Let’s Chat Dairy – 26 April 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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HighGround Dairy’s Navigating HPAI Dairy Market Resource Center offers insights and updates from trusted sources on the ongoing Avian Flu outbreak affecting dairy cattle in the US. Stay informed with real-time updates as we continue to provide crucial information and analysis to the dairy industry amidst this challenging situation. Click here to read the latest now.

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Transcript:

(0:15) 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 is Friday, April 26th, and you’re hearing from Alyssa Badger and Cara Murphy. What a busy week we’ve had with lots of data coming out into the marketplace. As always, we’ll cover some of those highlights here, but if you’re looking for a more in-depth analysis accompanied with High Ground’s professional opinion, head to our website. And if you aren’t a subscriber, sign up for a free trial and get access today.

This weekend kicks off the start of the annual ADPI-ABI conference in Chicago. We are so excited to see many familiar faces and some new ones as well. Sunday, HighGround Dairy is a proud sponsor of a dairy-focused Females In Food networking event from 2 to 5 p.m. in the West Loop. If you’re a woman in dairy and in Chicago Sunday afternoon, we would love to have you. There are still a handful of tickets available. There will be a three-foot charcuterie board, so that alone should be enough to rail you in, but it is also open bar, as well as with non-alcoholic beverages, of course. And Chief Innovation Officer from Edible Chemistry will be teaching all of us how to make milk punches using real dairy. For more information about the Females In Food event, send an email to info@highgrounddairy.com (or click here) and we’ll be sure to send you the link to get a ticket today. Otherwise, if you see us around the halls at the Sheraton Hotel, don’t be afraid to say hello! We’re always happy to chat markets.

Well, with that, let’s dig into the data this week, starting off with the CME Spot Market Recap. Cara?

(1:53) Cara Murphy:
Absolutely. Butter kicked off this week soaring to $3 per pound. Wow. Since then, it came off slightly, closing today at $2.97 with a total of 35 trades. We will dive into March Cold Storage data in just a bit, but I have to say the fundamentals are really not lining up with this price point, making this market trajectory a bit difficult to nail down. On the flip side, but in the same Class IV world, nonfat dry milk is boring. At $1.1025, Thursday marked a low not seen since September 2023, but the story remains the same. There isn’t much demand for powder on the global market. Dry whey continues to grind lower, but is finding support in the $0.38 per pound mark, settling today at $0.3825 with 7 trades. Lastly, we’ll wrap up with cheese. Prices leapt from the mid $1.60s at the end of last week to now sit in the mid $1.70s. Blocks closed today at $1.75 with just 3 trades, while barrels settled at $1.7725 with 9 trades. As after several months of lower production and waning inventories have brought a bit more strength to the market.

(2:59)Alyssa:
Perfect, thanks, Cara.

You know, the USDA announced this week that they detected viral particles of the H5N1 avian influenza virus in milk purchased at grocery stores, which has led to some concern in the markets. They are also now requiring mandatory testing and a negative result prior to transporting lactating dairy cows across state lines to stop the spread of this infection. In your opinion, what is the significance of this information to the dairy world and for consumers who might be concerned about these preliminary results?

(3:32) Cara:
Well, let’s start off on the farm side of things. The USDA and producers are dedicated to the safety, health, and well-being of our animals. Cow-to-cow transmission has been confirmed as a factor in the spread of this disease, so limiting contact with sick animals is incredibly important, and ensuring that sick animals do not spread the infection is as well, which is why the USDA is requiring testing and reporting of all cases prior to animals being transported.

For consumers, the FDA tests found samples of retail milk containing fragments of the virus. This does not mean that the virus is infectious. The tests used do not provide this information, only that fragments of the DNA are present. The FDA is further assessing any positive findings to determine if infectious virus is present in the milk. Now, early work by investigators has so far indicated that this is not the case. There is no infectious virus in the milk supply, and the USDA remains adamant that pasteurized milk and dairy products are safe for human consumption. Similarly, properly cooking beef remains safe as well. 145 degrees Fahrenheit for steaks and roasts, 160 for ground meat.

So, what can you do to stay safe? Cook your meat. Don’t touch sick or wild animals, and do not drink raw milk. If I say it once, I’ll say it again. Do not drink raw milk or consume raw dairy products. We will continue to provide updates on this subject matter, and if you would like to do some more reading yourself, head on over to our Dairy Market Resource Center.

(5:06) Alyssa:
That’s a mouthful. It has certainly been top priority here to make sure we are cutting through the headlines and keeping reliable sources and information regarding this situation on that resource center, where you’ll also find quick access links to the FDA and USDA resource centers as well.

All right, Cara, speaking of milk, we got those March Production figures from the US this week. What did it say?

(5:29) Cara:
Well, for the ninth month in a row, U.S. milk output slowed from the previous year, down 1% in March. The last time milk production decreased for this long was from August 2003 to April 2004. Milk per cow was flat against last March as the decrease in volume came on a smaller herd, which began declining in June 2023, 10 months ago.

The USDA made significant revisions to February’s data, moving the month’s volume up by 90 million pounds or 0.5% on an average daily basis, bringing the total from down 1.2% to down 0.7%. An interesting move here was seen in Texas, where HPAI was first reported. Milk output in the state tanked over 5% against March 2023, as the impact of the disease begins to come into focus. Milk per cow declined on a monthly basis, down 1.6%, eschewing the typical rise between the months. This was the first time yields dropped from February to March in the state since 2015, and March’s 2024 total was the smallest for the month since 2021.

(6:35) Alyssa:
Yeah, super interesting numbers there, especially from Texas, because we aren’t really seeing slaughter numbers pick up, which was a concern, but impacts on yields seem to be the bigger issue here.

(6:46) Cara:
Correct. Slaughter rates across the U.S. continue to lag the prior year, with total US dairy cow slaughter down 134,000 head on a year-to-date basis compared to 2023. Texas slaughter has trended in a rather tight range over the past several weeks, and while we’ve been watching closely to see if the HPAI outbreak would materialize in larger numbers, it just hasn’t. Interestingly, though, Region 5, the Upper Midwest slaughter volume, did pick up the week of April 13th, but this was only a minor rise and set against a dip in the prior year. We’ll have to see in the coming weeks if this is the start to something larger.

(7:23) Alyssa:
In mid-week, we also got to dig into cheese and butter inventory numbers as of the end of March. What were some of those key takeaways?

(7:31) Cara:
March 2024 Cold Storage was anticlimactic, to say the least. Butter stocks were neutral to expectations and grew month-on-month by 18.9 million pounds. All said, bigger stocks, higher component values, cheap cream, smaller domestic consumption, lower exports, and increased production have limited ability to stymie prices. There is plenty of room for prices to move lower. However, given there is not much CME-eligible product available for sale at the moment, these prices may persist as buyers snap up whatever they can get.

On the cheese board, March marked another month of neutral outcomes. Total cheese stocks summed to almost the same value as seen in previous years, 2022, 2021, and 2020, other than American cheese inventories were right in line as well. Cheddar supplies fell on the year and month-on-month, which would initially be bullish. However, the rally in the CME spot cheese price seen since the start of April suggests the market is factoring in these tightening supplies.

Other than that, the rest of the data out this week came from China and New Zealand.

(8:34) Alyssa:
You’re correct, Cara.

We actually came into Monday with China’s March Trade figures hot off the press from the weekend and ready to analyze. Staying on trend with recent sentiment, total Chinese dairy imports in March slumped dramatically, down 21% over prior year across key commodities, the lightest import total for March we’ve seen in six years. Whole milk powder imports continued to face challenges, specifically from New Zealand. Whey imports remained weak, butter volumes plummeted, and infant formula fell in a dramatic way as well. There wasn’t very many bright spots there, but some glimmers of hope were protein imports continue to grow, with year-to-date casein, caseinates, and whey protein concentrate figures pretty healthy. Milk supplies and milk powder in the country continue to outpace the rate at which demand is able to expand in China. Milk prices remain under pressure, with milk production expected to ease this calendar year as a result of the tight margins. And China reportedly removed a million cows last year, with an additional 300,000 head potentially coming out of the herd in 2024.

Moving on to the southern hemisphere, there was a lackluster yet bearish-leaning GDT Pulse event on Tuesday. C2 regular whole milk powder fell 1.1% from the last GDT auction, settling at $3,175 per metric ton. Fonterra C2 medium heat skim milk powder dropped 2% from the last April auction, and settled at $2,500 per metric ton. This lackluster pulse event created some pressure on SGX powder markets, yet we did get some relatively positive news from the region this week as well, and by positive I mean should be supportive to the market.

Margin Milk Production figures from New Zealand fell below prior year and were down 1.2% on a milk solids basis from prior year. That was much worse than our expectations, likely due to drier conditions on the North Island that ultimately ended up having farmers in some regions having to dry off herds early. If you haven’t looked at a soil moisture map in a while for New Zealand, we recommend you give that a peek.

Into the end of the week, New Zealand also released March Trade figures, and they were actually quite strong as volumes to Saudi Arabia and United Arab Emirates grew substantially. Volumes to China did continue to drop off though as less fluid milk and butter sailed to the country. Strong anhydrous milk fat exports at the expense of butter were important to note, with anhydrous milk fat heading to China surging to the highest mark we’ve seen over the last four years. Anhydrous milk fat has been notably discounted against butter for the last year on an 82% fat equivalency, so this shouldn’t be very surprising.

Well, that’s all we have for this week, and we hope you enjoy your weekend. We look forward to seeing many of you in Chicago for ADPI, and if you’re traveling, we wish you a safe trip to Chicago. Cheers!