Let’s Chat Dairy – 28 February 2025

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 podcasts. Subscribe so that you never miss an episode!

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Transcript:

(0:15) Alyssa Badger:
Hello everyone, and welcome back to Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today’s Friday, February 28th, and you’re joined today by Alyssa Badger and Cara Murphy. Spring is definitely in the air. It’s a beautiful 50 degrees here in Chicago until things cool down over the next couple of days. But for now, the sun is out, so we’re going to get this podcast underway so we can get out and enjoy the beautiful weather and hope you all get to do that too. With that, let’s kick off the CME Spot Market Recap of the week. Cara?

(0:49) Cara Murphy:
All right. Dry whey continues its steady grind downward, closing today at $0.51 per pound with a total of four trades. Nonfat dry milk also moving lower as well but finding a bit of support around $1.20 per pound, where it closed today with 19 trades. The cheese market was somewhat stable most of the week, then took a hard fall today. Blocks dropped by $0.0950 to close at $1.77 per pound with 13 trades, while barrels closed today at $1.78 per pound with eight trades in total. Lastly, butter is marking lows not seen since April 2023, closing today at $2.3450 with 33 trades on the week.

(1:30) Alyssa:
Thanks, Cara. So this Monday we published our analysis of the January 2025 US Milk Production Report that came out last Friday at 2 pm. Then, later in the week, the January US Cold Storage figures were also released. What do those reports have to say?

(1:47) Cara:
Starting with Milk Production, herds are recovering from bird flu in California, though they are still impacted by the disease. But nonetheless, this was not enough to keep total US milk production down in January. Total US output was up 0.1% year-over-year, primarily on further growth in the central region where processing capacity is being added. But first, once again, the USDA had some big revisions to the prior month’s data. In December 2024, the USDA took milk production down by only 3 million pounds but took cow numbers up by 5,000 head. The most noticeable revision, however, was in the West, where they took California milk output down 43 million pounds and adjusted Idaho milk output up 35 million pounds. This took California from down 6.8% year-over-year in December to down 8%, mainly due to a 25-pound downward revision in milk per cow. For January 2025, the big takeaways are: Idaho is gaining in cow herd size by 5,000 head and producing an impressive amount of milk, up 6.4% from the same time last year. California is recovering from bird flu, but milk volumes were still down 5.7% year-over-year. And lastly, as we have seen throughout most of 2024, most of the milk volume growth is coming out of the central region, such as Texas, Kansas, and South Dakota, where new cheese processing capacity is coming online.

(3:20) Alyssa:
Well, sounds like more cheese is on the way, and that could be a good thing, given that I heard the Cold Storage volumes were pretty low still. Is that right?

(3:29) Cara:
Yes, that is right. Cheese stocks are at their lowest January level since 2020. However, from a month-to-month perspective, warehouse stores increased by 19.9 million pounds, more than the five-year average gain of 12.5 million pounds. Natural American cheese stocks built seasonally, and although they are the smallest January volume since 2018, that new capacity coming online should help replenish these inventories. Other than American cheese stocks are still below the prior year but climbed by 13 million pounds from December to January, the most significant increase between these two months since 2019.

(4:04) Alyssa:
Earlier, you mentioned the CME spot butter price hit the lowest level since April of 2023 this week. I bet those cold storage numbers for butter were pretty good then.

(4:14) Cara:
Right again. Butter stocks marked their highest January volume since 2021, up 23 million pounds from the same time last year. From December to January, inventories grew by 56 million pounds, a substantial amount, but not unheard of. December Supply And Utilization data also showed domestic demand, which accounts for about 95% of total butter use in the US, was well below the prior year, coming off an all-time high in November 2024. There certainly is plenty of butter, and best believe we are still making more. Cream is plentiful across the nation. The West All Classes Average Cream Multiples marked 77.5% this week, the lowest value since May 9th, 2020, and just above the all-time low, with data back to 2018, of 67.5% achieved on April 25th, 2020. The All Class Average for the Upper Midwest was a bit higher than the prior two weeks, but at $0.84, it’s incredibly weak. With milk production seasonally rising into spring flush, plentiful milk flows, and of course cream, are making their way into butter churns, resulting in a build in supply and a fall in butter prices.

(5:26) Alyssa:
Let’s talk about that for a second, Cara, because US CME spot butter, even when adjusted for 82% butter fat, is still nearly a dollar per pound cheaper than European and New Zealand product. At such a wide disparity, US butter could be enticing to some international buyers. However, there is that overhang of uncertainty surrounding trade wars and potential tariffs that could dissuade some purchasing. Speaking of tariffs, this week President Donald Trump said the US would go through with implementing a 25% tariff on Canada and Mexico as of March 4th. While Mexico and Canada have not announced any response, I’ll remind you that when tariffs were initially set to take effect February 3rd, Canada immediately dropped a reciprocal 25% tariff on US goods, including a variety of dairy HS codes, including cheese, whey, butter, and milk powders. As for Mexico, the last time there was a trade war, they did have cheese on their retaliatory list, but nothing official has been announced this time around.

(6:33) Cara:
Mexico penned a free trade agreement with the EU in January, including milk powders and cheese, which is a particularly interesting partnership, given on Thursday, Trump threatened to place a 25% tariff on imports from the European Union. The US is the top destination for EU cheese and butter exports, so a 25% tax would have a significant impact on these markets.

(6:56) Alyssa:
Well, Cara, he’s not stopping there either. Along with the implementation for tariffs on March 4th, Trump proposed an additional 10% levy on Chinese goods. Of note as well, for the past several years, US shipments of whey for feed into China have been exempt for levies as the country primarily uses it for livestock feed. This exemption is ending as of today, so we’ll be closely watching this impact on whey exports and the market going forward. As a reminder, this would push tariffs then to 25% from the original trade war from about five years ago. And last but not least on tariffs, the President ordered country-by-country assessments aimed at adjusting trade relations to reduce America’s trade deficit, but now levies won’t take effect immediately and will likely take a long time to assess despite the plan to put them in place April 2nd, but we shall see.

(7:51)
Let’s end on a positive note, shall we? New Zealand Milk Production was stellar in February, up 5% year-over-year on a milk solids basis. That brought season-to-date production as of the end of January up 3.9% compared to the previous year, adding 50.8 million KgMS. In whole milk powder equivalents, that’s an additional 46,200MT of whole milk powder than the previous season. However, it’s worth noting that standard whole milk powder exports are currently 3% behind the same point last year, so those solids are likely being directed elsewhere. With strong milk came very strong export volumes in January as well. New Zealand’s January dairy exports reached their highest-ever volume for the month, driven by significant growth in exports to key trade partner China. Whole milk powder shipments popped, butter volumes were very strong, skim milk powder even eked out gains, and they all just looked pretty solid across the board on all products. The other interesting observation is that palm kernel expeller imports into New Zealand were up 30% from prior year in January. That’s a solid indication that milk will continue to be robust into the end of the season.

(9:10)
The other key data release overnight was Fonterra’s Pre-GDT Forecast Volumes ahead of next week’s GDT event. Though Fonterra has made no changes to their 12-month forecast for all commodities on offer. However, SGX markets have been certainly interesting and mostly negative. Futures traders are pricing in a 3.2% drop on C2 whole milk powder throughout March, a 4.4% fall on skim milk powder, a 1% decrease on AMF, and a 1% gain on butter versus February settlements. Fundamentals appear to have pushed the market past a tipping point, with New Zealand milk production data now eliciting a more formalized market response. While latent demand should help prevent a sharp collapse in prices at the GDT event, we still anticipate a gradual easing in the near term.

Well, that does it for this week. Be sure to head to the dashboard to see all of our in-depth analysis that covers all the data points we talked about today. Thank you so much for tuning in. As always, we’ll be here every week to bring you the latest market insights and updates to keep you ahead in the dairy industry. Cheers!