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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Transcript:
[00:09] Alyssa: Good afternoon and 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 15th, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Dairy Market Intelligence Manager. The team has been hard at work preparing our Monthly Global Dairy Commodity Price Forecast which will be published later today so be on the lookout for that and we’ll be available live on the webinar Monday at 12 PM Central to discuss those topics and answer any burning questions you may have so don’t miss it. Customers can also find the Forecast and a recording of the webinar, if you are unable to attend, on the HighGround Dairy website. With that, let’s start with our normal CME Spot Market recap of the week.
[01:02] Cara: Absolutely. Block Cheddar jumped a bit throughout the week but closed today at $1.5200 per pound with 9 trades and while the barrel cheese price gained on Wednesday, it trended lower overall, closing at $1.45 with 27 trades. Butter lost over 8.5 cents between Monday and Friday, closing at $2.4900, seeing a total of 8 trades, most of which occurred on Tuesday. Dry Whey has been hovering within a half-cent range, near $0.3900 per pound with just 2 trades. Lastly, the Nonfat Dry Milk (NFDM) market is rangebound between $1.1600 and $1.1700, closing today with 6 trades in total.
[01:40] You know, it’s been a rather quiet week overall in the domestic market, Alyssa. The Class III Spot Basis in the Upper Midwest remained unchanged this week from last, sitting in a wide range of $4.00 under Class to $1.00 over. The USDA noted that cream supplies are more abundant across the region and expect that as milk availability rises near the end of the year, lower spot offers will begin to appear as well.
[02:05] It’s more of the same for Dairy Cow Slaughter Rates as they continue to trend well-below previous years. Interestingly though, volumes in Region 10 (the Pacific Northwest) turned positive year-over-year for the first time since July 1st. Slaughter in this area pulled back faster than observed than in other regions and is the only major dairy-producing sector whose year-to-date slaughter volume is below the prior year, down 11,000 head. On the opposite side of this, culling in Region 6 (the Texas-New Mexico area) held positive for longer than other regions and has been a driving force behind positive total US year-to-date slaughter. However, the weekly levels did finally turn negative year-over-year in the end of October and as of the week of December 2, this marked the largest loss versus the prior year since August 2022.
What else has happened this week, Alyssa?
[02:59] Alyssa: I think October Supply and Utilization was released on Tuesday. Was there anything notable from that report?
[03:05] Cara: Oh yes! Despite fair domestic Butter consumption, dismal exports moved total utilization below the prior year. Similarly, Total Cheese usage was positive year-over-year, supported by just enough domestic demand to offset lower exports, particularly large losses of American Cheese exports. NFDM utilization was significantly depressed—the smallest October volume since 2019—from less domestic and international demand. But the Whey complex is doing a bit better. High domestic consumption of Dry Whey drove total usage to the largest year-on-year gain since May 2022. Whey Protein Concentrate (WPC) disappearance also reached the highest monthly volume since March 2018 with domestic consumption up a whopping 163% compared to 2022 on a year-to-date basis. Specialty high protein products using milk and WPCs and Whey Protein Isolates (WPI) have popped up in the consumer market in recent years and it seems that Americans can’t get enough of them. You can find more information on this trend in our Price Forecast published this afternoon as well, so check that out.
I think that just about covers the US. Alyssa, what’s shaking in the rest of the world?
[04:17] Alyssa: Where to begin! In our Forecast Report, we did some in-depth analysis on the top 5 fundamental drivers, and the first thing we are really watching, and continue to watch month after month it seems, is that China continues to face various economic challenges, including structural downsizing of the property sector, demographic changes (meaning an aging population), and climate change. The government’s focus is shifting away from growth maximization towards national security and self-sufficiency, which is really creating confusion around the future of dairy demand. Interestingly enough, China exported a large amount of Whole Milk Powder (WMP) in October into North Korea, kind of a testament to the heavy powder inventories in the country this year. Second, as prices inch higher on Global Dairy Trade (GDT), Fonterra has lifted the bottom portion of their Farmgate Milk Price Forecast range between NZ$7.00 and NZ$8.00 per kilogram milk solids (kgMS) from its prior range of between NZ$6.50 and NZ$8.00 per kgMS. But will this be enough for Kiwi dairy farmers to shift into growth mode throughout 2024? The third scenario our team covers is that while Cheese and Butter prices have pretty much consolidated in the US and New Zealand, European values started trending in the opposite direction, a result of tight milk from Germany, France, Ireland, and the Netherlands. This situation is not sustainable into 2024 as Europe will lose out on export share as a result. Fourth, from a demand standpoint, energy prices have been under pressure, which may be indicative of a shallow recession into the next calendar year, especially as gold is moving higher, which is typically a safe-haven asset to buy ahead of a recession. Inflation numbers also remain stubbornly high in a number of countries, which limits household spending. Lastly, our team digs into the market share shift being reported on GDT as emerging markets step in to secure product at multi-year lows. Above and beyond that, we spent the week carving out price expectations for global indices through the first half of 2025. If you’re a customer, again, you won’t want to miss our webinar this coming Monday, where we will be on to discuss everything pertinent in the marketplace impacting prices into the next year and a half.
[06:44] Yesterday, we also pushed out our Pre-GDT Analysis ahead of next week’s auction and SGX traders are still expecting prices to keep appreciating at the final GDT event of 2023, with the price achieved for WMP at this week’s Pulse auction of $3,100/MT potentially a catalyst for prices to break higher. The big story, though, was the fact that Fonterra removed Butter volumes on offer, reducing the 12-month forecast by 4,515MT to 40,900MT. That change in offer volumes removed 48% (1,025MT) of the previously forecasted offer volumes for next week’s auction. It seems to us that removing nearly half of offer volumes can only push the market in one direction. You’ll have to head to the dashboard to read more about our expectations, though.
[07:36] The last thing I’ll cover is that Eurostat released October Export Volumes this morning and there were some interesting figures there. Strong Cheese exports were maintained with the US holding onto top position. In fact, the EU shipped the largest amount of Cheese into the US since January 2020. Other destination markets that held up cheese exports were Chile (+1,587MT YoY), Libya (+1,315MT YoY) and Canada (+1,059MT YoY). Butter volumes moved counter-seasonally higher from September into October and once again, the most strength was shown to the US, aligning with the bullish run on CME Spot Butter that increased demand for international fat from the US. Conversely, SMP shipments sank as volumes to Algeria dipped 50% year-over-year. The second largest drop was recorded into China, down 73% from prior year and the lowest volume that Europe has sent to China since March 2013! Skim Milk Powder exports to Southeast Asia were also pretty lackluster. As Europe now holds a premium on key commodities against the US and New Zealand, these strong export volumes will not be maintained into the end of the year.
That does it for this week’s market roundup. Thanks for tuning in! Have yourself a great weekend, cheers.
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