Let’s Chat Markets – 9 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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[00:09] 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 9, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy, and Cara Murphy, our Senior Manager of Market Intelligence. In case you missed last week’s episode, the groundhog, Phil, did not see his shadow on Groundhog Day and it’s sunny and 60 degrees here in Chicago so I think he might be onto something with an early spring! In other news, we did announce another speaker for our Global Dairy Outlook Conference this June in Chicago: Christophe Lafougere, Managing Director and CEO of Gira group to discuss the latest happenings and forecasts for the European dairy industry. You will not want to miss this event as we have more speakers to confirm in the coming weeks that you’ll be very excited to hear from as well. Anyway, it’s been a busy start to the month here so let’s kick off another CME Spot market recap of the week.

[01:16] Cara: Awesome. Dry whey has been on the rise over the past couple of weeks. It stalled a bit throughout this week, though, but reached $0.5200/lb. on Thursday, the highest price since June 10, 2022! Today it held at $0.52/lb. with a total of just 3 trades. In the cheese market, blocks trended a bit lower, sitting in the upper $1.50s with only 2 trades on the week, while barrels jumped around and closed at $1.5775/lb. with 9 trades. The blocks versus barrel price spread is currently inverted at a three-quarter cent gap. A rather quiet week in the butter market until today where it sank five and a half cents to close at $2.6900/lb. with a total of 12 trades. And in the nonfat dry milk market, there is some support in the low $1.20’s where we have now bounced around in for the past two weeks. Today’s settlement was $1.2000/lb. with a total of 20 trades.

[02:09] Alyssa: Thanks, Cara. We started the week off strong with the USDA December Dairy Product Production Report (https://www.highgrounddairy.com/december-2023-dairy-products-report-analysis/) that we thought was slightly bullish cheese and butter and full bull on WPC 34, Whey Protein Isolates, and lactose. The other key products in that report, dry whey WPC 80, and nonfat dry milk had pretty neutral data attached to it. What was the key takeaway there?

[02:35] Cara: Absolutely, butter was the standout of this report, up 4.4% compared to last year. This was surprising given the lower levels seen in the latest Cold Storage Report, but the considerable production number here indicates that demand was the likely culprit of the small stocks. Total cheese output rose for the third consecutive month, but the year-on-year change was less than 1%. Cheddar volumes dropped while natural American totals grew on a big push from other-American varieties. Nonfat dry milk and dry whey powder output was neutral to our expectations, nonfat production continues to struggle while manufacturing is focused on whey protein concentrate >80% and isolates at the expense of dry whey.

[03:18] Alyssa: Other data out this week focused on the US was December Trade Data , closing out the calendar year, which was the third highest on record. December did mark the 11th consecutive month of negative exports flowing out of the country but if we want to try and find something positive, the decline over prior year was the smallest that we’ve seen since last March so things are improving. Another positive aspect is that trade with Mexico reached an all-time high in 2023, up 13%.

[03:50] Cara: There wasn’t any crazy moves this month but there was some notable takeaways as we wrap up the last bits of 2023. Cheese exports increased year-over-year in December on big shipments to Mexico and China, still with impressive demand for grated and powdered cheese. Nonfat dry milk exports rose in December primarily due to increased shipments to Vietnam, Thailand, and Egypt. Dry whey exports saw a dismal year so far on the substantial losses to China, however, Whey Protein Concentrate >80% exports keep pushing higher to the country, with greater volumes also seen to Japan, Canada, and Brazil. Lastly, butter isn’t going anywhere. With high prices stateside, it’s likely we could see another year of poor sales in 2024 as we did throughout 2023.

[04:39] Alyssa: Total exports should stabilize in 2024, except, like you mentioned, on butter, which will continue to hover around current levels. Anything else, Cara?

[04:50] Cara: Yeah, before we jump into international markets, we have to talk about Dairy Cow Slaughter. Wow, what a turn! In the first four weeks of 2024, total US dairy cow slaughter is already 57,000 head below the same time in 2022! The last time we saw the year start off this low was back in 2010! All major dairy-producing regions are marking losses greater than 15% against the prior year. The largest loss comes from California with slaughter rates down over 20% compared to 2022 each week in January, ending the month at a nearly 20,000 head loss. This dynamic is not necessarily surprising given the tight heifer inventory. Farmers are holding on to their older cows for longer, but it is a significant number nonetheless.

[05:36] Alyssa: Thanks, Cara. Alright, let’s get into what’s going on in the rest of the world. Most importantly, let’s discuss that bullish Global Dairy Trade Event. This auction provided strong support, surprising many who have been closely monitoring the market in recent months. Butter was the clear outlier, jumping 10.3% to highs not observed since April 2022 given the tighter offer volumes and elevated demand that we continue to see. Whole milk powder prices also saw a significant increase of 3.4%, establishing a new floor price of $3,400/MT. Skim milk powder prices broke out of the recent range, pushing back to levels that we haven’t seen since May of 2023, with demand for New Zealand Skim Milk Powder creating a significant premium over European product.

[06:28] In Europe, the focus is on widespread protests happening in Ireland, Spain, and Italy in support, of course, of the other protests that were actively taking place in France, Germany, and Belgium. All of which were over concerns regarding green rules, unfair competition from overseas, and low bag prices. And guess what? It worked because this intense pressure from farmers pushed the European Commission to drop key passages in a proposal for the new 2040 goal of cutting greenhouse gas pollution. A mention of a possible 30% cut to agricultural pollution between 2015 and 2040, which was in previous drafts of this situation, has been removed. Also removed were recommendations for citizens to make changes to their behavior, like eating less meat, and a push to end fossil fuel subsidies. So far, this is a win for farmers in Europe.

[07:27] And then quickly on China—there doesn’t seem to be much good news coming out of the country. In recent weeks, the state security ministry has reportedly  made clear that Beijing is on the lookout for those disseminating negative views on China’s economic and market prospects. the government has censored and tried to intimidate renowned economists, financial analysts, investment banks, and social media influencers for any bearish assessments of the economy and the government’s policies.

[07:57] In addition, news articles about people experiencing financial struggles or a poor living standard for migrant workers are being removed. However, data that we do have access to this week showed that China’s Consumer Price Index tumbled in January, falling by 0.8% compared with a year earlier. This was the fourth consecutive month of declines, as well as the sharpest drop since September of 2009, when the global economy was still grappling with aftershocks from the 2008 banking crisis. I think there are some optimistic numbers from the country like record-high savings accounts so if consumers get any sort of boost in confidence, the spending could become quite strong. Speaking of spending, it is officially February 10th in China and elsewhere, so we do want to wish you a Happy Chinese New Year filled with love, peace, and prosperity. May this year of the dragon be a year of abundance for you. Cheers.

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