Let’s Chat Markets is a weekly podcast, hosted by HighGround Dairy’s top analysists. 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!
Transcription:
00:10 Alyssa: Hello everyone and welcome back to another episode of Let’s Chat Markets, your favorite dairy podcast, which is just a nice, easy recap of what happened in dairy markets this past week and what’s on tap into the days ahead. We actually just got done recording our forecast webinar where Lucas, Eric, and myself, go over our forecast report and do a live Q&A with our customers. We had a really great conversation today and everyone that attended came with great questions.
00:41 Lucas: If you are a customer, you, of course, have access to that recording and all the slides that are on our website. I wanted to cover a few points here that we talked about, most specifically in butter. We have been saying that any day we’re waiting for a little bit of downside pressure to really materialize. It’s pretty impressive that as we sit here in mid-December, we are still above that $2.80 per pound mark. Moving into the next two weeks for sure, or any day for that matter, we expect significant downside volatility and probably weaker values into the new calendar year. I would say for any other market, though, I would urge you to dig into those forecast prices that we published just this week.
01:26 Alyssa: Yeah, digging a bit more into our actual forecast, we certainly don’t have time to go over all 70 pages but I would love for you to do a rundown on our risk factors as you have done in the past. What is going to impact our price expectation?
01:37 Lucas: I think China remains a big questionable part of this market here, especially from the demand side. Whether it’s covid in the country, as they ease restrictions, but behavior really doesn’t necessarily return to normal, or just kind of economic pressure overall as global demand for Chinese products kind of lessens. There are lots of question marks that come from what exactly is happening in China and where their demand will settle out here into the coming months. Also, I think from the supply side, the big thing remains that New Zealand continues to face pressure on their season—a really wet season negatively impacting milk production but the market continues to not care. On the flip side, the US firmly returns to growth. We’ve seen the past several months of year-over-year gains and do expect that to continue here in the near term and even into the European Union. Of course, their prior year data very easy to overcome but gains as much as 2-3% is a little bit stronger than what we might have anticipated. Certainly, lots of milk coming from the Northern Hemisphere. outside of those risk factors, though, Alyssa, you had a very key overview of some key global fundamentals that we see as our top concerns this month.
03:02 Alyssa: There are a handful of key factors here, in my opinion. First and foremost, there has been a lot of concentration around Northern Hemisphere milk production growth. We are also continuing to watch the global currency fluctuations impacting net importers, China’S political and economic turmoil will be a top priority to watch over the next six months, as you mentioned earlier. New Zealand milk production—we really thought it was turning around as we were going into December but it seems that maybe the North Island has turned too wet again. Lastly, drought has been developing throughout Latin America and mostly in Argentina, who is one of the top five exporters in the global dairy marketplace so it might mean tighter global milk throughout the next few months. Those are just a few of the factors that we’re focusing on this month.
03:56 Lucas: Yeah, I really wish we could get some more clarity there out of China but definitely no lack of occurrences around the globe that are impacting the markets as we head into the holidays.
04:05 Alyssa: Shifting back to the US here, the USDA put out their Supply & Utilization report for October. That’s a report that gives us a better glimpse at domestic demand for dairy here in the States. Any stark data points to call out here, Lucas?
04:19 Lucas: I don’t know if anything is stark, per se, but I do wish this data was a little bit more fresh. This is October data that we are looking at here that kind of provides a complete picture of the month. In cheese, utilization was higher versus prior year for the third consecutive month. I think that speaks to how we’ve seen a longer than expected seasonal support on prices here as that domestic demand remains positive in both American styles and non-American style cheeses. Butter utilization was weaker versus prior year and for a third consecutive month–however, I don’t think we can focus on weaker demand as a sole driver to that negative print there. I do think that the weaker availability impacts these utilization numbers as well. Nonfat steeply below prior year levels, really pulled down by domestic demand that was just very poor versus one year ago. Total nonfat dry milk utilizaation lower, even though exports climbed above prior year levels for the first time since November 2021. Kind of an 11-month gap there.
05:32 Alyssa: A couple of other things to note for the week were first, the price meltdown observed in the European dairy indices. There were some drastic losses this week from milk powders, to finished goods, such as cheese and butter, as German milk production returns to 2020 levels in a positive manner and consumer demand concerns throughout winter dig into consumption expectations. Not a great combination—more milk and weaker demand.
05:58 Lucas: Yeah, it was almost incredible to see the red on the charts this week. Prices for German butter dropping to their lowest since mid-October of 2021 and while those lower prices have prompted some buying interest with some buyers trying to capture value there, there is anticipation that values will continue to fall and a lot of buyers just remain on the sidelines for the moment.
06:22 Alyssa: Yesterday, Fonterra released their Global Dairy Trade offer volume forecasts and there was a sizable increase in their skim milk powder volumes that continue to be at record levels. Fonterra added an additional 10,000 metric ton of their skim milk powder to their 12-month forecast, half of which will be offered over the next two months.
06:43 Lucas: Yeah, definitely will be a highly-anticipated auction there on Tuesday, the last one of this calendar year. As mentioned, we do have that GDT on Tuesday. Also, next week from the West, we get November milk production data on Monday afternoon. We are anticipating upper 1% growth versus prior year in that data. On Thursday, cheese and butter stocks numbers in that cold storage report, which is a heavily anticipated number to see how much out-movement we saw in butter warehouses in the month of November.
That does it for today. I hope that you are all having a good time preparing as we quickly move here into the holidays. Cheers.
Alyssa: Cheers.
