Monday Morning Huddle – 19 August 2024

Monday Morning Huddle – 19 August 2024

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Barrels Hit Two-Year High: CME spot Cheddar barrels settled at $2.255/lb. on Friday, their highest price since June 2022. From Friday to Friday, prices increased by $0.25/lb., a 12.5% increase. Tight milk supplies seasonally due to a smaller US herd are limiting factors for cheesemakers presently. Additionally, other varieties of cheese have been prioritized in 2024, limiting Cheddar availability, but reached a tipping over the past two weeks as barrel demand has remained firm due to restaurant promotions and $5 meal deals, while seasonal shifts in product mix (back-to-school Class I pull & fall football season pizza demand pulls more into Mozzarella) have also tightened nearby supply.

CME spot blocks Cheddar also increased on the week, climbing to $2.10/lb., a mark not seen since late March 2023. While it seems likely that this rally could find a set-back as early as the end of August, HighGround anticipates support for cheese prices at a higher level (low-to-mid $1.90s) through the fall season as global pricing finds support and additional milk and cheese are not due to begin flowing until later in Q4.

Butter and NFDM Rise: With the big jumps in the cheese market last week, Class IV commodities increased, too. Both CME spot butter and NFDM made nearby highs. Butter jumped to $3.18/lb. on Friday, a price not seen since Halloween 2023, and a $0.0825/lb. gain from the prior week. Although the industry has been telling the story of lackluster NFDM demand, supplies seem tighter, and buyers view current prices as a value. International pricing has found support over the past couple of weeks (regional tenders, GDT gains), also providing optimism for US traders. Friday’s CME spot NFDM close of $1.2550/lb. was the first time the market climbed over $1.25/lb. in 18 months.

A Slew of Positive Economic News: July’s Consumer Price Index (CPI), Producer Price Index (PPI), and US Retail Sales data was released last week. CPI, a measure of consumer inflation, was up 2.9% from July 2023, nearing the Federal Reserve’s target of 2% inflation. PPI, which looks at price changes from a seller’s perspective, also slowed, up just 2.2% YoY and increasing 0.1% MoM, on lower service costs. Retail sales grew 1% from June, more than analysts’ expectations. On all these pieces of news, stock indices rose, with the Dow taking back most of its losses from its early August drop of 2,000 points. Goldman Sachs dropped its probability of a recession in the next year from 25% to 20% after the Retail Sales report, the last piece of data released.

A Lot of Red in June’s Supply & Utilization: USDA released June’s dairy disappearance data, and most items were down year-over-year. Cheese was one exception (up 0.9% YoY), as Other Cheese and exports pushed the category higher. Usage of Natural American-style cheese was poor, though, down MoM, YoY, domestically, and internationally. While domestic butter utilization of 186.5 million pounds was down 1.1% YoY, June 2023’s data point was the highest for the month, and 2024’s sits nicely in second, 12 million pounds ahead of third-place 2020. Nonfat dry milk and skim milk powder utilization fell by 15.1% YoY on soft domestic and international demand.

Bumper Crops: USDA issued its latest World Agricultural Supply & Demand Estimates (WASDE) last week, lifting soybean yields over a bushel to 53.2 bushels per acre, more than the industry expected. Accordingly, soybean production and ending stocks increased, and prices fell, with the November 2024 futures contract settling at a life-of-contract low on Friday ($9.57/bushel). Corn yields were also increased to 183.1 bushels/acre (+2 bushels from July’s WASDE), but with December 2024 corn futures under $4.00/bushel, USDA anticipates increased exports, dropping ending stocks. Still, by Friday, the Dec 2024 contract also settled at a life of contract low, $3.925/bushel.

Time for the Second-Half: July’s US Milk Production (Wednesday) and Cold Storage (Friday) data will be released this week, providing the first look at US dairy stats for the second half of the year. The second August Global Dairy Trade auction will commence on Tuesday.

Last Week’s Reports & Analysis

HighGround’s Global Dairy Commodity Price Forecast
The cheese markets have seen some action with some big swings day-to-day in the past month. Blocks and barrels have both eclipsed the $2.00/lb. mark in the past week. Barrels have made highs…Full Report

June 2024 US Dairy Supply and Utilization Report
For the fourth month in a row total cheese disappearance rose year-over-year on strong utilization of Other Cheese, particularly exports. CME Cheddar prices have risen in the past couple of weeks…Full Report

Pre-GDT Forecast Volume Analysis
Fonterra has announced no changes to its 12 month forecast for offer volumes at upcoming Global Dairy Trade (GDT) events. Cream group flex does apply to Butter and Anhydrous Milkfat (AMF) offerings, with an ongoing restriction for instant whole milk powder (iWMP) – no volumes on offer in contract…Full Report

Reports/Events This Week

  • Crop Progress Report – Monday, August 19
  • Global Dairy Trade Auction – Tuesday, August 20
  • Jul ’24 New Zealand Dairy Export Volume Report – Tuesday, August 20
  • Jul ’24 China Dairy Import Volume Report – Tuesday, August 20
  • Weekly EU Dairy Commodity Prices – Wednesday, August 21
  • National Dairy Products Sales Report (NDPSR) – Wednesday, August 21
  • Jul ’24 – US Milk Production Report – Wednesday, August 21
  • Sep ’24 – USDA Advanced Prices & Pricing Factors – Wednesday, August 21
  • USDA Dairy Market News Weekly Midpoint Prices – Thursday, August 22
  • USDA Upper Midwest Spot Milk Basis – Thursday, August 22
  • USDA Weekly Dairy Cow Slaughter Report – Thursday, August 22
  • Pre-GDT Pulse Fonterra Offer Volume Forecast – Thursday, August 22
  • Jul ’24 – US Cold Storage Report – Friday, August 23

8.19.24 MMH

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