Let’s Chat Markets – 23 February 2024

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. Today is Friday, February 23, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Senior Manager of Market Intelligence. Some big reports came out this week, the first US Milk Production Report of 2024, another positive Global Dairy Trade event, New Zealand Exports and Milk Production, and the highly anticipated US Cold Storage Report that will be released later this afternoon. We’re going to dive into the data on these items in just a minute but first, let’s start off with the CME spot market recap.

[00:56] Cara: Absolutely, the barrel to block cheese price premium ended last week at $0.1275, the largest inversion spread since June 20, 2023. That gap narrowed only slightly this week after blocks climbed today to close at $1.5500 with 19 trades. The barrel price held relatively unchanged and settled today at $1.6100 with 6 trades, bringing the block versus barrel spread to 6.5 cents. Dry whey sits at $0.5225 currently and traded just once the entire week on Tuesday. In the Class IV world, butter continues to soar, breaking through $2.80 to close at $2.85 today with a total of 24 trades, 15 of those occurring on Tuesday. Lastly, nonfat dry milk is hovering around $1.2000 with 15 trades in total.

[01:45] Alyssa: US Milk Production really shook the market this week, posting a decline of 1.1% against prior year. That’s the largest decline in two years! Cara, why don’t you give us a rundown on the data?

[01:59] Cara: For sure. Yes, this was the seventh consecutive month of year-on-year losses with notable revisions as well. Of the top 11 dairy states, only Wisconsin grew output in January solely on strong milk per cow volumes. Of the declines, Idaho was the most notable. In the last six months of the year, Idaho productivity fell, with five of the six months down by 1.2% or more, with January coming down 1.9% compared to the prior year, the lowest total for the month since 2019. Now let’s talk cow herd. Down an incredible 76,000 head compared to last year, this is where the revisions really kick in. Every month’s tally in 2023 was lowered, with revisions ranging from a loss of 2,000 to 13,000 head! December’s initial post was revised down 9,000 head lower, bringing the December to January change to a total loss of 23,000 cows. Wow! January’s report was the most bullish we have seen in a while. Supplies are tightening and while demand has not been overly robust for some commodities, it is only a matter of time before the pendulum swings and markets rachet higher. High costs for replacement heifers will be challenging to grow the milk herd and milk output in 2024, but this could somewhat be counteracted by increasing yields per cow. Innovation is key, and I’ve never met anyone more ingenious than the American farmer.

[03:24] Alyssa: Yeah that’s a great point, Cara. US farmers are amazing at finding a way to get more milk. Not to mention the record-breaking component levels we continue to see as well. Speaking to cow losses, anything important on the weekly slaughter figures released from the USDA this week?

[03:39] Cara: Weekly slaughter levels are climbing back to their typical levels we’ve seen around this time of year, but still remain 8.5% below the prior year. Steep losses are recorded out of California, down 30% year-over-year this week, bringing the 2024 total for the state so far to 77,000 head a decline of 28,000 head compared to last year. I don’t think any of this data is really surprising, however, given the significant revisions and lower herd size we’ve seen in the milk production report.

[04:09] Alyssa: And we are recording this, as you mentioned, before the release of the Cold Storage Report so we look forward to recording our reaction to that later today but for reference, the five-year average build on butter stocks from December to January is typically around 43.2 million pounds while total cheese has averaged an increase in inventories of around 8 million pounds from January to December. We are definitely keeping an eye out on revisions as well on that report.

[04:38] Butter seems to be dominating headlines from analysts this week, most notably from Europe but we saw gains pretty much everywhere: on the GDT Auction platform, the European Energy Exchange (EEX), and at the CME. There was no shortage of volatility on the European Energy Exchange with Q2 futures contracts moving as high as €6,550/MT and the Q3 contracts rising to €6,600/MT—that would be well over $7,000/MT or around the $3.20/lb. level. The rumor mill has stated that this was primarily driven by traders following Gulfood event in Dubai and prices came closer down to earth by the end of this week, closer to that $3.00/lb. level, which is still slightly above Fonterra’s unsalted butter and well above US butter prices at the moment.

[05:37] Cara: What else happened on the GDT Auction, Alyssa?

[05:40] Alyssa: You know, we actually saw the sixth consecutive positive GDT event and it was quite the surprise. The market was expecting a correction across whole milk powder and both milk fat products. While whole milk powder performed as expected, correcting slightly lower after a strong gain at the first event in February, milk fat products continued their streak higher, with Anhydrous Milkfat marking the largest gain on the auction platform, jumping 8.6%. While this event was pretty much neutral overall, there was a resurgence in China’s market share, though it was coupled with that weaker whole milk powder price and could potentially signal a near-term bearish trend there. And while China’s market share improved, the Middle East backed off, a relatively expected seesaw situation.

[06:30] Other data out from Oceania this week, Dairy Australia released January Milk Production figures, which were up 4.9% from prior year. New Zealand’s January Milk Production Figures moved in the opposite direction, down 0.6% from prior year on a milk solids basis. And, we got our first 2024 trade figures from New Zealand this week and there were some very solid numbers there. Skim Milk Powder shipments from New Zealand jumped to the highest level in nearly a decade due to strong demand from China, Indonesia, Malaysia, and the Philippines. Whole milk powder also reflected substantial growth with a large jump to China and fat shipments were also pretty impressive. Be on the lookout for our Comprehensive New Zealand Dairy Production and Trade Analysis early next week.

[07:21] Alyssa: Cara, you did a great job on the Weekly European update, what were your key takeaways on European prices and the weekly milk production figures that come out every Wednesday?

[07:32] Cara: Well, thank you. We actually got the final December Milk Production figures this week as well with volumes dropping -0.3% below 2022 levels, bringing the annual 2023 production change to just down 0.03%, a difference of only 34,000 MT. French and German output rebounded from the lows in November and more recent weekly milk collection data shows that production in those countries is coming back with a force. Worth noting as well was the discrepancy in reported Italian milk flows between Eurostat, CLAL, and the European Commission’s Milk Market Observatory which could skew the overall EU output by up to another 0.3%. In the cheese market, prices have found a bit of support. Production in December was up in Germany and Poland, but demand was still rather weak. The upcoming Easter holidays are expected to provide a boost in consumption which is likely helping to stimulate purchasing in preparation. Similarly, the butter market is also seeing some price growth. Stocks are low and output in December was not overly strong. Buyers are stocking up for Easter and of course, asparagus season in Germany, but beyond that it looks like uncertainty keeps longer-term contracts off the table for the moment.

[08:45] Alyssa: That’s right, thanks for that update, Cara. And while milk is rising seasonally in Europe and doing a bit better than where were earlier in Q3 of last year, there is not much expectation for a very strong recovery throughout 2024. Well, I think we could talk all day about everything going on in these markets but this recap will have to do for now. As always, if you want a more in-depth look at all the global dairy happenings, head to our website and view our dashboard if you are a customer. And, if you aren’t, request a free trial today and we will get you set up. Have a great weekend, cheers.

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