economy and what recent indicators will mean for long-term demand. Christophe Lafougère gave a phenomenal outlook on European production and demand, and you already mentioned the protein panel, but Jing Hagert added an international update that showed us what form of protein was most desired by a region, and it was really fascinating. Nick Morgan of Nutrition Integrated also helped us understand demand preferences for the North American market. I learned so much from all these experts that really helped make the conference a success.

(6:17)
Outside of the conference though, some data out this week, European Milk Production for April was released up 0.8% according to Eurostat. Germany and France posted minor gains against the prior year and a 5.4% increase from Poland where milk output continues to print impressive growth. That said, milk supplies waned from the UK and the Netherlands. Irish output also continues to struggle down nearly 8% from prior year. Cheese output in April was up compared to 2023 across all but three countries, Spain, Bulgaria and Latvia. Meanwhile, after three months of struggling butter production, manufacturers pushed more milk into churns with German butter output up 7.1% and French output climbing 8.2% from prior year.

(7:07)
European Union Exports for April were also out, and despite lower output of skim milk powder, exports jumped to the highest April volume since 2020 on higher volumes to the Middle East and North Africa. Cheese shipments grew to the US, Switzerland, and Algeria, while whey sailings popped to the highest monthly volume since June 2021 on greater shipments to China, Indonesia and Malaysia.

(7:33)
New Zealand May 2024 Milk Collections fell 4.3% from prior year on a milk solids basis, which was an impressive drop, but if you remember, last year, May 2023, milk production was quite large, and we did know that producers were drying off cows early, so it wasn’t terribly shocking.

(7:54)
Lastly, another month of data, another drop in Chinese Dairy Imports, with this year’s May figure recording the lowest volume since 2017. While negative, New Zealand’s market share did increase, and to 44% versus 38% the two years prior. The largest loss leader from New Zealand was in the form of whole milk powder, dropping 34% from prior year. Losses from New Zealand were also shown in the form of skim milk powder and cheese, while fluid milk and cream and anhydrous milk fat jumped higher. One of the more notable results overall was the drop in skim milk powder, which fell to the lowest volumes the market has seen since December of 2017. All the top suppliers experienced a drop in demand for their product versus prior years, so something certainly that we’ll continue to watch closely.

Well, that does it for this week. Thank you for tuning in to Let’s Chat Dairy. Be sure to subscribe and join us next week for another discussion on dairy fundamentals driving costs. If you have any questions or topics you’d like us to cover, feel free to reach out to us via email at info@highgrounddairy.com. Hope you have a wonderful weekend. Cheers.