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, May 24th, and you’re hearing from Alyssa Badger and Betty Berning. We are heading into Memorial Day weekend, so as a reminder, markets will be closed this coming Monday, May 27th, and as a result, our offices will be closed in observance. That being said, let’s be honest, we’re always checking our inboxes, so if you have anything urgent, give us a shout and we’ll walk away from the smoked meats and potato salad for you.
All right, we are a month out from our 2024 Global Dairy Outlook Conference. We have a great lineup of speakers from our team at HighGround, a Boots-On-The-Ground Perspective from a Panel of US Dairy Producers. We’ll be covering Consumer Trends, Agricultural Lending, a Global Weather Outlook, and dive into China’s Economics and Policy, as well as taking a look at the European Dairy Landscape. We have it all. Registration is still open until June 14th, but space is limited, so get your tickets today.
All right, lots of new data hit the market this week, but before we jump into that, let’s kick off the CME Spot Market Recap of the week. Betty?
(2:01) Betty Berning:
Thanks, Alyssa. Cheese prices fell back to earth a bit this week, with Block Cheddar dipping to $1.84 per pound on Wednesday and then rallying on Thursday to end the week at $1.87, with a total of 37 trades. The Barrel Cheddar market declined every day of the week and fell below $2 per pound on Thursday, settling today at $1.98 per pound, with 19 trades on the week. Butter continues to trend upwards. It reached its highest price since the 1st of November of last year on Thursday, and today it closed at $3.1225, with five total trades for the week. And the other part of the Class IV complex, Nonfat Dry Milk, also was on the rise, settling at $1.1750 per pound on 24 trades. And Dry Whey, that’s still bouncing around the 40 cent per pound mark, with a total of 12 trades on the week.
(2:37) Alyssa:
Thanks, Betty. US Milk Production for the month of April was released on Monday. What are your insights from that report?
(2:44) Betty:
Total output fell by 0.4% from the prior year and that was the smallest year-over-year decline since December 2023. Losses have slowed since hitting the -1.1% year-over-year loss that we saw in January 2024. A smaller US herd is the main culprit for the lower milk production, as farmers culled heavily in 2023 and replacement heifers are in short supply. From March to April, the US experienced an unexpected 8,000 head decline, surpassing the five-year average of a 4,000 cow loss between the two months. Interestingly, USDA revised March’s herd size up by 13,000 head, and that reversed the month-on-month change from a counter-seasonal dip to an increase of 6,000 cows compared to February. And also interestingly, this was the second consecutive month that the USDA has made substantial revisions to the milking herd.
(3:47)
From a regional perspective, California and Wisconsin, which are the two top milk-producing states, both saw gains as yields improved. Looking at Texas, though, the troubles persist there. Milk volumes dropped 3.3% compared to April 2023. Milk per cow in the state is dragging significantly. It plummeted 55 pounds relative to year-ago values. HPAI in dairy was first identified in Texas, and it’s clear that the hallmark of the disease, lower milk output, is materializing itself in the data.
(4:25)
In more recent data, though, the Spot Basis for the Upper Midwest declined this week to a low of $6 underclass to a high of 50 cents per hundred weight underclass pricing. Schools are getting out for the summer, which is freeing up some additional fluid milk supplies, and cream is reported as available in the region as well.
(4:48)
While milk supplies in the Upper Midwest seem plentiful, replacement heifers for dairies are not. The elevated prices and tight supplies have producers holding on to cows for longer, driving slaughter rates to 15-year lows. Total US Dairy Cow Slaughter marked the lowest volume for Week 19 since 2008. And Region 9 recorded its lowest slaughter rate for the week since 2004. A big takeaway here is that with high replacement heifer costs, even with improved farm profitability margins, it’s unlikely that farmers will invest in substantially expanding their herd, relying mostly on greater milk-per-cow improvements to generate more milk.
(5:37) Alyssa:
Thanks, Betty. Well, speaking of milk production, we did receive data for March Milk Production in Europe as well this week, and there were some interesting numbers. Total EU-27 + UK milk output was up 0.6% from prior year. German and French milk flows turned positive, but the UK was down by just 0.1%. The Netherlands also printed a 1.4% loss versus prior year, and Irish milk is down 5.9%, albeit they are out of those double-digit declines we have seen over the previous three months.
That said, the rainy spring season has certainly weighed on milk production across the European region. Weekly collections data from the UK shows the country heavily lagging prior year levels as they approach peak milk, while France flows dipped in May, falling short of peak as well. Germany, however, is going strong as ever, surpassing last year’s impressive season.
(6:40)
Looking at dairy products, cheese output plummeted in France and the Netherlands in March, with the Netherlands also recording a heavy fall in butter production as well. Weaning supplies are driving higher prices for European dairy, with almost all commodities recording an increase in price on the European Energy Exchange this week.
Limited supplies are met with improving domestic demand, which appears to be the primary driver in this market as Exports were pretty lackluster overall. Total dairy exports were down on lower shipments to China and to the US. All major dairy commodities posted declines compared to prior year, with only Lactose, Casein, and Fat-Filled Milk Powder seeing higher shipments in March.
(7:24)
Jumping to the other side of the globe, this week we saw a Global Dairy Trade event in New Zealand, China April Dairy Import Volumes were released, and April New Zealand Dairy Trade as well as Milk Production Figures also came out. What a week, I don’t even know where to begin.
(7:41) Betty:
Okay, I do Alyssa, let’s talk about the strong GDT event. What a wild way to close out the season in New Zealand, with most prices pressing higher and confirming the momentum of the past two weeks.
(7:54) Alyssa:
Yeah, you can say that again Betty. We saw a strong upward movement on just about every product. I think one of the key observations was that once again, this auction was not driven by dominant North Asian demand, which typically is represented by China. Instead, the Southeast Asia-Oceania buyers continued their heavy lifting, while Middle Eastern buyers were pretty absent. But availability is clearly tight and Fonterra is undoubtedly sending buyers to the auction to secure needs as inventories dry up at the end of the season. We do encourage you to read our comprehensive analysis located on the dashboard for more color, but Fats were definitely red hot and Milk Powders both jumped around 3% or more. The market now faces the question of whether this change in direction is sustainable or just a short-term pop.
(8:47)
New Zealand’s April Trade Data was released this morning, so let’s stay in that country just a little longer here. Overall, New Zealand exports declined around 11% year-over-year in April, with volumes sailing to the three largest destinations, China, Algeria, and Indonesia, falling 12%, 45%, and 16% respectively from prior year. The bulk of this decline into these key regions was due to a drop in Whole Milk Powder volumes sailing during the month. They dropped 21,750 metric ton, or 16% from prior year. April Milk Production numbers were also out this week, and they fell 2.6% on a Milksolids basis versus prior year.
(9:37)
Last but not least, China’s April Trade Data. There’s not anything too shocking in these numbers, though I think it’s interesting to note that Whey losses have improved just slightly, and Cheese demand was better than expected. New Zealand Cheese saw the biggest jump into China, while less Whey continues to be brought in from the US as well as Poland. Other positive trade figures to note include continued strength on Anhydrous Milk Fat, which nearly doubled from prior year, and Butter imports that jumped counter-seasonally higher from March to April. Given that Anhydrous Milk Fat is reportedly tied out of New Zealand, these larger purchases are certainly helping to boost that commodity to record levels. Total trade with Europe sank again as demand prospects for Fluid Milk and Cream as well as Infant Formula remain under pressure, two of the main products that are brought in from Europe.
While the narrative is certainly shifting in China, demand for international dairy products is also evolving. The need for foreign Milk Powder as well as Fluid Milk has certainly decreased, with a growing demand for high protein and finished goods.
Well, that’s all we have for this week, and we hope you enjoy your holiday weekend. We look forward to chatting with you next Friday. Cheers.
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