Let’s Chat Markets – 21 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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[00:09] Cara: Happy Friday and welcome to Let’s Chat Markets, your favorite weekly dairy market podcast. I’m Cara Murphy, HighGround’s Dairy Market Intelligence Manager joined by the stunning Betty Berning, our Contributing Dairy Economist to provide the rundown for the week. There was quite a bit going on, Betty do you want to start us off with news on the domestic front?

[00:29] Betty: Hi Cara. Yes, I can do that and I’m very excited to see you and many of our listeners next week in Chicago at ADPI. But you are right—definitely lots going on this week!

USDA released its March Milk Production Report on Tuesday. For me, there were three key headlines. Number one: US milk production and herd growth continued. Number two: USDA revised February milk cow and production numbers up, and number three: the growing disconnect between the Central region and elsewhere—particularly the West—around milk cow numbers and milk production.

[01:13] Let’s start with that first item. US milk production increased 0.5% in March compared to March 2022, totaling just over 19.7 billion pounds, and milk per cow grew just 3 pounds compared to one year ago. Farmers, though, added 6,000 cows to the herd from February to March for a total herd size of 9.435 million.

[01:41] This brings me to my second point: USDA revised February’s herd size up an additional 12,000 cows. March and February’s herds are the biggest herds we’ve seen in the US since August 2021. The additional cows increased February’s milk production to a 1.1% year-over-year gain—that’s an increase from the initial reports reading of 0.8%. USDA even revised January’s cattle numbers up another 2,000 head.

[02:17] Third point: milk production growth is primarily coming from the Plains and Midwest states. So, if we look at California’s milk production in March, it was down 2% versus March 2022. They have been hit really hard winter, as we all know, by heavy rains, snow, and floods and that is likely what drove milk yields lower there. If you look at the March milk per cow numbers, individual cows produced 45 pounds less this march than in March 2022 and honestly, this was the lowest March milk production for California since 2019. Where do we see milk growth coming? Places like Indiana, Iowa, Kansas, Minnesota, Michigan, South Dakota, and Texas, Wisconsin, and you get the idea—all places in the Great Plains and in the Midwest. In these places it’s either higher milk yields and/or increased cow numbers that are driving the improved milk production.

[03:19] Let’s switch over to Spot markets. It was a really busy week there—high volumes in the cheese market: 29 loads of blocks trading and 85 loads of barrels. These are some volumes that we have not seen in some time. Both markets were down on the week in terms of weekly averages. Barrels held their 2023 low of $1.5125/lb on Monday and then seven loads traded on Wednesday for $1.50/lb which we have not seen in quite some time here. Blocks also made a new 2023 low on Thursday, when the market settled at $1.7450/lb. Whey markets were down on the week as well—another week of really heavy volume in that market, 35 car lots moving. A new nearby low of 35 cents per pound on Monday and then they rallied the rest of the week. I would be remissed if I forgot to talk about butter and nonfat dry milk. Those prices, on a weekly average basis, did improve compared to last week, but butter really remains quite range-bound, and it’s having a hard time breaking through the $2.40/lb mark. I could talk a lot more, but Cara, I will let you have a turn to talk about what we saw in the international markets and data this week.

[04:44] Cara: Thanks. Across the pond, EU milk production continues to grow with February’s figure printing 1% higher than the year prior, excluding Cyprus production data which has yet to be released for this month. The trend remains as it was in January, with German milk production continuing to grow while French collections keep declining. Italy posted a gain of 1%, a surprising outcome considering the strong year of milk flows last year. It looks likely that they may even post another positive result for March as well considering the weak comparables for that month.

[05:18] With milk production still growing strong across Europe, February export data highlights the lengths processors are going to remove excess production from the local market, with skim milk powder, butter, and infant formula exports all reaching multiyear highs. However, total dairy exports remain slightly lighter than the year prior, down 0.7%. The bulk of the decline was driven by fluid milk & cream, down 16%, and cheese down 7.6%, year-over-year. Lower fluid milk shipments were seen to China this month, as the top destination country for fluid milk. The reduced monthly volumes have been keeping shipments well below prior year levels since August 2021, now. Cheese exports fell below the prior year for eight of the top ten destination countries, with exports to Japan, Ukraine, and China leading the way.

[06:10] In the Southern Hemisphere, New Zealand’s March milk production was up 0.3% versus the prior year, up 1% on a milksolids basis. The milk production season to date is down 1.4% from last year, however (down 0.9% on a milk solids basis), and for the twelve months through March 2023 was down 1.9%, down 1.5% on a milksolids basis. With some of the best national pasture conditions—almost as good as 2020, a record year—this data suggests that Kiwi farmers are not chasing production and the impact of less cows is greater than initially thought.

[06:52] Lastly, looking at the results of this week’s GDT auction. The headline figure of a GDT price increase gives the impression that demand at this event was significantly stronger than the prior four auctions. However, this premonition can be dismissed by looking at the headline volume of production sold, only 503MT above the minimum supply level. Looking deeper into key demand measures, there was a good volume of demand arriving for skim milk powder, butter, and cheddar, but this eased quickly. Although the average price for skim milk powder jumped 7.0%, a closer look at the data does not have us convinced this resurgence in demand is here to last. Firstly, the premium for New Zealand medium-heat SMP over EU blew out to $460/MT. Secondly, the massive volumes of skim milk powder that Middle Eastern buyers secured, the highest volume since November 2010, indicates that this result was likely molded by a single buyer desperate for certainty of supply. And thirdly, is the significantly weak prices posted for most of the recent tender out of Algeria, much lighter than most were expecting and a huge discount to this week’s auction’s results. We will be interested to see if this trend continues at the next event on May 2nd but we anticipate a correction is likely.

Well, that’s all we have for today. We hope to see many of you and catch up at the ADPI conference in Chicago early this next week. Otherwise, we’ll be seeing you again on the next episode of Let’s Chat Markets! Have a great weekend and a lovely spring! Cheers!

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