Monday Morning Huddle
13 March 2023
CME Block-Barrel Spread Narrows to a Penny:
On Friday, March 3, the block premium to barrels sat at 37.5 cents, and just a week later, the spread narrowed to a penny. The last time the spread was this narrow was more than four months ago. Barrel prices rallied every day last week, coming off the 2023 low it set the week before, and closed at $1.77/lb with 50 loads trading hands, the highest weekly volume since May 9, 2020. Cheddar blocks stumbled, trading DOWN four of five days and fell 17 cents from the previous Friday while subsequently hitting their lowest price ($1.78/lb.) since September 6, 2022. The rally in the barrel market has been prompted by a large end user aggressively accumulating product, and the spread has narrowed quicker than HighGround expected. Weekly averages of spot butter, whey, and non-fat dry milk declined against the previous week’s average.
January Sets Record for US Dairy Exports:
Although US dairy became more expensive relative to Europe and Oceania in January, depending on the commodity, Jan ’23 export volumes were stronger than last year and set a new January record. This was likely due to these shipments being booked months in advance, when US dairy was a value to other exporting regions. HighGround does not expect the robust export volumes to continue in 2023, at least not until US prices are competitive globally. January cheese exports were a new record totaling 75 million pounds, growing 15.6% year-over-year. Mexico was the top destination for US dairy shipments, with 125 million pounds of total dairy products sent there, including a 53.5% share of NFDM exports. China also received a formidable amount of US dairy, as total US dairy exports there increased annually for the eighth consecutive month.
Spot Milk Prices Drop More:
Dairy Market News reported loads of spot milk going for as little as $12/cwt. BELOW Class III price in the Upper Midwest this past week. The midpoint spot price was $8/cwt. below Class, which is the second lowest basis since 2018. With spring flush beginning around the country, spot milk does not look to return to parity with Class III pricing anytime soon. The excess milk will likely be pushed into cheese, as the Upper Midwest is very heavy on Class III utilization.
Silicon Valley Bank Fails:
Silicon Valley Bank (SVB), one of the nation’s largest banks focused on the tech and venture capital sectors, collapsed on Friday, and was placed under the Federal Deposit Insurance Corporation’s (FDIC) receivership. Over the weekend, FDIC stepped in to back up depositors, with US equity futures rallying on the news. While the further-reaching impacts are unclear, this has some of the same ominous undertones as the Lehman Brothers failure of 2008. On Sunday, Janet Yellen, Treasury Secretary, shared that the federal government will not bail out SVB.
Flood conditions in California:
California was hit with more rain over the weekend, adding to the multiple rain and snowstorms this winter. Another atmospheric river, a long and narrow weather system that is full of water, like a river, is expected today. Dairying regions of the state have experienced flooding and remain at risk. While the increased moisture has vastly improved drought conditions, the flooding has closed roads and caused evacuations.
HighGround will release its latest forecast report on Wednesday, March 15, followed by its monthly Global Outlook Webinar on Thursday, March 16. The current near term outlook remains bearish, with CME spot prices trending down since the start of 2023. Fundamentally, heavily discounted spot milk available in the Upper Midwest and reports of weaker international demand, particularly in the powder complex, will also help to keep prices within a lower price band for the time being.
Last Week’s Reports & Analysis
January 2023 US Dairy Export & Import Volume Analysis
Even though the US started to lose its edge on competitive dairy pricing against Europe and Oceania, depending on the commodity, January shipments impressed to the upside. Fats and whole milk powder (WMP) were the only products…Full Report
Comprehensive GDT Auction Analysis
HighGround had a difficult time getting optimistic heading into this GDT event, even with the positive SGX signals, given that supply and demand fundamentals seem to be balancing each other out. There is an overarching theme that global milk supplies will remain ample throughout Q2 due to the…Full Report
Reports This Week
- GDT Pulse #18 – Tuesday, March 14
- Jan ’23 US Supply & Utilization Report – Tuesday, March 14
- Weekly National Dairy Products Sales Report (NDPSR) – Wednesday, March 15
- HighGround Monthly Forecast Report – Wednesday, March 15
- Fonterra Pre-GDT Offer Volume Estimates – Thursday, March 16
- USDA Dairy Market News Weekly Midpoint Prices – Thursday, March 16
- USDA Weekly Dairy Cow Slaughter – Thursday, March 16
- HighGround Monthly Global Outlook Webinar – Thursday, March 16