Let’s Chat Markets – 30 December 2022

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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[00:09] Alyssa: Hello everyone and welcome back to another episode of Lets 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 is the final trading day of not only the month but the year of 2022—and what a year it’s been! This year marked ten years of HighGround Dairy being in business which is incredibly exciting. We launched a brand new website and markets were very volatile. Did ten years fly by for you or what, Eric?

[00:45] Eric: Absolutely, Alyssa. It’s really hard to put into words even though we are on a podcast of how quickly ten years has passed and all of the growth and the excitement and the business development and the brand development and everything of what we’ve put into HighGround Dairy and really what the industry has given back to us. So, yes, super excited! A momentous year for us, lots of accomplishments and even more excitement coming into 2023.

[01:13] Alyssa: That’s for sure and I know I’m happy to be a part of this team now for nine years. It has been really great to be on a team that just loves servicing the global dairy industry and of course, myself included. Digging into this week specifically, CME Spot markets were generally quiet across butter, nonfat dry milk and dry whey, yet cheese prices saw some decent strength. I’m curious to get our take on that cheese behavior, Eric.

[01:40] Eric: Yeah, so CME Spot block cheese rallied all the way up to $2.16/pound during this holiday-shortened week but then fell back on Friday to $2.1350/pound. There are still multiple reports out there that we are hearing that 40 lb blocks are still tight. We feel that once we get into January and some of that playoff football and Super Bowl demand subsides, demand can only hang in there for so long before declining on both the weight of the world market, which is trading at much lower levels, as well as increased cheese production. We do expect milk production to be strong in key cheese-producing regions for the next few months.

[02:20] Barrels also found support this week but came mostly from the trading community. There may be some rationale for trying to close that block-barrel spread, which is incredibly wide. Based on larger manufacturers being the ones selling product at the exchange this week, and then also reports that supply is not very tight in the 500 lb barrel market. We just have a hard time seeing a lot of support here. Though, the $1.6550/pound lows seen earlier this month so it’s pretty much out of the question, too, as we felt that was too low.

[02:51] Dry whey rallied off of the $0.36502-year low to close back above $0.40 on very light volume this week. Futures have really done little to justify movement in that market, above where the current CME spot market stands at $0.4150.

[03:06] And then for the other two commodities, as you mentioned, butter really didn’t move at all this week and is officially stuck at the $2.38 level, which is exactly where it settled in the entire week. but, boy, what a month for butter—falling from a high of $2.90/pound on Dec 6th.

[03:22] And then finally, CME Spot nonfat endured a pretty decent battle today to close out the calendar year with 11 trades. But, we ended back at unchanged, which was at $1.3350/pound. Nonfat hasn’t moved much over the last 2 weeks and is really treading along the bottom here.

[03:40] Alyssa: Thanks, Eric. Given that it was a shortened-holiday week for global dairy markets, news was relatively light, as well as data releases but one thing is still for certain: media outlets are full of headlines and opinions about what is actually going on in China. Any optimism that China is reopening is being clouded by a lack of transparency within the country that has started to push other nations to impose travel restrictions for individuals that will be able to travel freely outside of China in the coming weeks. The U.S., Japan, India, South Korea, Taiwan and Italy have all announced testing requirements—with the U.S. citing both the surge in infections and what it said was a lack of information about the spread of COVID-19 within China. As the world weighs in on what may or may not be happening in China, state media outlets within the country believe that Western media is exaggerating the situation and they have said that everything is under control. As the calendar rolls into some key consumption holidays within China throughout Q1 of 2023, including the spring festival, there is hope that consumption will return to normal and bring back the need for dairy imports but there is also concern about COVID, as well as other illnesses, are going to be spreading rampantly throughout the country after years of restrictions and testing requirements as people begin to move freely to visit friends and family throughout the holiday season.

[05:14] Eric: It’ll be interesting, Alyssa. I feel like we’ve had so many headlines about China over the last number of months with respect to COVID and every time we’ve heard some of those fits and starts about re-opening earlier this year, it used to create a lot of noise within commodity markets, including dairy. Now, as things are actually opening, the dairy markets—which, most futures markets are typically anticipatory markets—we’re not seeing the type of impact. So, I’m truly fascinated as to where the markets go with respect to China’s reopening, which is officially underway right now.

[05:53] Another thing to look at is global demand and currency. That’ll likely provide some direction in the coming weeks here for dairy. The US dollar has weakened throughout the fourth quarter. Officially dipping 10% from its September highs to where we’re likely to close out the year today. Interestingly enough, exportable dairy commodity prices have continued declining throughout much of the fourth quarter, though now finding a little bit of stability to close out the year. That tells us all we need to know about global demand as it headed into the end of 2022, but if the US dollar keeps weakening, and demand picks up a bit, we could be in for a turn back to the upside at some point in Q1 2023. But, boy, is there a lot of macroeconomic uncertainty to work through.

[06:36] Alyssa: Yeah, both of those factors will surely be impactful to the Global Dairy Trade auction on tap for next Tuesday. Fonterra ended up leaving their offer volumes unchanged, with further downside pressure expected on milk powders. That being said, prices are getting low and approaching pre-pandemic levels, which could bring pockets of demand with it from the global marketplace.

[07:00] Other than that, data flow was light as we prepare for 2023. That being said, I mentioned this earlier but when our customers return from holiday, they will notice that we launched a brand new website and we are really excited about the improved customer experience. Customers will now have ease of access to all of our reports, data snapshots, webinar recordings, podcast episodes and even access to some historical pricing series. We will be sure to send out a video tour to our customers next week as people return to offices.

[07:36] Eric: Other exciting news into 2023 is that we have launched early bird ticket sales for our second annual HighGround Dairy Outlook Conference for next June 21 & 23, of 2023 right here in Chicago. Last year was such a success and we can’t wait to see everyone back here again next summer. Though I know we will see many of you next month at the IDFA conference in Orlando, Florida.

[08:00] Alyssa: Yeah that’ll be great to finally see everyone and kick off the new year visiting with customers and industry participants. That wraps up today’s episode. Next week, markets will be closed again on Monday to observe the New Year holiday but we will come into the week kicking off the first Global Dairy Trade auction of the year. We also get announced class and components prices next week, followed by the USDA dairy product production report.

[08:28] Eric: As always, we look forward to coming back on here to chat markets, especially in the new year and wish everyone a safe and happy New Year with your loved ones. Cheers!

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