Let’s Chat Markets – 6 April 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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[00:10] Eric:  Hello, everyone, and welcome back to another episode of Let’s Chat Markets—your favorite weekly dairy podcast.  Today is Thursday, April 6th and I’m Eric Meyer, President of HighGround Dairy. Finally back in the office after a 12-day stint out West which included presenting a Dairy Outlook at the Market Vision Restaurant Supply Chain conference in Palm Desert, attending the International Pizza Expo in Las Vegas, and a Spring Break trip with the family to the Grand Canyon.  And I couldn’t even enjoy a full week at home, as this week the Wisconsin Cheesemakers Association hosted their annual conference in Madison, aptly rebranded “Cheese Con.”  Great to see industry colleagues gather at such an excellent conference and occasion.  On Friday, April 7th, the markets, as well as our office is closed for the Good Friday holiday.  While other regions of the world stay closed for Easter Monday, the Chicago Mercantile Exchange and HighGround Dairy will be open for business after the long weekend.

[01:08] I last hosted our Friday podcast two weeks ago and had to inform the industry that the CME Spot Block Cheddar price had blasted upward to $2.10, settling at a two-month high, even though we didn’t believe the move.  Today, we can confidently say that the recent rally was in fact a squeeze, and it didn’t last long, with Block Cheddar collapsing by 30 cents in just five trading days, getting as low as $1.80 this Monday before finding modest support to finish the week at $1.83 per pound.  Volume continues to be strong-ish for the second week in a row, with 16 loads exchanging hands.  The weekly average came in at $1.8144, down nearly 8% from the prior week.

[01:53] Barrel Cheddar prices also took a bath over the past two weeks, falling 15.5 cents from peak to trough last week and dropped another 8 3/4 cents this week from Friday to Thursday, falling to its lowest price since March 8th during this holiday-shortened week.  The two-week drop represents a loss in value to barrels of 12.4%.  Volume has really dropped off as well, with just 1 load traded earlier this week but picking up in the low $1.70s with another 14 trading today alone.  Buyers appear to like the low $1.70s with multiple buyers showing up at the CME.  The weekly average dropped by 7.1% from the prior week to settle at $1.7656 per pound.

[02:36] Weakness was the name of the entire complex as the nonfat market also fell to its lowest levels since February 2021, closing out the week at $1.1250 per pound on very little volume, just two loads traded the entire week.  Bearish global data continues to weaken skim powder markets worldwide.  Butter also ran into resistance with prices falling eight cents from Friday to Thursday, settling on its lowest price since the end of January.  And whey prices, after peaking at $.46 per pound on Monday, dropped 9 1/2 cents or 21% of its value in just three trading days to close at 36 1/2 cents, its lowest price since February 1st of this year.  So much for that $.42-.46 range the market had been trading in for the past eight weeks.

Demand remains sluggish and with the Northern Hemisphere ramping up for its spring flush in milk production over the next couple of months, sellers are starting to get more aggressive with that product.

[03:37] There was plenty of fundamental data to chew on this week as well, starting off with the February 2023 US Dairy Products Production and Dry Stocks report.  If you want to get into the specifics of this report, be sure to check out the Dairy Skim podcast that Betty and I did on Monday afternoon or subscribers can read our comprehensive analysis on this data-heavy report.  The numbers that stood out to us were the Cheddar number, up 5.6% versus the previous year and now the second straight month of strong annual growth.  Butter output grew for the 4th straight month, though not as robust as the prior few month percentages, potentially due to stronger demand for cream away from the churn, even being retained in products like full-fat cheeses or yogurts.  While whey production in all dried formats—whey powder, concentrates and isolates—were all well behind last year, inventories remain robust, particularly in the higher protein specs and the real market bear of the report was Nonfat Dry Milk and skim milk powder production, which saw an 8.1% year-over-year aggregate gain and inventories eclipsing 300 million pounds again, back up to August 2022 levels and an impressive 39.5 million pound monthly build from Jan to Feb.   

[04:52] On Tuesday, the International Markets got involved in the bearishness, with the Global Dairy Trade auction posting a 4.7% decline to the overall Price Index, its worse loss since the first August trading event in 2022.  Every commodity posted declines, with the exception of Cheddar Cheese, though that commodity had already fell 20% the month prior.  Fonterra’s Contract 2 whole milk powder price settled just above $3,000 per metric ton, and SGX futures post-GDT auction this week are already pricing in further declines below that psychological level.  Skim milk powder along with fats also posted material declines at this week’s event. 

[05:35] Finally, the last major data points released this week were the US trade data from February.  The HighGround market intelligence team has been digging into the data and will have their comprehensive written analysis out by the time this podcast is published, but we did see a lot of red in this report versus prior year, an occurrence that hasn’t happened in some time.  Total cheese exports were only down 0.2%, so it’s still hanging in there but Cheddar was off 13% in February from 2022, its first year-over-year decline since June 2021.  Some bright spots in the report were in the whey complex, with dry whey exports up nearly 10%, WPC 80 and isolates volumes up nearly 9% and lactose up nearly a 1/3 from its volumes last year, though manufacturers’ inventories on those products remain quite burdensome.

Well, that does it for this week’s Let’s Chat Markets.  I hope everyone has a nice Easter holiday with their families and we’ll see if the bearish trend persists into April.  Cheers!

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