Let’s Chat Markets – 20 January 2023

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 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 whats on tap into the days ahead. Here in the U.S., we dropped down to some notable lows on the CME spot market this week. Nonfat dry milk, cheddar cheese barrels, butter and dry whey fell to lows not seen since 2021 or even 2020. This is quite the meltdown. Where should we start, Eric?

[00:40] Eric: It’s been pretty nasty, Alyssa. One of the more bearish weeks that we’ve felt on record for quite some time and that’s going to be interesting heading into a big conference this weekend in Florida. Looking at the Dry Whey first, we matched a low price which was $0.3250/pound here on Friday to be the lowest since August 25, 2020. And then on Cheese, barrels go down to $1.58 today. That’s the lowest price since November 29, 2021. Let’s not forget about blocks—they have fallen quickly. We started off the year almost pricing at $2.20/pound. Here on Friday the 20th close, we settled at $1.8350/pound and that was the lowest price since last September.

[01:30] Alyssa: And what about the Class IV products? I know global influence on nonfat dry milk is certainly not helping but domestically, we are also running into some utilization obstacles too.

[01:41] Eric: Yeah, those spot markets are under assault as well. Nonfat Dry Milk settled on Friday here at $1.1750 which matched a low that we haven’t seen since the end of March 2021 so bearish there as well. And then on the butter side, we held steady today but we’re down quite a bit from where we ended the year at. We settled at $2.3225/pound and that’s the lowest price since late December 2021. Now, the USDA released its November Supply and Utilization report, which, many of us that have been in the industry a long time refer to as the Commercial Disappearance report. We are seeing some sustained weakness coming through on both Butter and Nonfat Dry Milk/Skim Milk Powder. on the Butter side in November, the total utilization was down 6.1%. That was led by domestic demand being down 11.3% across all channels. Exports were still really strong on butter, although if you read some of our research, we question at least some of the data because of the unit values being so low but we did know that Butter exports were still strong. But, as we head into the end of the year with those inventory levels on Cold Storage so high, that’s translating into a utilization or disappearance level that is coming off quite a bit. Now, on Nonfat Dry Milk, November’s total utilization was down nearly 11%. When we look specifically at the domestic side, domestic usage was calculated down 33% in November versus 2021. Year to date on that domestic side, we’re down almost 21%—certainly a reason for why we’re coming off those highs and there’s definitely an aura of bearishness around the world as prices come down very quickly here in the most recent weeks.

[03:37] Alyssa: Yeah, pretty ugly. Next week will be interesting because while you’ll be visiting with customers and industry participants at IDFA’s dairy forum, we also get U.S. Milk Production figures and a Cold Storage update for the month of December. Any thoughts on Milk Production expectations?

[03:55] Eric: Sure, so we’ve been somewhat surprised that milk production hasn’t been as strong as where we would have expected in the third quarter and into early Q4. Now that we’re getting into December, our comps are even a little bit lower. So, our expectation for December milk production is somewhere in the 1.5%-1.6% growth. However, in our forecast report this week that was released on Tuesday, we had some pretty big figures to note so be sure to check out our forecast report to get where we think milk production figures will be into January and Q1.

[04:35] Alyssa: Perfect, thanks Eric. Looking outside of the U.S., we actually kicked off this week with a lackluster Global Dairy Trade event. North Asia’s market share fell back below 50% with volumes under prior year levels following two strong events for the region. With the reduction in volume was most notable on Whole Milk Powder (WMP), and that’s a trend that we’ve seen for about seven straight GDT events. While this auction offered some stability to global markets, there is still an underlying bearish tone, especially from buyers as product availability is set to rise seasonally.

[05:12] Eric: Alyssa, what’s the latest on new Zealand milk production?

[05:15] Alyssa: Interestingly enough, when you look at the soil deficit maps in the country, the North Island looks almost the exact opposite of what last season was. Last year, the North Island was too dry and this year, they are dealing with more and more excess moisture. On the positive side, many farmers report optimism around milk production because they don’t have to utilize supplemental feed due to favorable grass conditions, which is a rare occurrence this time of year. We could see a pretty strong push in milk production into the end of the season here but the region does need to see some sunshine and drier days into the weeks ahead.

[05:52] Eric: We’ve seen some pretty bearish figures from Europe too into the delayed November figures.

[05:58] Alyssa: Yes, we’re just waiting on Spain here before fully knowing what milk production looked like during November but it looks like we reached 2% growth over prior year. Pretty impressive numbers that likely continued into December due to strong milk checks and an unseasonably warm winter over there.

Eurostat also reported November trade flows for Europe and they were pretty negative overall. Whole Milk Powder exports fell to record lows, Cheese shipments were dragged lower by lower shipments to Ukraine, Egypt and China, and Skim Milk Powder actually turned positive but against a pretty bad prior year. The Skim Milk Powder growth was most notable to the Middle-East North Africa region.

What else do we have next week, Eric?

[06:47] Eric: China’s December trade data was just released so we’ll be getting that report out Monday, we have a GDT Pulse event Tuesday, Wednesday, as you mentioned we are hit with both U.S. Milk Production and Cold Storage figures for December and we will be digging into Fonterra’s Global Dairy Trade offer volumes on Thursday. A lot to look forward to and of course, I am excited to get out of cold and dreary Chicago to see the industry at the IDFA Annual Dairy Forum next week in Florida. Have a great weekend, everyone!

Alyssa: Cheers!