Let’s Chat Markets – 10 March 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 what’s on tap into the days ahead. I think the biggest news into today is that the block-barrel spread converged back to just a penny today, the block market settling at $1.78 per pound and barrels $1.77 per pound which is the tightest spread we’ve seen since November 2nd, 2022. Before that time, from about April to October of 2022, the vast majority of time was spent with barrels inverted to the block market. The barrel weekly average jumped nearly 9% this week to the highest levels that we’ve seen in two months. Barrels, of course, continued to consolidate lower with a weekly average at a 27-week low which puts us at the lowest levels we’ve seen in the block market since last September. Looking at the other markets, nonfat dry milk spot values moved lower for the fourth week in a row, settling out at $1.1715 per pound, a six-week low. Butter lost 2.4% over the last week and dry whey also lost value after seeing some support over the last two weeks.

[01:40] Fundamentals here in the US are rather mixed from a milk production perspective but throughout the Midwest, basis levels are pretty bearish as there is plenty of milk around for processing. Out West, however, weather in California continues to be on the radar with wet conditions causing some cow discomfort on-farm. California is once again facing excessive rainfall and flood warnings. Not a great situation for the state in general after everything they’ve been through this year so far.

[02:15] US January trade data was released this week and even though the US started to lose its edge on competitive dairy pricing against both Europe and Oceania, depending on the commodity, January shipments impressed to the upside. January cheese exports in particular reached an all-time high for the month as cheese sailing to Mexico also kicked off the calendar year at a record pace. Total dairy exports to China expanded over prior year for the eighth consecutive month, which was a key takeaway. Nonfat dry milk exports were also strong with Mexico’s market share continuing to swell above 50%. These high export levels may be unsustainable given that the US is not as competitive on the world market across key commodities today.

[03:10] That is enough from me. Luckily, we have Stu Davison back on this week to help us recap what happened at the Global Dairy Trade Auction that was pretty much in line with our expectations. Stu?

[03:23] Stu: Yeah, HighGround had a difficult time getting optimistic heading into this GDT event, even with the positive SGX signals in weeks prior, we were really reliant on the supply and demand fundamentals and theyseem to be balancing each other out.

[03:36] Alyssa: What was the key takeaway on milk powders?

[03:38] Stu: The whole milk powder result was supportive, posting a 0.2% gain, with decent demand arriving in the initial bidding rounds. However, very slippery demand. The demand did not stick around and we saw the demand fall quickly. The same can’t be said for skim milk powder, which resulted in prices falling 1.1% on average. Oceania skim posted a premium over EU & US skim milk at this auction. A real key takeaway from the volume sold was that not all of the Arla skim offered was sold–a real red flag of where we see European skim buyers preference and we have set their price ceiling currently. North Asia was again the dominant buyer for both powders, but we do not think that this is a signal of strong demand from the region, more a case of weak competition during the bidding rounds, like I mentioned earlier. The weakness in this market was also evident by the low volume sold overall on this GDT, very close to the minimum offer volumes.

[04:31] Alyssa: And fats were interesting, weren’t they? Ultimately, it seems that there is plenty of availability from the region.

[04:38] Stu: Yeah, agreed. Milk production is looking pretty good down in New Zealand. Milk fats were exciting, AMF prices eased further, while butter prices eased a little more buoyed at this event. The premium for milk fat remains with butter, with this event opening the gap between the two products wider. The big surprise from this event was the cheese result. GDT cheddar fell 9.5% on average, aligning closely to the global cheese price over the last few weeks. Also relevant in the cheese market was the lack of buyers from the Middle East—a bit of a surprise there.

[05:09] Alyssa: Perfect, thanks, Stu. Of course, for more detail on our international opinion, just head to our dashboard to read our comprehensive analysis. Not a customer? No problem. Just request a free trial and get access for 30 days today.

We are also working on our massive forecast report to be out early next week on the 15th and we really have our eyes on a handful of impactful fundamentals over the next month. Want to give us that rundown, Stu?

[05:39] Stu: Yeah for sure. The real key focus here over the next month will be global recession fears in the market, exchange rate volatility, economic signals from China, and a potential drought in Europe this summer. Not to mention on-farm margins globally getting squeezed— a real risk for key exporting regions.

[05:55] Alyssa: Certainly a lot to discuss! As always, we thank you for listening and look forward to coming back next week to chat markets.

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