Let’s Chat Markets – 22 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: 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. Hopefully, by the time you listen to this, you are officially on holiday break and gearing up to spend time with your loved ones. Today is Friday, December 22nd, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Betty Burning, our incredibly talented Contributing Analyst.

[00:37] It was another busy week of market analysis and global dairy happenings, so we are certainly ready ourselves for this long weekend ahead. Betty, let’s start with the CME Spot market recap.

[00:48] Betty: Thanks, Alyssa, and Merry Christmas, listeners! It was an ugly week in the cheese market. Blocks closed this week at $1.39 per pound—not something that was expected in late December. They are back to being at a small discount to barrels. Barrel prices were not any better with a closing price this week of $1.3925 per pound. Buyers were interested in a deal ahead of the holidays as blocks traded 30 times (the most since the week ending July 1) and 62 car lots exchanged hands in the barrels market, the most since the week ending July 8.

[01:28] Nonfat Dry Milk (NFDM) broke below $1.16 per pound on Wednesday and Thursday, as 10 trades occurred during the week. Wednesday’s price of $1.1550 per pound matched September 25th‘s price which was the last time prices were this low.

[01:46] Dry whey ended the week at $0.38 per pound, coming off $0.3725 per pound on Thursday. Thursday’s price was the lowest since November 2nd.

[01:57] Butter was the only market on the week that had some upward momentum. It rocketed to $2.6050 per pound on Tuesday, up over a dime from last Friday’s close. However, today markets pushed lower today, settling at $2.54 per pound. Still, this week’s average price of $2.5795 was up over $0.08 per pound over last week’s bottom of the barrel market.

[02:23] Alyssa: And Betty, before I hop into international markets because there is a lot to cover there, why don’t you give a quick rundown on some of the highlights from the November US Milk Production Report?

[02:32] Betty: November US Milk Production weighed in at over 18 billion pounds, down 0.6% or 104 million pounds from November 2022. Big losses were measured in New Mexico, California, and Texas, with a total decline in those three states of 141 million pounds So, really pushing the US total lower.. The Central regions of the country fared better, with milk production growing in South Dakota, Iowa, Wisconsin, Indiana, and Ohio. Overall, the US herd continues to shrink despite lower slaughter this fall. Cow numbers are down to 9.36 million. That’s the smallest herd size since June 2020. Heifer inventories are tight and that may be keeping the herd from recovering more quickly. Alyssa, I’m going to hand it back to you.

[03:27] Alyssa: Yes, and you’ll be covering the November Cold Storage Report later this afternoon so, listeners, be on the lookout for that. Alright, we’ve got a little bit of everything to cover on global markets so let’s start with Europe. We finally got Milk Production figures for October and collections fell 1.8% from prior year. That’s the worst drop we’ve seen on a percentage basis since February 2017 and slightly worse than we were expecting. France, of course, was one of the main drivers there but Ireland’s losses were even bigger. Producers have been dealing with lower milk prices in Ireland than the rest of the EU, but farmers are also likely prepping for the reduced nitrate derogation that will come into effect in 2024. The EU has also released October Trade Flows and in line with less milk. Total dairy export growth was pretty minimal at 1.1% year-on-year growth but marked the second smallest total export volume for the month since 2017.

[04:28] Betty: European dairy prices have baked in a nice premium against the US and New Zealand due to those lower milk volumes, but we did see some impressive gains higher on the Global Dairy Trade event this week.

[04:40] Alyssa: We sure did. So, switching over to Oceania, Global Dairy Trade concluded the 2023 calendar year with a very robust auction, registering substantial gains across key products. The most significant increase was observed on butter with prices lifting 9.9% higher on average, aligning with expectations, because Fonterra reduced almost half of the available butter supply last week heading into this auction. The Whole Milk Powder (WMP) result exceeded expectations following the previous auction, displaying a notably bullish trend. Really, the only disappointing result was on Skim Milk Powder (SMP), settling below market expectations. Favorable returns in New Zealand for the SMP fat stream has meant stronger availability of SMP in recent months.

[05:30] Speaking of availability, New Zealand’s November Milk Production results came out overnight and milksolids grew 0.8% from prior year during the month. That was closely aligned with the higher end of our forecast which had a midpoint of +0.5% from prior year. December collections are expected to remain positive and are likely to settle near the high end of our forecast once again. Throughout the first couple weeks of December, weather remained pretty ideal in New Zealand, and producers will have a decent silage reserve as a result which is a good thing with forecasters expecting a pretty hot dry Q1 2024.

[06:09] Betty: New Zealand’s Export Volumes were impressive in November too, exploding 20% higher from prior year across key commodities. The Middle East and Southeast Asia stepped up in a big way to counter weaker Chinese demand. And by weaker, we mean far less than the incredible levels that China was buying in 2021 because there was also a slight improvement in Chinese demand from last year.

[06:34] Alyssa: Yeah, shipments to Saudi Arabia were quite impressive with volumes to Southeast Asia the largest since January 2019. But let’s talk China because their November Import Volumes were also out this week and continued to underperform with New Zealand and Germany recording the biggest losses. Despite improved shipments to China from New Zealand last month (which should be reflected in China’s data for December or January), it may still take up to six months before our team anticipates a substantial improvement in demand from China. Anecdotal chatter has consisted of a slower growth rate in China’s milk production situation as of the October data, as the country continues to work through some higher milk powder inventories. They also continue to face persistently lower raw milk prices, extending over the past year, which will likely slow milk production growth rates within China next year.

[07:33] Well, that does it for this week’s market roundup. Thank you so much for tuning in today but also for being a part of our HighGround family throughout this year. We hope you have a beautiful holiday celebration with all your favorite people this weekend and that Santa maybe brings you a new car… or perhaps your favorite Marc Jacobs perfume or even a new Kindle Fire so you can take your favorite book with you everywhere you go! Sorry, I had to sneak that in just in case the husband is listening. Have a great weekend, everyone, and we’ll be on next week to chat markets with you. Have a very merry Christmas from all of us at HighGround Dairy.

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