Let’s Chat Markets – 17 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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Transcription:

[00:09] Alyssa: Hello everyone and happy St. Patrick’s Day! Welcome back to another episode of Lets 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. Before we jump into markets, I wanted to take a moment to share that this will be the last podcast episode that you will hear me on for the next 12 weeks as I am heading off on maternity leave on Monday. Instead, you will be hearing from the rest of the team a lot more and I look forward to chatting markets again with you all when I return in June.

[00:43] Alright then—let’s chat markets, shall we? Here in the US, the CME Spot market experienced some notable support throughout this week, even as the calendar is stretching on towards the spring flush period in the Northern Hemisphere. Demand is reportedly strong and volatile weather in California is likely helping to add to the recent price trend. That being said, there also seems to be no shortage of milk around. What’s going on with this Spot activity, Eric?

[01:10] Eric:  Thanks, Alyssa! There has been some serious movement in the CME Spot cheese market this week. Let’s start with barrel cheddar given all the volume there. A large end-user appears to be in accumulation mode with a total of 36 loads exchanging hands this week, moving the price up 19 cents since last Friday to settle at $1.96 per pound today—also a four-month high. Since the recent low, $1.53 per pound, which was set on March 2nd (just over two weeks ago, mind you), barrels have rallied 43 cents or over 28% in less than that three weeks’ time. That’s impressive, especially when indicators point to overall, broad-based cheese demand not being as robust as what the market suggests. Blocks have also made a significant move this week and its timeline has been shorter, settling just shy of $2.00 today, which has added 21¾ cents, or boosting the value by more than 12% since last Friday. Block volume has been far less interesting as that market is still very thin. Class III milk & cheese futures have rallied significantly over the past week but don’t completely believe the move, still pricing in a discount against the current spot milk and cheese price. From HighGround’s perspective, this feels like a very aggressive upward correction in an otherwise bear market, but very difficult to pinpoint the top.

[02:40] The other markets have been quiet volume-wise, though dry whey prices keep grinding materially higher. CME Spot whey settled at $0.4675 per pound today, up more than 7 cents from the prior Friday but on just three trades. Butter settled at $2.40 for the week, which is up nearly 7 cents from the prior Friday but also light volume at just 6 trades and nonfat dry milk has been very quiet, trading just over a penny range all week to settle at $1.1875 per pound. Alyssa, back to you but all eyes on this volatile cheese market this coming week!

[03:17] Alyssa: Thanks, Eric! There really wasn’t much data out for the market to absorb otherwise, especially from the US. What we did get were a couple of pretty bearish signals from the international marketplace. On Tuesday, there was yet another weak Global Dairy Trade Pulse auction that saw whole milk powder drop 0.6% from the week prior. As a result, SGX futures also recorded weakness. And then—pressure on whole milk powder markets extended throughout the week with a pretty bearish print from Fonterra regarding their offer volume forecasts. Stu, what do you have for us?

[03:55] Stu: Thanks Alyssa, indeed, more bearish news on the Oceania whole milk powder front, with Fonterra shuffling their GDT whole milk powder offer volumes for the coming 12 months. The net addition of 10,000MT of whole milk powder hides the fact that volumes were pulled forward from the coming season, front loading almost 15,000MT of whole milk powder into the coming four months of auctions. As expected with a move like that, the SGX-NZX whole milk powder futures slid further on this news, with the nearest two whole milk powder futures contracts now priced under $3,220/t—lower than the C2 price at the previous GDT auction. Very bearish. Honestly, it would be hard to be bullish for the Oceania market going forward. Back to you, Alyssa.

[04:38] Alyssa: It will definitely be interesting to see how that auction shakes out with the front loading of those offer volumes. Looking at Europe, there are some January milk production figures starting to trickle out. Germany recorded 3.6% growth from prior year while France remained negative and down 1.4% from prior year. Italy and Ireland were the other countries to report negative collections while the UK, Netherlands and Poland remained quite strong. Weekly European indices were generally mixed with European cheese values still very competitive on the world market. European butter prices are well-below the US but New Zealand is holding on to the lowest value. Dutch skim milk powder has dropped quickly and is competing pretty closely with US nonfat dry milk Spot values.

Other than that, the team did put out our highly-anticipated forecast report which we always pair with a live webinar for all of our customers. Don’t forget to head to the dashboard to watch the recording and check out our global price forecasts into 2024. Not a customer? No problem. Just request a free trial and we’ll get you access right away for the next 30 days.

We have quite the week ahead for the dairy industry! China’s January and February trade data will be out by Monday, US February milk production data will be out on Monday as well. Tuesday there will be a global dairy trade auction, New Zealand’s February trade data should be out and European milk production and trade data for January should be finalized early on the week as well. Lastly, into Thursday, the USDA will put out the February cold storage report for the team to analyze. As always, we appreciate you tuning in and look forward to coming on next week to chat markets with you. Cheers!