Let’s Chat Markets – 8 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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[00:09] Alyssa: Hello 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, December 8th, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Dairy Market Intelligence Manager. If you can believe it, it’s 50 degrees and sunny in Chicago today—not something we’re used to seeing in December but we’ll take it. As usual, we’re going to kick off today with the CME Spot market recap so we can get out and enjoy these last few warm days before the snow starts here in Chicago. Cara?

[00:48] Cara: Yes, cheese caught some momentum in the early part of the weeks with blocks climbing $0.1150 between Monday and Wednesday, while barrels jumped $0.09 over those days. However, that trajectory turned a bit and headed in the opposite direction the remainder of the week. Blocks settled today at $1.5800 per pound with 16 trades and barrels at $1.5550 with 12. The butter market dipped on Monday and held at $2.6700 for the rest of the week, where it closed today with a total of 5 trades. Dry whey also saw little movement this week, continuing to hover close to the $0.40 per pound mark with just 4 trades. Last but not least, the Nonfat Dry Milk (NFDM) market has been bouncing around the $1.1700 per pound area, where it seems to find a fair level of support, seeing 7 trades on Monday and another 7 on Tuesday, to close the week with 16 trades in total.

[01:41] Alyssa: Thanks, Cara. We got quite a lot of data and there is plenty to discuss both domestically and internationally. Where do you want to start?

[01:49] Cara: Well, the USDA released both the October Dairy Products Report and US Trade Data this week with some interesting developments. Across the whey complex, inventories fell versus the prior month on solid demand for high-protein products and the figures suggest that processors are prioritizing these products over dry whey powder given the stream return shift. Total cheese production rose only slightly against 2022, held down by smaller Cheddar output but offset by an increase in mozzarella production. Butter production and stocks were near flat with the previous year while Skim Milk Powder (SMP) output fell to the lowest October value since 2016 and the smallest stocks since October 2019.

[02:31] Moving into the trade dataSMP and NFDM exports were also dismal, as shipments to Mexico, China, and Indonesia dropped. But this was not the only low point for exports. Cheese shipments fell 4% year on year from losses to South Korea, but is seeing some increasing purchasing some Canada and Mexico. Butter exports hit their lowest monthly volume since November 2020. However, this was unsurprising given the near exponential ramp-up in butter prices in late September and early October. Dry whey sailings continue to struggle as well due to slowed buying from Asia as their swine industry grapples with African Swine Fever and poor prices. But, to finish on a positive note, WPC >80% shipments keep climbing with more product moving to Japan, China, and Canada in 2023.

[03:23] Alyssa: Yeah, you know, US exports have really struggled this year and those weaker exports coincide with a month that saw less milk availability than prior year, too, but when you break the trade volumes down to milksolids on a percentage basis, demand is truly the real problem and not availability. In addition, the US brought in quite a bit of cheese and butter during October because of the competitive pricing on the world stage. Before moving on to the global markets though, we also put out weekly emails with Slaughter Rates here in the US, as well as Class III Milk Spot Basis. Anything important to note in those data points this week?

[04:02] Cara: Absolutely. Total US Dairy Cow Slaughter continues to trend well below the prior year. The latest data released was for the week of Thanksgiving, a shortened week compared to normal which typically results in a dip in volume versus previous weeks. But even so, compared to Thanksgiving week in 2022, slaughter this year was down 10.5%. On a year-to-date basis, slaughter rates are still positive, up 2.2%, but where we once sat above 100,000 head difference in the summer versus last year, has now dropped to just 59,000—a significant pullback. Reduced culling in the Western US is the primary culprit here as producers look to hold onto cows, but those beef prices still remain attractive enough to keep Midwest farmers sending cows to the packing plants, albeit at a slower clip than we saw in the summer.

[04:53] Alyssa: Great thanks, Cara. So, in global markets, the big event this week was the Global Dairy Trade Auction and while most commodities settled in the green, there wasn’t anything terribly bullish in the data. Key products landed within market expectations with a balanced supply and demand picture still a primary theme. As New Zealand milk production maintains growth throughout Q4, there lies pressure for buyers to soak up any incremental solids, and where China has backed off, other emerging market economies are taking on more share. In fact, North Asia (usually represented by China) was knocked off as the largest buyer on the platform with Southeast Asia taking on the top spot. While this is somewhat seasonal, it was also one of the lowest volumes secured from North Asia over the past decade during the month of December, a tell-tale sign that internal supplies remain plentiful for now.

[05:50] Given the surrounding economics and current infrastructure in China, HighGround suspects this issue will prevail throughout the first half of 2024 as well. Given the surrounding economics and current infrastructure in China, HighGround suspects this issue will prevail throughout the first half of 2024 as well. And important to note that while WMP prices did rise to five-month highs, values have not been this low in December in five years. SMP settlements were also neutral to market expectations with much less product sailing to Asia. Butter was the only commodity that had a bearish result, with a lack of support pretty concerning considering that milk supplies are weak surrounding butter plants within New Zealand. There’s a lot of disparity this year between the North and South Islands, with the North Island seeing weaker volumes. Be sure to head to the dashboard, though, to read more of our comprehensive breakdown from that event.

[06:37] Cara: Across the Tasman in Australia, there was yet another month of growth reported on Milk Production for October, up 2% from last year as well.

[06:46] Alyssa: Yeah, that’s been six consecutive months now that Australia has reported growth. But, you know, that’s following nearly two years of losses so don’t get too excited—milk is still relatively lackluster in the region. Last but not least, a bit on Europe: Inflation has begun to ease across the continent, bringing some much-needed relief to consumers during the holiday season. Though, on the commodity side, dairy prices are beginning to ease as well on the European Energy Exchange (EEX) as buyers are reportedly satisfied at present and will wait for the new year to lock in further contracts. That being said, milk production still leans bullish from top-producing countries like Germany, the Netherlands, Ireland, and France into 2024 so keep a close eye on these markets into the new year.

That does it for this week’s market roundup. Thanks for tuning in! As always, we’re wishing you and yours a lovely weekend. Enjoy the weather!

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