Let’s Chat Markets – 10 February 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. Let’s do a quick recap of what happened on the CME Spot market this week. The trend continued for Class IV products to find traction to the upside, with butter, nonfat dry milk and whey also moving higher into this second week of February. It really seems like the market tone has shifted here in the short term–what gives, Eric?

[00:36] Eric: Well, it took a little bit of extra time after the IDFA conference, where everyone was so bearish. We felt that a correction was definitely coming when too many people lean on one side of the boat and that has started to happen here. We have seen significant increases in the Class IV products in particular and also dry whey. So, nonfat dry milk is knocking on the door of a weekly average of $1.25/pound—we settled just below that which was up 4.5%. On the butter side, also knocking on the door with Friday’s settlement above $2.40/pound, just below that on the weekly average, up a couple of percentage points. And then the big one is dry whey, which got down to a low of $0.3150/pound just over a week ago and has rallied significantly now, with the weekly average at $0.4250/pound—that’s up 17% versus last week’s average so there’s definitely a bit of a shift here in near-term sentiment. Now, while we’ve seen glimpses of it in the Class III milk and cheese futures markets, block and barrel cheddars have still struggled somewhat. The weekly averages are down but there’s been more trading. There has definitely been more buy-side interest here. Blocks are just shy of $1.86/pound and barrels still lagging well behind at $1.58/pound. Looking forward, though, I think it’s important to look at whether this is a long-term shift, have we bottomed in this market and are now starting to move higher? Or is this a short-term pop in a correction? Just thinking about where the supply-demand fundamentals are and how little has really changed here as we get into the late winter here in the Northern Hemisphere. We struggle to think that the tone has truly shifted and we have bottomed and we’re now going to rise sharply from here. Certainly, something that we’re going to look at. Corrections can last for weeks on end but we do think there’s some resistance that will come in the not-too-distant future.

[02:35] Alyssa: Something we’ve been focusing on and talked about on last week’s podcast is the weekly Dairy Cow Slaughter data that we’ve been seeing here in the US. Those figures through the end of January that were released yesterday, continued to record growth over prior levels. Weekly slaughter figures were up 7% year on year for the week ending January 28th. Other than all that volatility, there was a lot to absorb this week! Especially on an international level.

After a three-week hiatus, the first Global Dairy Trade event of February turned out to be quite positive and positive for the first time in two months. The biggest question from the industry is whether or not this is a longer-term shift in sentiment, but HighGround does not believe that this event represents an end to the downtrend. Alternatively, purchasing behavior was directed more toward locking in product and taking advantage of what are considered affordable levels versus recent history.

[03:34] Eric: Yeah, Alyssa, I think that it was a positive step to see GDT levels increase more so on the fat side than on the milk powders. Still some sluggish growth on the skim milk powder side and given that that’s the most traded commodity in the world, the fact that that’s still struggling gives us a sense of what’s happening out there. So we still belive this is a short-term correction, even in the global markets, before things change.

[04:02] Alyssa: Also on Tuesday, U.S. December trade data was finalized and calendar year 2022 marked a fresh all-time high for dairy products leaving U.S. borders. That’s the third consecutive year this has been achieved. There was incredible strength in volumes observed to Mexico, Canada, Japan and China throughout the calendar year–all of which achieved record-high demand for U.S. product for net year.

Q4 was also a record quarter for dairy shipments to both Mexico and Canada. It was also a quarterly high for skim milk powder sailing to Mexico while cheese to Canada reached a quarterly highas well. Some very positive figures for US export volumes.

[04:47] Eric: But let’s not forget, Alyssa, a lot of those export volumes with a lot of headlines talking about the record number and all sorts of great things about 2022. 2023 is going to be different. Our prices here in the U.S. were not competitive in particular against Europe over the last three to four months and I have a feeling that when we start to look at export volumes to start 2023 in a month or so, we are going to see numbers that definitely have a lower tone to them. So the opportunities for export in this coming year were certainly softer and that’s showing up in our prices today.

[05:31] Alyssa: Speaking of, some other green on the screen this week was shown from the European region, both on futures and across some weekly indices. Butter, skim milk powder and whey EEX futures turned positive in to the end of this week. There has been a sudden increase in demand from the domestic and export market that has quickly outpaced current production although there is uncertainty whether these elevated levels will last. Even so, it has prompted buyers to return to the market in hopes of locking down contracts at these lower price levels. Manufacturers, of course, remain hesitant to make any long-term commitments given that milk availability will only increase seasonally from that region.

In to next week, the team will be finalizing our price forecasts and digging into the key global fundamentals impacting world markets. You won’t wanna miss this! As a reminder, we tend to release our forecasts on the 15th of every month and the next day on the 16th, we do a live webinar to break down our thoughts and answer any lingering questions from our customers. Not a customer and interested in seeing more of what we do? Head to the website, highgrounddairy.com, and request a free trial today. Cheers!

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