Let’s Chat Markets – 24 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 weekly dairy podcast. This is Alyssa Badger, Vice President of HighGround Dairy, and I’m joined today by Eric Meyer, HighGround’s founder, and before we jump into a market roundup, we have some exciting news to share, don’t we, Eric?

[00:27] Eric: We sure do, Alyssa! We have a new member of the team that started this week and we are thrilled to welcome her. Lucky for us, we actually have her on the podcast today for an official introduction to our customers and podcast subscribers. Betty Berning will be joining the team as a Contributing Dairy Economist. Betty has extensive experience in the agricultural supply chain and has held a wide variety of roles including Senior Dairy Buyer at General Mills, Loan Officer at Farm Credit, Extension Educator at the University of Minnesota, and has worked and grew up on her family’s dairy farm in Central Minnesota. These experiences have enabled her to understand both the challenges farmers face as well as the decision-making processes of food companies and consumers. Betty, thanks for joining us today!

[01:16] Betty: Great to be here Eric, I appreciate the warm welcome. I’m super excited to be working with HighGround and providing market commentary on the USDA reports that come out and some of your advisory projects as well. You have a great team and it’s a wonderful company and I’m just very, very excited.

[01:36] Alyssa: Thank you so much, Betty. We can’t wait for you to share your insights with our customers! As the team continues to grow, we will have another new voice to introduce next week so you won’t want to miss it. Alright—as always, let’s kick this market chat off with a CME Spot roundup, shall we?

[01:54] Eric: But of course! Let’s start with Spot cheese, which saw both block and barrel averages trend higher this week (blocks at 1.9375 per pound, barrels at 1.5725 per pound), which for block cheddar is the second straight weekly increase. However, blocks fell seven cents on Friday to settle at $1.88 per pound, which was exactly where the previous Friday’s settlement was. Offers were stacked this Fridday, ticking down by pennies at a clip, which is suggestive that we could see more product coming on Monday.

[02:26] Similar story for barrels: while the average price increased from the prior week, Friday’s settlement at $1.54 was six cents below the intra-week high and just a quarter penny above the lowest value of 2023 and going back to November 2021. Weekly trading volume remains heavy in barrels as a major manufacturer continues to bring product to the exchange. Butter volumes have gotten quieter and the market a bit choppy, trading on both sides of $2.40 per pound this week with the weekly average settling just below that mark on a lone trade. Nonfat dry milk’s weekly average of $1.2163 was down slightly from the previous week, but just a penny shy of the year-to-date average price just shy of $1.23 per pound. Finally, the CME Spot whey market has been on an impressive track, up for the fourth straight week to 45.94 cents per pound and versus one month ago, is up nearly 13.5 cents, increasing in value by nearly 42%! That said, this is the second straight week that the weekly NDPSR dry whey price has fallen below 40 cents per pound and trending lower, so hard to put much stock into the spot data given that nearly no one prices their physical sales off the CME index.

[03:45] Alyssa: Perfect, thanks, Eric. It was a very busy week for the team here on this shortened holiday week. It was quite the mix of both US and international data. On Tuesday, there was a somewhat disappointing Global Dairy Trade Auction. Overall, the event reiterated that from the supply side, fundamentals remain pretty bearish in the short term all while the macroeconomic environment is clearly still impacting global demand from emerging markets. Bullish weather headlines within New Zealand did nothing to perk up whole milk powder values as cyclone fears are being brushed off. That being said, there is even more rain in the forecast for the North Island this week, which can’t be good for farmers—especially from the feed quality side.

[04:28] Eric: New Zealand also released their trade figures for January this week, which looked awfully healthy.

[04:33] Alyssa: It was actually a record month for dairy products sailing to Southeast Asia. The overall strength makes sense considering that significant consolidation in global dairy prices at the beginning of Q4 in 2022 that looks to have brought very strong demand from key regions off the Global Dairy Trade Auction platform. After we had time to absorb all that data from New Zealand, the USDA released the January 2023 US Milk Production Report, which came in largely as expected. Betty?

[05:05] Betty: That’s right, Alyssa, US milk production came in with year-on-year growth of 1.3%, up 1.5% in the top 24 states—all as expected. And while I would encourage our subscribers to check out the Dairy Skim podcast and comprehensive written analysis released on Wednesday for the complete story, I will say we were surprised by the 9,000 head monthly increase in the total number of cows in milk given recent slaughter rates, and USDA made some very interesting revisions in the overall 2022 data. Given where the income over feed ratio stands, US dairy farmers may be up against the worst on-farm profit conditions in years.

[05:45] Alyssa: 2023 is going to be quite the year for US dairy farmers! Now we wait to see what the January US Cold Storage says later this afternoon with ending stock data for cheese and butter.

[05:58] Another international report out this week from the team was the December 2022 European Milk Production Analysis as they finally released those figures. The European Union, alongside the UK, reported 0.9% growth in milk production in December, backing down from the 2% growth reported in November. Overall, gains on a volume basis were most notable again from Germany, but strength also continued from the Netherlands and to a lesser extent, Ireland, the UK and Poland. What’s on tap next week, Eric?

[06:33] Eric: Quieter? Maybe a little, but plenty to keep us busy. USDA will be publishing its January 2023 Dairy Products Production and Dry Stocks report next Friday but before that it is end of month, which will provide the market with the monthly Announced Class & Component Prices. And in addition to Betty being in the office next week, we will also be joined by another new member to the HighGround Team here in Chicago. More to come on that next Friday. Have a great weekend all!

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