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!
Listen on Spotify | Listen on Apple Podcasts | Listen on Amazon Music
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, September 6th, and you’re hearing from Alyssa Badger and Cara Murphy. We hope everyone had a nice relaxing Labor Day weekend, and now we’re back in action with this week’s dairy news rundown. As always, we’ll start off with the CME Spot Market Recap. Take it away, Cara.
(0:40) Cara Murphy:
Alright, things have settled down more this week for cheese. Blocks steadily moved higher to closes at $2.27 per pound, the highest price since June 9th, 2022, with 7 trades, while barrels climbed to $2.2750, with 5 trades in total. Dry whey moved up to $0.5875 per pound, with a total of 5 trades, and butter rose as well to $3.1750 per pound, with 22 trades on the week. Lastly, nonfat dry milk broke out, climbing to $1.3650 today, reaching highs not seen since December 2022, and trading a total of 19 times for the week.
(1:17) Alyssa:
Thanks, Cara. With the start of a new month, July US Trade Data was released this week, and I know everyone’s anxiously awaiting that dairy products report out in just a couple hours at 2 pm central this afternoon, but until then, what were the takeaways of that trade data for the US?
(1:33) Cara:
Well, I mentioned earlier that breakout in nonfat dry milk on the CME spot market, and we can see one reason for that is perhaps a boost in international demand, while inventories sit at low, low lows for the US. In July, over 70,000 metric tons of nonfat dry milk skim milk powder was shipped abroad, the highest total since May 2023. Sticking to Class IV, butter exports increased for the second month in a row. At 6 million pounds, this is the second-highest total in the past year. Even so, the US remains a net importer of butter, with a good bit more this month coming from Ireland and New Zealand. In the Class III world, total cheese exports improved from June’s totals and remain historically strong. Mexico was the big buyer in July of total cheese, while cheddar volumes remained stymied. For dry whey, exports grew over the prior year on improved sailings to China and the Philippines, and whey protein concentrate sales continue to benefit from healthy demand for protein around the globe.
(2:32) Alyssa:
It sounds like demand for US dairy is doing rather well. So now tell me how things are on the producer front.
(2:39) Cara:
Oh, I’d love to. Let me dig up my old boots and get to chatting. I’m sure you saw the Announced Class And Component Prices for August moved up nearly across the board from July, and with the price of dairy commodities, milk checks are looking pretty good right now. It’s been a stellar year for crop growth across the Midwest, and the Pro Ag Tour results suggest above-average yields in the Corn Belt. As of today, September corn is sitting at about $3.95 per bushel, and November soybeans futures contracts at about $10 per bushel, so pretty low. It’d be a hard time as a row crop farmer right now, but anyone on the livestock side, such as dairy producers, has to be loving these feed costs. With feed as one of the largest costs of operation for dairy producers, the low prices and healthy milk checks means margins look good. Typically, farmers would take these profits and invest in expansion of their operation, but we don’t believe this to be the case. With the current macroeconomic landscape, particularly the high interest rates, producers are more interested in paying down debt before looking to expand.
(3:40)
The tight replacement heifer supply and high costs for these heifers also keeps a damper on expansion plans. Producers are holding onto older cows for longer, which has been a noticeable trend in the 2024 Dairy Cow Slaughter data throughout most of the year. Farmers are doing all they can to get the most milk out of each cow, but not without facing challenges posed from a hot summer and an outbreak of bird flu.
(4:03)
Speaking of which, bird flu has officially been confirmed in three California dairy herds. While some speculate the disease has been present in the state for longer, this officially marks the 14th state with confirmed cases among Texas, New Mexico, Idaho, Wyoming, South Dakota, Iowa, Minnesota, Michigan, Ohio, North Carolina, Oklahoma, Colorado, and Kansas. Bird flu was originally found in Texas dairy herds in March, with the USDA reporting that the disease was likely transmitted via the wild bird population. As birds migrated north in the spring, the disease appeared in Michigan and Idaho next. Now as the calendar turns to fall and birds return to their southern wintering grounds, there is a possibility more cases arise in the southern states once again. Only time will tell though.
On this topic of disease outbreaks weighing on milk production, Alyssa, do you have any updates on the Blue Tongue outbreak sweeping western Europe?
(4:57) Alyssa:
I do. So we here at HighGround continue to closely monitor this disease in Europe. While it is impactful to the dairy industry, it isn’t new. European farmers have battled this disease on and off for several years now. Blue Tongue, so amply named because the virus causes the lips and tongue of ruminant animals like sheep, goats, and cattle to swell and become bluish in color, it really poses no danger to human welfare. Because the disease causes swelling of the lips and tongue, it does become painful for animals to eat, and thus they go off feed. If they don’t eat, they don’t milk. So the result is a drop in their milk production and in extreme cases can even lead to death. The disease is spread through biting insects and is currently impacting the Netherlands, Belgium, France, Germany, and the UK. So far, Germany and France have approved the use of several vaccines to stop the spread ahead of the EU-wide approval expected this fall. More recently though, the UK has approved the use of two vaccines and halted the transport of ruminant animals in three counties where the disease has been confirmed. Looking at weekly milk collection figures, it appears Germany has taken the hardest hit from this disease, while France and the UK are faring just a bit better.
(6:15) Cara:
That’s good to know. It’s interesting how two of the largest dairy-producing powerhouses in the world are dealing with disease at the same time as their milk supplies approach the seasonal lows. Global dairy commodity prices have been on a tear recently. I was stunned to say last week, and I can’t believe I’m asking this yet again, did I see $4 per pound European butter?
(6:36) Alyssa:
You sure did. And it might even be higher next week. Tight milk supplies in Europe coupled with robust demand has sent prices skyrocketing. With the high price of cream, it’s just not economical to make butter unless manufacturers sell it at these elevated levels. It’s so easy and profitable to just sell the cream from the milk than make other dairy products that it may be impacting the rest of the dairy market as well.
Cheese inventories in Europe are minimal and prices are also red hot, leading the rise on the global market. It’s reported that more vats are sitting empty as what milk is available is skimmed for cream and the rest sent to dryers. As whey is a byproduct of cheese production, less cheese output and thus less whey is contributing to the rising whey prices as well.
(7:24)
What does this all come down to for Europe? Well, the autumnal and winter holidays are fast approaching, a time when demand seasonally spikes. Unless for some reason consumers vastly reduce their purchasing, it doesn’t appear prices will abate anytime soon, at least not until holiday pipelines are filled.
(7:43) Cara:
You mentioned European prices are leading the way on the global market. The 363rd Global Dairy Trade Event was held this past Tuesday, and I hear there was a bullish move for skimmed milk powder while other commodities met some resistance. What are your thoughts on that?
(7:56) Alyssa:
Yeah, Cara, so after two strong results that we saw in August that was relatively unexpected to the general marketplace, there was some concern about how much higher buyers would be willing to push the prices of whole milk powder, and this auction confirmed that the buy side returned to somewhat cautious levels. So whole milk powder did not perform this week as SGX futures traders had expected, and instead it moved lower.
(8:21)
Despite fat prices moving in the opposite direction in Europe, butter on the global dairy trade platform also fell, and like you mentioned, skimmed milk powder on the other hand made a strong move higher. This surge in skimmed milk powder prices were underpinned by the fact that SGX traders were pricing in even further increases on S&P into the weeks ahead. European skimmed milk powder prices are also on that upward trend, driven by those concerns over milk supplies due to the blue tongue situation that we already discussed. North Asian buyers once again played a pivotal role in driving up prices on the skimmed milk powder side, while Southeast Asia and the Middle East took more of a cautious approach.
(9:04)
There is a clear disparity between Oceania and European values on these products, as Europe continues to face a more bullish situation internally, given the strong expectations for milk from New Zealand as we head into peak production months. Given the record-breaking fat and cream prices being reported from European reporting agencies, the GDT’s underperformance from butter was really a surprise as C2 unsalted butter fell below $3 per pound, quite the opposite of what we’re seeing out of Europe at that $4 per pound mark, which doesn’t seem like a very sustainable move.
That’s all from the High Ground Chicago office this week. Thanks again for tuning in, and be sure to subscribe to this podcast and join us next week for another discussion on dairy fundamentals. We appreciate your support. Cheers.
Be sure to subscribe so that you never miss an episode. And if you’re interested in receiving more information, as well as our analysis, please visit highgrounddairy.com to request a free 30-day trial today. Futures and options trading involves substantial risk and is not suitable for all investors.