Let’s Chat Markets is a weekly podcast, hosted by HighGround Dairy’s top analysts. 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!
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Transcript:
[00:09] 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. It was a very busy week for our team of analysts with an onslaught of data out from around the world. We had two key US dairy reports, an update on November US milk production, as well as cheese and butter cold storage numbers for the month. In case you missed them, we recommend checking out our Dairy Skim episodes for a more in-depth look at those reports. I have Eric Meyer on with me again today to talk about the domestic market and there was certainly an outlier on the CME Spot Market this week. I think it is safe to say that we were anticipating this price consolidation but butter dropped $0.46 this week and closed out the week at $2.3950. Eric–can you give us a nice roundup of what happened domestically?
[01:16] Eric: Absolutely, Alyssa, and thank you for having me on the show today. Domestically, we started out this week with the November US Mlk Production, which came in a little below our expectations at 1.3% growth versus prior year. It wasn’t out of the realm of what the market expected those numbers to be. But, we continue to be surprised at the lack of growth out of California, which is weighing the overall number down. Cow numbers did tick slightly higher which put the national milking herd at its highgest levels since August of 2021. And, this was the fith consecuttive month of year over year gains. No real surprises in those number that should have impacted the markets either direction.
[01:55] However, Cold Storage was released Thursday afternoon and for butter, the result of that data galvanized the sell-side’s appetite to move product as just 40 million pounds were drawn out of storage from Nov to Dec—far below the 60 million pound 5-year-average. Given how high CME spot prices have stayed up deep into December, we could see a serious over-correction off of that news, which is happening right now. On the other hand, cheese stocks declined as they normally do in December, but a little mor e than expected in the natural american style category. They are still pretty light numbers given that toal cheese in storage remains above 1.4 billion pounds in this country, which could be a reason why availability of 40-pound cheddar blocks has been tight this late in the year.
[02:42] As far as the CME Spot Markets go, we had some decent movembent in both directions sthis week. Dry whey prices fell below $0.40/pound and to it’s lowest level since September 2020 on aggressive selling form manufacturers. On the flip side, cheese buyers took advantage of a thin holiday market and pushed blocks up nearly $0.15 from a week ago to $2.1250/pound—the highest price since November 28th. Barrels bottomed out at $1.6550 on Tuesday, which was a calendar year low and then proceeded to find solid suport, rallying to $1.7950 by week’s end. Those sellers have not run away from that market. On the butter side, the collapse continued throughout the entire week, starting off at $2.8550 last Friday and completeing the week on December 23rd here at $2.3950—as you said, a $0.46 drop. This is now the lowest price of 2022. Let’s not forget about nonfat dry milk, grinding lower into the end of the year, given all the weakness around the globe. At $1.33/pound, this is the lowest level since September 2021.
[03:48] Alyssa: Great recap. Thanks Eric. The list of data and news out from the global marketplace was pretty extensive as well and I will just go in order of release here to discuss what has been happening on both hemispheres. European indices have been weakening for some time and continued to stay primarily red into this week on bearish demand sentiment and improving milk collections from some key regions of the European Union. Additionally, Eurostat released trade figures for October with nearly every commodity down versus a year ago. China continues to represent the largest destination market for EU dairy products, though market share from the country continues to fall. Conversely, market share has increased into Middle East-North Africa (MENA) as the EU has shipped competitively priced skim milk powder into the region in a big way. European dairy supplies are not overwhelming but demand uncertainties overall continue to outweigh supply gaps. Though also of note, Europe’s October milk production figure did come out this week and was up 1.7% from prior year due to notable gains from Germany and the Netherlands but also France, Poland and Ireland.
[05:07] Shifting to the Southern Hemisphere, there was a Global Dairy Trade event in New Zealand, on Tuesday but we also got an update on November milk production from New Zealand, as well as trade figures for the country. Let’s start with that auction event—pretty weak wasn’t it, Eric?
[05:22] Eric: It sure was. There was a price meltdown to close out the final auction of 2022, ending the year on a bearish note, despite Oceania milk production continuing to struggle. Initially, it is easy to get excited about Chinese demand, but the price results say it all—global demand is not on the same page. While North Asia’s market share accounted for over half of the volume traded, a lack of follow-through demand from the rest of Asia meant that Chinese buyers had little competition to secure needs.
[05:53] Alyssa: You can say that again! Fonterra C2 regular whole milk powder fell two-year lows, skim milk powder values also rolled over, all butter and anhydrous milkfat contracts fell lower. Meanwhile, November milksolids dropped 0.9% from a year ago in New Zealand, which was slightly better than anticipated but still negative as much of the country remains quite wet. Unlike the European trade figures that we discussed earlier, New Zealand’s dairy exports were looking really good in November. The trend continued for losses to China to be offset by strong export volume gains into Algeria, Southeast Asia and Australia. Dairy volume to Algeria reached an all-time high in November, mostly driven by whole milk powder (WMP), but also skim milk powder (SMP) demand as well.
[06:48] Lastly, China’s November import volume data came out this week, which was kind of sending mixed signals. On one hand, there remains plenty of domestic whole milk powder to work through, limiting global export opportunities due to weaker domestic consumption rates throughout China’s stringent COVID lockdowns. On the other, there is a clear need for fat and butter within China as production limitations remain in place and consumers are still spending on feel-good confectionary products it seems. You know, as headlines in China shifted away from lockdowns and toward reopening, there was certainly optimism regarding a rise in dairy consumption that has been suffering for months, but a full return to normal is still in question, of course. There remains an incredible level of uncertainty about how the general population will behave under these new regulations.
[07:43] There is not much on the calendar into next week. I think just a Global Dairy Trade pulse event, a few European indices will be updated and then the USDA monthly agricultural prices. Of course, given that the markets are closed Monday, NDPSR numbers will be out on Thursday. Anything to add eric?
[08:02] Eric: I don’t think so—I think we’ve given people plenty to chew on here heading into the Christmas break. So, I guess with that, from all of us here at HighGround Dairy, Merry Christmas and Happy Holidays and we will catch you with a much more brief episode of the Let’s Chat Markets podcast next Friday. Cheers.
