Let’s Chat Markets – 31 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] Cara: Hello, everyone, and welcome back to another episode of Let’s Chat Markets – your favorite weekly dairy podcast. Today is March 31st, I’m Cara Murphy, HighGround’s Dairy Market Intelligence Manager here with Betty Berning, our amazing contributing dairy economist, to bring you a recap of this week’s market movements. Spot milk and cheese prices made some interesting moves this week. Betty, what can you tell us about those?

[00:31] Betty:  Thanks, Cara. Yes, Spot milk prices in the Midwest continued to trend higher this week, although they are still very low for this time of year spring flush. Basis ranges from $11 to $3 below Class III pricing, with a midpoint of $7 below class, and this is an improvement from the basis levels seen earlier in March. Futher supporting that, Dairy Market News is reporting that more milk is going on the “high end” of this range, or about $4-$5 below Class III pricing. This suggests that prices are improving. However, they have a ways to go before they are back in line with this historical average. The three-average spot milk price is about $3 below Class III pricing. So, we are quite a ways from that. Milk does seem to be available in this region as peak volumes approach.

Most of this spot milk is moving to cheesemakers and cheese production is reportedly steady, and there is plenty of milk to make cheese, meaning the fundamentals would suggest the market may be heavy with cheese. It appears that some of this came to fruition this week at the CME Spot market, as cheese markets tanked on very few trades. Block cheddar closed last Friday at $2.10/lb., the highest since January 11. Since then, markets have given up 25 cents, settling today at $1.8500/lb. Barrels also dropped this week, going from $1.9625/lb. last Friday to $1.8075/lb. today. Curiously, both markets held their nearby highs this pas Monday and nothing traded. It was a really quiet day. Then everything started giving up ground on Tuesday. It appears that cheese prices are coming back to earth, but on little trade, only 8 car lots of barrels traded this week, the smallest volume since the week of December 31, 2022. This lack of volume indicates that markets may be skeptical of a bounce in prices.

[02:51] With that said, Fonterra issued its pre-GDT volumes and removed 300MT of cheddar from its 12-month forecast. 100MT of that will be taken from this upcoming auction next Tuesday, and an additional 100MT will be removed from the mid-April auction. The remaining 100MT will be split between the two trading events in May. This is a really interesting development given that cheddar prices fell about 10% at the previous GDT event on March 21.

[03:29] Cara: Interesting indeed. Looking at powders, this next GDT auction will have 2,300MT more whole milk powder than was forecast three weeks ago. This will likely depress the already poor demand that has been arriving at the GDT events. With SGX-NZX futures trading lower over the last couple of weeks and the nearest contract at $3,080/MT and contract 2 at $3,090/MT, it seems the market is expecting prices to keep falling in the near term.

Skim milk powder values look a bit more supportive, though, with SGX-NZX market pricing the nearest SMP futures higher than where physical product settled last auction. This contrasts reports from both Oceania and Europa that SMP sales are hard to find while more product continues to arrive at the market. Previous production data also indicates that SMP output is growing in the EU as well as New Zealand. In the US, CME Spot nonfat dry milk fell to $1.1475 this week, a price point we have not seen since late March 2021, although it settled a bit higher today. Nonetheless, with US nonfat sitting at values that are $100/MT lighter than EU and Oceania prices, this could be a good indication for how this next event might go.

[04:46] Ultimately I think we are seeing the influence that the wider, adverse macroeconomic environment is having on market sentiment. Although some new data released today by the USDA today could possibly change that tone a bit. The annual prospective plantings report shows that planted corn acreage in the US is up 4% versus 2022 at 92 million acres. Planted acreage is expected to be up or unchanged in 40 of the 48 states. All wheat acreage is up 9% compared to last year. The estimated soybean planted acres are at 87.5 million, just slightly up compared to 2022. Something of note that stuck out to me, though, was the 6.8% increase in planted crop acres for North Dakota this year, a pretty significant jump compared to the 0.5 to 1.0% increases from the other top 5 states. The jump is primarily in planted corn acres, up 27% compared to last year for North Dakota, far surpassing corn acreage growth in any other state as well. But, with a few more winter storms in the forecast, it’s likely that farmers won’t be getting into the fields until later in the season.

[05:50] Grain production in the US will be vitally important this year on the global market as Europe continues to face challenges with the Russian-Ukrainian war and winter drought conditions. The Ukrainian Black Sea grain deal was extended in March for at least another 60 days, but only time will tell how this next growing season will go. In western Europe, unusually low rain and snowfall across Germany, France, Ireland, the UK, and Italy combined with below-average snowpack in the Alps, has countries preparing for another hot and dry summer. Concerns are rising that we may see another year like 2022 when river water levels fell to record lows, impacting crop production, energy generation, and barge transport across the continent. Let’s hope some rain falls in Europe soon.

Well, that’s all we have for this week. Don’t forget markets are closed next Friday, April 7th, for the Good Friday holiday. Have a great weekend and a lovely spring. We look forward to catching up again! Cheers!

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