Let’s Chat Markets: Weekly Recap August 27, 2021

Let’s Chat Markets is a weekly podcast presented by HighGround Dairy, hosted by analysts Alyssa Badger and Lucas Fuess. Every Friday, they sit down to recap the week in dairy markets and summarize recent reports and relevant news. The podcast can be found here, or wherever you listen to your podcasts. Subscribe so that you never miss an episode!

Alyssa: Welcome back to Let’s Chat Markets, your favorite dairy podcast that keeps you in the loop each week on what’s been going on around the world and potentially impacting your bottom line. Class three milk and its products experienced a sell-off this past week while there was minor support on class four, meaning butter and nonfat dry milk. There was also another move higher on butter and skim milk powder prices out of Europe this week as milk supply start to tighten up from the region. We kicked off this week on Monday with the July U.S. Cold Storage report which was neutral cheese and bullish butter. From there, the market was hit with China’s July import volumes that were released over the weekend and New Zealand’s July export figures. So, we’ve got a lot of chat about today, Lucas. What were some of the key takeaways on that U.S. Cold Storage report?

Lucas: Thanks Alyssa! And, you’re right, we kicked off the week with cold storage on Monday. I think most importantly, butter stocks showed a slightly stronger than expected decline in July. They were down 4.2% versus June–that means they slipped just underneath that 400 million pound mark. While there’s certainly still plenty of butter in storage, it was maybe a slightly encouraging sign that demand has been decent and we are slowly starting to draw down some of these overwhelming volumes. Just as a reminder, we’ve seen pretty robust production and a lot of this product moved into warehouses over the past several months with stocks at multi-decade highs there. I do think, even though it was maybe an encouraging or slightly bullish print on that Monday’s report, there’s still plenty of butter even if demand is kind of more robust than we expect into this peak season here into the fall, will probably have a little bit more butter than we need which will hang over into the 2022 calendar year. On the cheese side, just briefly, pretty neutral there–nothing surprising in this report. Total cheese stocks ticked just slightly higher in the month–still at quite strong levels driven by both more American and non-American product in warehouses. I think pretty neutral overall to cheese prices. I’ll just mentioned briefly here, Alyssa, watching spot and futures into the end of the week while I’m talking about cheese. While blocks didn’t decline today on Friday, barrels slipped more than $0.06 lower, there’s a block offer hanging on the Spot market at the close. Futures kind of reacting negatively to that, possibly preparing for blocks to slip lower into next week which is a possibility here as we deal with a lot of milk and cheese.

Alyssa: Thank you for that nice U.S. roundup for us here from the week. You know, for months now, the industry has been waiting for this bottom to fall out on Chinese dairy demand but, despite the fact that we keep seeing growing inventories from the region month by month as well as solid milk production domestically, the country continues to impress the market with record demand levels. We saw in the July data that total imports from New Zealand were the strongest as usual but the U.S. became the second-largest supplier and was able to outpace Germany. That was primarily driven by their demand for dairy ingredients. It’s interesting, you know, year to date their dairy Imports are the highest on record from New Zealand, Germany Australia, Poland, France, and the list goes on, just to name a few key suppliers there. That just sort of points to the fact that their demand is outpacing even New Zealand supply situation. Pretty interesting there.

Lucas: Yeah we’ve been talking about China for months and, as usual, I don’t think it’s uncommon to talk about China in this industry. But only thing to add, Alyssa, I think watching the Chinese raw milk price surged higher throughout late 2020 and earlier this year it dipped a little bit lower into the beginning of this summer. We were watching that closely, especially as other protein prices fell, but into June and July here recovering to the upside and raw milk prices continuing to rise, also kind of pointing there to their insatiable demand. I think on the flip side of China, you mentioned the New Zealand data so this kind of aligns closely with the two very key trading partners here. New Zealand year to date, January through July, exports to China up 44.5% on key products there. 2021 will be the fifth consecutive year of record breaking volumes into the country.

Alyssa: Yeah, that strong Chinese demand continues, of course, to be one of the primary reasons here behind the strong milk prices as well throughout New Zealand and, as a result, I’ve talked to a lot of producers in the region and it’s difficult to find anyone that’s not in good spirits with strong milk prices and coming off of a wet winter, which hints toward a favorable grass growth into the region’s spring months. Moisture does look plentiful with key dairy regions at field capacity. As far as moisture goes, of course, as many participants are aware pasture conditions have the ability to change overnight and the biggest risk in the New Zealand market now is that potential for both Islands to dry out rather quickly. Weather analysts within New Zealand have mentioned that August, September, and October have the potential to be drier and warmer than usual so that is certainly on the radar there.

All right, well I think that wraps up all the pertinent news from the week. Thank you so much as always for listening. Of course, this is the tip of the iceberg–if you’re not a customer or a subscriber of our analysis, head to our website, highgrounddairy.com, request a free trial and you’ll be able to see far more of our in-depth analysis from the week and beyond. Thank you so much and I hope everyone has a great weekend, cheers!

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