Let’s Chat Markets – 1 December 2023

Let’s Chat Markets 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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[00:10] Alyssa: Happy Friday to all of you! Thank you so much for tuning into Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. Today is Friday, December 1st, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Dairy Market Intelligence Manager. We hope everyone enjoyed their Thanksgiving holiday last week, especially the food—I know I sure did! Well, now we are back in the saddle to cover dairy markets as we wind down 2023—I can’t belive it—and look to the new year! Let’s get started this the CME recap of the week, Cara.

[00:49] Cara: Absolutely. Well, we ended November yesterday and while butter gained just over 15 cents this week, closing at $2.6550—unchanged from yesterday—the monthly average butter price for November was down a whopping 66 cents, or 20%, from October. That fall from peak to trough sure was mighty. It will be interesting to see how December plays out. On the cheese board, blocks slid throughout the week falling to $1.5200 per pound with 14 trades. Blocks closed today at parity with the barrel cheese price. Barrels bounced around a little bit this week but was able to climb back to that $1.52 per pound mark and see 16 trades. Nonfat dry milk also moved a bit but found greater support when the price fell to $1.1750 on Thursday, trading 9 times, and closed today at $1.1800 with another 9 trades. Lastly, the dry whey market has been a snooze fest, remaining unchanged at $0.3975 until today where it moved up just a quarter-cent to close at $0.4000 per pound with a total of 6 trades.

[01:54] Alyssa: 20% on butter—pretty big drop there only to see that positive action this week. You know, we’ve actually had a lot of inquiries about the past week in butter markets so I thought I’d touch on what’s been happening this week.

[02:08] Futures had tanked into last week only to consolidate and move higher and it’s been pretty remarkable to watch the pivot from traders to step in and buy as the sell side has been pretty quiet. A shift we have seen into this week to support the rise is lower cream availability in California, as well as a bounce in cream multiples in the Midwest, which has added an extra layer of complexity as we head into the holidays. If product remains tight, we could see further support throughout December. We got an update on butter inventories last week but that analysis didn’t get released until this Monday—what was our conclusion there, Cara?

[02:45] Cara: Well, the USDA released that October Cold Storage data right at the tail end of last week and the overall outcome was neutral to our expectations. September butter stocks were revised down by 8.8 million pounds, turning the year-over-year change from a positive 3% at the initial print to negative 0.3%, meanwhile, October inventories fell year-over-year to sit at the lowest level for the month since 2019. Given the limited availability of product throughout September and October, it’s unsurprising that butter prices skyrocketed to new highs at the time.

[03:21] On the other hand, total cheese stocks climbed from the prior year, up 1.2%. Natural American and other than American cheese inventories rose as well. Domestic utilization data, the lion’s share of the usage for cheese, has been down from May through September, suggesting that a lack of demand is at play here.

[03:41] Alyssa: It does seem like there is quite a bit of uncertainty surrounding the US economy currently as consumers try to weigh holiday spending against tight budgets. It’s pretty crazy to see record black Friday sales knowing that debt is also at record levels here.

[03:56] Cara: I would agree. We have been tracking consumer spending and credit data throughout the year so far and it’s apparent that Americans have kicked the proverbial can down the road when it comes to spending. Savings rates have plummeted and credit card balances and delinquency rates on are the rise suggesting that while spending it up, there really isn’t money to spend. Black Friday and Cyber Monday sales were higher this year compared to last, sure, but the underlying data shows that more consumers are purchasing with buy-now pay-later apps, which is just another form of debt and one of the only credit options that can be paid using other credit. With the turn of the calendar, interest will begin to accrue on credit cards as well and with most sitting at an APR of 20%, those charges are going to bite. I’d say things are looking a bit more rough for the American economy in 2024, which will weigh on the food retail and restaurant industries as well.

[04:52] But there are some bright spots ahead looking at international markets. It sounds like robust cheese and butter demand in Europe has made availability in the region tight and driven prices higher. Alyssa, can you enlighten us on what’s happening across the Atlantic?

[05:07] Alyssa: Yeah, so the consumer side is pretty strong in Europe but of course, this is milk production issue as well with cheese and butter inventories getting tight. For months, Germany, the Netherlands and Poland were carrying European milk production but recently, Poland has been one of the only top countries to report growth. Now that German and Dutch collections are faltering, alongside Ireland, France and Italy, growth will be stymied into the New Year. And, in our opinion, this will be one of the top fundamentals to watch in 2024. Weekly milk production from Germany, France and the UK continued to reflect bleak production losses into the end of November and there are little expectations for this to change in the near term.

[05:53] Looking at the Southern Hemisphere, Global Dairy Trade held their 38th Pulse Auction on Tuesday with regular whole milk powder dropping just $5 per metric ton to $2,970. Skim milk powder saw a stepper decline, consolidating 1.2% from the prior GDT event or $30/MT to $2,515. Into next week at the larger GDT event, there was an interesting shift coming out of Fonterra’s offer volume announcement. The co-op revised its 12-month Cheddar offer volume forecast, reducing it by 960MT for the upcoming year. This reduction includes a decrease of 180MT at the upcoming auction next week, representing a significant 25% decline. Fonterra states that this change is due to product mix optimization, which comes as really no surprise considering that GDT Cheddar prices slumped 10% on average at the prior auction. With cheese prices facing downward pressure and global whey prices still struggling, the milk valorization of cheese has fallen below that of commodity powders for most of New Zealand processors. While unimpressive overall demand on the auction platform has kept markets in balance, the bulls continue to be on parade in the Singapore exchange with all futures holding a significant premium to where GDT prices last settled. With New Zealand milk printing green numbers during peak, and buyers seemingly unconvinced about El Niño risks to production going forward, there seems to be no impetus for Asian buyers to chase prices now.

[07:44] Speaking of Asia, our team also pushed out our Asia Trade Volume analysis this week and we highly recommend you check that out. Some interesting stats from that report include the fact that Japan is teetering on the verge of becoming a net exporter of skim milk powder through October. And from South Korea, cheese imports dropped off aggressively into October as well due to less US and Kiwi cheese flowing into the country. Head to the dashboard to see a nice overview of trade flows and market share in key nations such as the Philippines, Vietnam, Malaysia, Indonesia, South Korea and Japan.

That does it for this week’s market roundup. Thanks for tuning in! Wishing you and yours a lovely weekend, cheers.

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