Let’s Chat Markets – 26 January 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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Transcription:

[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, January 26, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy, and Betty Berning, one of our talented Contributing Analysts. I had a great time in Phoenix earlier this but in rare form for the region, it rained the entire time. So, the meeting areas were definitely packed and it was really great to see colleagues and customers walking the halls. If I had to pick a general theme, I’d say that everyone felt like we have some quiet markets here and a whole lot of uncertainty. Usually, there would be some business getting done in the hallways and there just didn’t really seem to be much of that going on.

[01:01] Most market participants were interested in discussing butter market dynamics and whether we’ll see a third year of a market squeeze into the end of the year. And given the existing fundamentals we have a hard time not expecting that ourselves. Nonfat dry milk was another hot topic given how directionless that feels. From a supply side, we should be bullish but global demand—or lack thereof—is really keeping things balanced. For cheese, the general consensus is that it’s a little undervalued but given the extra capacity coming online, the upside feels limited. Lastly, the industry seemed to agree that milk will be tight in 2024 no matter where you look but if demand doesn’t recover, we’ll be stuck in a tight range. Boy, but if it does, then the path of least resistance is to the upside.

[01:50] Speaking of industry events, in case you missed it, we have officially announced two speakers for our Global Dairy Outlook Conference this June in Chicago at the Union League Club. We have Drew Lerner, Senior Ag Meteorologist and founder of World Weather Inc. to give us a look at global weather models and what it means for agricultural markets. And we also announced Tom Bailey, Executive Director of Consumer Foods and Foodservice at Rabobank. You’ll be hearing more names over the next month but to make sure you stay up to date, head to highgrounddairy.com/conference to stay in touch.

With that, let’s get into our CME spot market recap. Betty?

[02:30] Betty: Spot markets were pretty quiet this week, Alyssa—at least during the first part while all of you were off at IDFA. We did see some pretty good action on Thursday and Friday. Let’s start with blocks, though. That was one of the few markets that did move early in the week. Blocks bounced back on Monday from their dismal close on Friday to $1.50/lb., staying flat through Wednesday. However, the last two days of the week, like I mentioned, brought some lift, as 15 car lots moved and blocks settled at $1.5375/lb. today. Barrels fell through the week before recovering their losses in today’s session, closing at $1.47/lb., again with most of the volume occurring Thursday and Friday. Butter saw a big pop after Cold Storage’s release on Wednesday, climbing $0.11/lb. on Thursday and $0.0725/lb. today. With some small increases earlier in the week, butter actually rose over $0.20/lb. higher this week than it was last Friday. Whey made a nearby high, climbing to $0.4425/lb., and that’s the highest price we’ve seen in that market since early April. Nonfat dry milk settled at $1.22/lb. today, matching the highs that we saw in mid-November.

[03:48] Alyssa: We got some pretty bullish numbers for butter, as you mentioned, on that December Cold Storage Report. Can you give us a quick breakdown on what happened?

[03:56] Betty: December butter stocks of 199.5 million pounds were down 13.1 million pounds from November, which is counter to the seasonal increase that typically happens between those two months. This was the largest November to December drawdown since 2003 (wow!) and that does help to explain the momentum that we saw in CME Spot butter market the last two days of this week.

[04:21] Alyssa: And on the same day, at the same time, we also got December US Milk Production figures. Six consecutive months of losses!

[04:30] Betty: Yes, a half-year of decreases. December’s production was off by 0.3% compared to December 2022, solely due to a smaller herd. Cow numbers tallied to 9.357 million head, down 1,000 from November, and the lowest level since December 2019. We will be closely watching slaughter rates, heifer inventories, and beef prices in 2024 to determine how these fundamentals will impact the size of the dairy herd here in the US. On the year, 2023’s milk production finished slightly ahead of 2022, up 0.04%—tiny.

[05:14] Alyssa: Yeah, and before we move on to international markets, those Weekly Cow Slaughter numbers in the US that were out Thursday were very interesting. Can you fill our audience in?

[05:23] Betty: Slaughter has slowed tremendously to start this year. Week 2 of 2024 saw a 20% drop from the same week in 2023. This is the lowest volume for Week 2 since 2008 (16 years ago), which had the same total of 56,000 head. Producers are certainly hanging onto cows, as heifer inventories tighten up and farmers work to keep their assets full.

[05:53] Alyssa: Thanks, Betty! Alright, let’s talk global markets. China released detailed trade data heading into the beginning of this week and boy was it something. China’s dairy imports slumped 23% year-on-year in December across key dairy commodities during December. It really highlights how light Chinese demand has been throughout the calendar year 2023, and for perspective, the year-on-year decline in Whole Milk Powder alone throughout the entire calendar year (down 261,323MT) would be equivalent to approximately 17% of New Zealand’s milk solids. That’s pretty interesting but also impressive that a lot of that was able to find a home in other ways. China’s National Bureau of Statistics also finalized 2023 milk production figures which settled the year up 6.7% from prior year to 41.97 million tons. To get deeper into the weeds on this data, head to the dashboard to read the full report.

[06:57] Typically, we’d see New Zealand trade figures this week but they won’t be out until the 29th so be on the lookout for those figures next week. Stu Davison, our Senior Manager of Market Insights, will be out in New Zealand for the next three months so our boots-on-the-ground coverage will be strong during that timeframe. If you are in New Zealand and want to catch up with Stu, be sure to reach out to him directly to set up some time.

[07:22] The other key data point to finalize this week wasEU Milk Production during November. That was a pretty ugly number but not really unexpected, down 2.6% from prior year. Germany fell 1.5%, France down 4.8%, the UK dropped 2.6%, Ireland down 19.8% and The Netherlands down 3.9%.

Well, that about does it for key figures this week. As always, thank you for being here with us and tuning in to Let’s Chat Markets. Cheers.