Let’s Chat Markets – 5 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] Cara: Good afternoon and happy New Year 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 5, and today you’re hearing from Cara Murphy, HighGround’s Dairy Market Intelligence Manager and the ever-lovely Betty Berning, our Contributing Dairy Economist. We hope everyone had a great time ringing in the new year – I know I made it comfortably to 12:05 AM before falling asleep. But, now we are back and ready to see what’s in store for 2024. Let’s get started with the first CME spot market recap of the week.

[00:45] Betty: Thanks, Cara. After climbing last week, the block Cheddar market lost a bit of ground, closing this week at $1.4350 per pound. There were significantly less trades than the prior week with only 4 loads moving. Barrel cheese moved in a similar manner, with a small bump on Tuesday before sliding back to settle at $1.4100 per pound today, on a total of 26 trades. Dry whey closed at $0.4125 per pound, the highest price since November 15, with only 2 trades on the week. Last, Butter has hovered in the upper $2.60’s for most of the week until today where it dropped 7.5 cents to close at $2.5750 with 12 trades. Meanwhile, Nonfat Dry Milk fell back to $1.1725 per pound with a total of 19 trades, 8 of which occurred on Thursday and 9 today.

[01:40] Cara: Thanks, Betty! You know, I heard this week that the National Average Milk Fat Test in the States reached 4.32% in November, an all-time high! What’s driving those numbers?

[01:52] Betty: Yeah it was kind of unbelievable to see such a high number. South Dakota led the nation with a 4.76% fat test. The higher component values were likely driven by improved rations, new corn silage piles, and milk prices have increased so farmers are adding certain feed additives back to diets and that’s driving up fat values as well. There is also an ongoing trend of improved genetics for higher components, and we are seeing more crossbred and Jersey cows across the nation.

[02:27] Another item of note this week were increased CWT American Cheese sales in December. Cooperatives Working Together, or CWT, assisted with the export of 12.4 million pounds of American cheese in December. This is the highest monthly total for the category since February 2022. We often see an uptick in the CWT export-assisted sales when US prices are at a discount to the European Uunion, like they are right now.

[02:58] Slaughter and Class III spot basis were not so exciting this week. Upper Midwest Spot Basis fell seasonally, ranging from $1.50 to $8/cwt under class. Livestock Slaughter of 55,800 head was 2.1% lower than in Week 51 of 2022. However, the Southwest, Midwest, and Pacific Northwest regions’ cull rates all picked up, increasing on a year-over-year basis.

[03:27] Cara: We will also get November Dairy Products data out later this afternoon. Betty will be providing some highlights and initial thoughts in the Dairy Skim that will be out shortly after as well, so be on the lookout for that and the more comprehensive in-depth analysis will be published on our website on Monday. What’s next, Betty?

[03:44] Betty: The first Global Dairy Trade event of the New Year that happened on Tuesday. Tell us about it, Cara.

[03:52] Cara: Oh yes! This auction was interesting. A positive one overall, but settlements fell short of SGX trader expectations, suggesting that demand is still rather lackluster and uncertainty still hangs over buyers’ heads. Most notably, North Asian buyers, presumably represented by China, took home the lowest volumes since the second July auction in 2023, and was the lowest volume procured for the first January event ever from the region. Whole Milk Powder and Skim Milk Powder bore the brunt of this decline, experiencing a stark drop of 50% and 56% respectively compared to last year. China’s shaky macroeconomic environment has consumers apprehensive to spend and it’s clear that the anxiety surrounding what this year holds continues to weigh heavily on dairy imports.

[04:40] On the flip side, Europe and the Middle East continue to purchase at a strong rate. European buyers jumped to secure higher volumes of all dairy commodities, particularly Whole Milk Powder and Skim Milk Powder. Arla’s Medium Heat Skim Milk Powder settled at $2,690/MT, or $1.22 per pound, a relatively surprising outcome since it was already discounted against EEX Spot values. With this, it’s likely that European buyers are stepping in to take advantage of the lower prices found at the GDT. For the Middle East, the region continues to pick up some of the slack from China on Whole Milk Powder, up 193% from prior year.

[05:21] I’d be remiss, however, not to mention the shipping challenges these regions currently face. With tensions in the Red Sea rising, major carrier lines have begun rerouting vessels around Africa’s Cape of Good Hope rather than through the Suez Canal—a route that adds roughly 7-10 extra days of transit time, and they are issuing Emergency Risk Surcharges of $50-$100 USD/container to customers as well. Carriers are now warning customers to prepare for significant disruptions as well as higher costs. While this has yet to materialize in a significant quantifiable manner, it does add another point of constraint on supply chains and further heightens global turmoil.

Ever since 2020, I feel like everything is “unprecedented” but I suppose there is no better way to describe it, and 2024 will be no exception. Even so, we are excited to see what happens and we will be here each week to cover it all. Thanks again for tuning in to Let’s Chat Markets and have a fantastic weekend. Cheers!