Let’s Chat Markets – 17 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] Eric: Hello everyone and welcome back to another episode of Let’s Chat Markets–your favorite weekly dairy podcast. This is Eric Meyer, President of HighGround Dairy and I’m joined today by Cara Murphy, HighGround’s Market Intelligence Manager. Cara, finally some snow cover on the ground in February, but not really all that much!

[00:29] Cara: Yeah we got back to some cold temps recently but looks like the forecast might be kicking back up to the 40s and I am ready for spring!

[00:38] Eric: Didn’t last long – we’ve had a nice, mild winter here in Chicago and really throughout the Upper Midwest which is why we have been talking so much about those strong components and week basis levels on milk. Anyway, let’s do a quick recap of what happened on the CME Spot market this week.

It was a really quiet week for CME spot blocks, with the weekly average grinding higher to $1.8805, basically where Friday’s settlement came in. Just six loads traded for the week, the Block Cheddar trade has been thin now for months.

Barrels saw yet another active week with prices settling lower as the weekly average came in at $1.5525. Fourty-five loads exchanged hands this week as barrel sellers appear to have plenty to move and keeping prices down while buyers and traders see value in accumulating at these levels.  The block/barrel spread remains above thirty cents and continues to keep cheese hedgers from out of the futures market market as volume at the exchange has been relatively quiet on cheese futures.

The weekly CME Spot butter average moved higher for the third consecutive week, back above $2.40/pound and the highest weekly print since Christmas week. However, at this Friday’s CME Spot session, aggressive offers brought the market back below $2.40 to settle at 2.3750/pound, a two-week low. The weekly NFDM average came off slightly, as did futures after a short covering rally and the CME Spot dry whey has been up for the third straight week with Friday’s settlement at $0.45/pound, its highest since mid-December.

Cara, Dairy cow slaughter numbers have been running hot thus far in 2023.  What can you tell us about the most recent data release?

[02:27] Cara: U.S. weekly dairy cow slaughter moved UP 4.5% versus the same time last year for the 8th consecutive week,  a 2,800 head difference. However, the year-over-year gain was the slowest since 7 January 2023. Year-to-date weekly dairy cow slaughter is UP 7.7%–a 24,100 head difference. Digging into some more data there, Region V (the Upper Midwest) recorded the first YoY decline since November 26 2022.

While we are discussing domestic markets, there were a few key takeaways within the USDA’s December 2022 Supply and Utilization data that was published this week. Total cheese utilization saw further advancement over the prevous year in December, supporrted by strong commercial exports and a return to year-on-year growth in domestic demand after a decline in November. Year to date, U.S. Smerican cheese was up versus the prior year and throughout 2022, domestic disppearence started below prior year levels and began to grow while exports started strong early in the year and waned into the latter half. U.S. Other-cheese returned to growth in December, lifted primarily by higher exports, but domestic demand reversed course from November to finish December above prior year levels. Butter fell to the lowest December volume since 2019, although it seasonally declines at this time. There was a big drop off in exports falling from the highest level of the year to the lowest. Lastly, NFDM utilization turned positive in December after six consecutive months below 2021 levels due to an increase in domestic demand over the prior year for the first time since August 2022 while export demand grew to the largest December volume since 2019.

[04:07] Eric: Thanks, Cara! The team released our monthly forecast snapshot report on the 15th and we updated our CME price forecasts through the first half of 2024. Be sure to log in to highgrounddairy.com and take a look at those, as well as the webinar recording on our dashboard as we had a great in-depth conversation about our market view this week.

Looking internationally, there is some mixed sentiment from the week ahead of the next Global Dairy Trade auction. While the GDT Pulse event results were lackluster, SGX traders are pricing in some positive traction into the next event. Some of this may be a direct impact from the damage seen through New Zealand after Cyclone Gabrielle hit the North Island. It has truly been a tough 2023 for producers in that region.

Back to the Northern Hemisphere, European dairy indices actually remained green this week as competitively priced dairy commodities had begun attracting fresh buying.   The bullish sentiment did seem to ease earlier this week as buyers get their fill and the industry looks to the Gulfood conference next week in Dubai for direction. Given that the calendar is quickly approaching Spring, an actual long-term uptrend trend may be difficult to achieve given that milk production will be seasonally increasing over the coming few months.

2022 was a record year for US export volumes, while the delayed December data from Europe reflected a year of losses to Asia. Total dairy shipments in 2022 from Europe to China fell to four-year lows and Southeast Asia to five-year lows, a result of weaker consumption from the region for European product. EU exporters are entering 2023 with a shift in fundamentals as milk availability has improved, paired with competitive pricing, which should promote sales throughout the first half 2023 and in turn, hamper U.S. sales.

All right! On tap for next week, the Gulfood Conference will be taking place and we look forward to hearing from our clients and colleagues attending in Dubai to get the latest market chatter. Monday is President’s Day in the United States so CME Spot and futures markets will be closed that day, but the remainder of the week is busy! Tuesday starts off with the second February Global Dairy Trade auction, New Zealand and China January trade data will be released at some point mid-week, while the U.S. will publish both the January Milk Production and Cold Storage reports. No rest for the weary! Have a great extended weekend and we’ll catch you next week.

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