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, February 16th, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy, and Betty Berning, Contributing Dairy Economist. As a reminder, US markets will be closed on Monday observing President’s Day so if you have the day off, we hope you have a lovely weekend planned. It has been a very busy day with our Monthly Forecast Webinar that we held today at noon! Subscribers, if you missed it, you can find the recording on our dashboard, along with our 18-month price forecasts and massive report covering everything impacting markets today. Alright, Betty let’s get into CME Spot recap.
[01:00] Betty: Thanks, Alyssa. Yeah, it was a bit of an exciting week, or, at least there was some movement this week in Block Cheese. It fell, settling at $1.48/lb. today, giving up $0.09/lb. since last Friday. Currently, the block-barrels spread is negative, with barrels at a $0.1275/lb. premium to blocks. This has been going on since this past Friday but it does seem unlikely to persist. Barrels closed the week at $1.6075/lb., the highest price in that market since early December. Spot whey hit a new high on Thursday: $0.53/lb. before dropping back a penny on Friday to $0.52/lb., which is also where it traded Monday to Wednesday of this week.
[01:49] Butter maintained its price over $2.70/lb. and settled today at $2.75/lb., six cents higher than a week ago. Further, there was a big volume day on Thursday, as 15 car lots exchanged hands which was the highest of the week and came after three days of zero volume. Nonfat dry milk quietly slipped back below $1.20/lb. this week, settling at $1.17/lb. today. That’s actually the lowest price thus far in 2024, as demand abroad remains quite slow.
[02:23] Alyssa: December’s Supply and Utilization came out this week. That domestic butter usage number was insanely high. Was this a surprise to the market?
[02:31] Betty: Definitely not. Cold Storage showed that there were smaller butter stocks in December and Dairy Products showed strong production so we could see that domestic demand for butter was also quite high in December. Total December consumption soared by 22.5% compared to the previous year, marking the largest value for the month in the data set, and all due to robust domestic utilization. There was a +4.7% gain from November to December and that was the first increase between these two periods going back in the data again to 2011 and very stark against the five-year average decline of -23% between those two months. On an annual basis, usage of all commodities rose except for nonfat dry milk and skim milk powder. While exports sank in 2023 relative to 2022, it really was domestic demand of dairy products being super robust, keeping all of those totals in the green.
[03:36] Alyssa: Impressive. Let’s talk real quick on slaughter, it looks like things slowed this week.
[03:41] Betty: Yes, things did slow but it was still down from prior year. For Week 5 (the week ending February 3, 2024) farmers sent 60,000 head of dairy cattle to packing plants, a decrease of 8.7% versus Week 5 in 2022. Further, this was the smallest value for the week since 2014, so rates are still lagging quite a bit as farmers carefully manage their herd size. One interesting data point was a slight tick up in slaughter rates in Region V (the Upper Midwest), where culling climbed 1.4%, just 200 head, from the same week in 2022. Herd liquidations have been grabbing headlines in that region, and it’s a Class III heavy market, meaning margins are tight and some farms, unfortunately, may be exiting the business.
What about international markets, Alyssa? Why don’t you break down the global focus highlighted in our forecast report?
[04:42] Alyssa: I can do that! We have some changes from last month on this side but the focus is still pretty much the same as what we reported in January. We continue to weigh in on expectations from China and trying to cut through all the negative headlines we continue to see. Something that sticks out to us from a potential supportive factor into the second half of next year is that Chinese households are sitting on record savings. Some of this has to do with pulling out of risky investments such as real estate but the hope is that this will lead to strong spending once consumers feel confident about the economy again which may not come until Q3. Second, we dig into the shipping turmoil that remains a key issue here. February is a slower month for global trade with China on holiday and Ramadan demand mostly satiated but with two wars going on and drought impacting the Panama Canal, we may run into more shipping delays and trade route issues over the next few months. That being said, I don’t think we’ll get anywhere near the mess that we saw during the pandemic. The third thing we are watching is the New Zealand-UK Free Trade Agreement that has been in effect for nearly 11 months now and volumes have been pretty light but Europe is making it more and more difficult for the UK to trade with them so over the next few years we expect those volumes to potentially really pick up on cheese and butter specifically. The fourth thing we talk about is the European protests as they have delayed some really aggressive taxation or policy shift on some green policies that would have had a deep impact on feed and cows in the European Union that would have otherwise been pretty bullish for dairy markets but with these policies easing, we did avoid some volatility there. Lastly, while China remains one of the dominant forces in global dairy fundamentals and export volumes, attention is increasingly turning to the demographic shifts in the rest of Asia and what the possible outlook is for demand outside of China as populations grow and GDP expands elsewhere.
[06:52] Betty: Great recap, Alyssa, very thorough. What are expectations for next week’s Global Dairy Trade Auction? Looks like Fonterra kept offer volumes unchanged.
[07:03] Alyssa: Yes, so SGX traders are counting on a correction lower into next week’s auction, which is hard to disagree with, considering where prices have moved over the last five events. The question that is now being asked is: can the end of the Chinese New Year holiday and the Year of the Dragon, keep the fire lit under Oceania dairy prices, or will the Chinese and Middle Eastern buyers step away in unison and push prices back into the red?
That is it for this week. I am gearing up to enjoy a long holiday weekend and plan to do absolutely nothing. Enjoy your extra day off and thanks for being here, cheers!
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