Let’s Chat Markets – 28 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] Betty: Happy Friday and welcome to Let’s Chat Markets, your favorite weekly dairy market podcast. Today is Friday, April 28th and I’m Betty Berning, HighGround’s Contributing Dairy Economist. I enjoyed reconnecting and meeting with many of you this week at ADPI’s Annual Conference in Chicago. There were lots of market discussions, laughs, and late nights… I’m still recovering here!

One word to describe the conference: BEARISH. In conversations, the team at HighGround was hard-pressed to find much market optimism. We heard about heavy cheese production, somewhat improved domestic butter demand, cheap nonfat dry milk, and received questions about whey prices.

[00:56] Piecing the fundamentals together, global supplies are up, but not much, and international demand—the real story here—is quite poor. It’s hard to see prices moving higher anytime soon, but important to keep in mind that supplies are not that burdensome. Global macroeconomics remain the factor to watch, as far as the demand side of the story goes.

[01:20] We saw some of this playing out in Spot markets this week. Blocks and barrels made new 2023 lows, with barrels closing at $1.475/lb on Tuesday, and blocks at $1.6425/lb on Wednesday. However, both markets rallied late in the week—typical post-ADPI market behavior. Other than Monday, volumes were heavy as  42 loads of barrels and 21 lots of blocks moved. CME Spot whey has not traded above 40 cents in the past 16 sessions, moving below 35 cents per pound in this week’s market. NDPSR prices curiously moved up this week, but we expect at some point, these markets will converge, as all of the cheap whey from the CME will eventually wind up in NDPSR pricing.

[02:09] Butter traded at $2.40/lb for the first three days of this before creeping up 1.25 cents and then giving up six cents in today’s session, back into the $2.30 range. This market is range-bound, finding technical resistance at $2.45/lb., the 2023 highwater mark for butter. After last week’s low, nonfat dry milk stayed around $1.16 for most of the week, with a meager penny change from Friday to Friday, finishing at $1.175/lb. on the week.

[02:45] On Tuesday, USDA also released its Cold Storage report for March. Butter was somewhat bullish as the February to March stocks declined, going against the normal seasonal pattern, only the fourth time that Feb to March has declined since 1995. Given that butter churns were actively running throughout March (according to Dairy Market News reports) it’s possible that domestic demand perked up ahead of an early Easter holiday and on heavier sales at the grocery store. Year-over-year inventories grew at a rate of 3.5%, but this is a gain at a decelerating pace compared to increases the last few months.

[03:24] Cheese inventories, on the other hand, were somewhat bearish. While overall cheese stocks decreased compared to March 2022, it really wasn’t by much—just 0.4%—and that was against two very strong March stocks, meaning this March’s figure is substantial, as well. On a month-over-month basis, stocks built by 13.5 million pounds, very close to the five-year average mark. American cheese inventories, which include all the Cheddar we’ve seen trading, increased by 0.5% vs. 2022, and built from February to March by 15.3 million pounds, well above the five-year average seasonal of 3.6 million pounds, evidence that the extra milk in the upper Midwest is going into cheese.

Now I’m going to toss it over to Stu Davison for a look at what’s been going on in the international markets this week. Stu?

[04:22] Stu: Thanks Betty, just a quick run-through of some key data that has dropped this week.

Let’s start with New Zealand milk production, which posted a 1.0% increase in March, on a milk solids basis, a little lighter than where we had forecast. The difference was due to the larger-than-expected impact of the drier weather recently in the South Island. Season to date, New Zealand milk production still lags the season prior by 0.9%, with our forecast expecting the final figure for the season to sit around the 0.7% mark, with slight gains pegged for April and May. For more, read our New Zealand update for our outlook for the rest of the season, not to mention the coming season.

[04:59] Jumping to New Zealand exports, figures were also released this week, posting a 6% year-on-year decline for export tonnage, even with New Zealand milk production growing as mentioned. Diving into the data, this tonnage difference is likely explained by the massive 22.4% decline in fluid milk and cream exports during the month of March, along with the 8.1% decline in whole milk powder exports. Skim milk powder exports surprised with a 2.0% decline year-on-year, however against very strong figures last year. The big headline, however, is the large volume of infant formula exported during March, up a whopping 38% year-on-year, reaching back towards the large volumes exported in March of 2019 & 2020. Exports of infant formula to China are driving this change.

[05:46] Which is a great segway to look at China’s recent import data! Chinese imports of total dairy in March grew 1.7%, with growth in whey, skim milk powder, infant formula, cheese, lactose and casein classes. Infant formula imports grew 51% year-on-year, with similar volumes to whole milk powder for the month, which is impressive. Whey imports grew 47% year-on-year as well—another impressive gain. As has been the trend for the bulk of the last year, whole milk powder imports continue their lackluster run, with March’s imports lagging the year prior by 32.8%, with only 39,000 ton imported. This decline drags year-to-date imports to a 53% decline on the year prior or a whopping 219,000 ton difference! Strong imports of skim milk powder continue, with imports growing 64% year-on-year, helping year-to-date imports grow to a 19% gain on the same period last year.

[06:43] Now, shifting to the forward view. Looking into next week’s Global Dairy Trade auction—the first for May. This year is really moving along quickly! The market is expecting some mixed results for the big four commodities on offer. Whole milk powder is pegged to move 4.4% higher, while skim milk prices have a 1.0% decline priced in. The whole milk powder shift seems a bit brave from my point of view when leaning on fundamentals, but it could also be a hint of the whole milk powder shifting tack for the coming dairy season. On the skim milk powder outlook, I’m expecting far more of a decline than the 1% the market has priced, considering the heavy stocks and production of EU skim we’re hearing about, not to mention the fact that the previous auction’s result seemed to be an outlier derived from a seemingly determined buyer. Added to those factors, is the fact that skim milk powder offer volumes start increasing again from the June auctions onwards, so we expect a little bit more downwards pressure over the coming months.

[07:36] Looking at milk fats, it’s a little bit tough to pick an outlook at this point in time, but potentially a little bit lighter again. Looking at market trends in the US, with sliding butter prices at retail sites have given some support for butter consumption, potentially this could drop the GDT butter prices over the coming months. This might take some time, however.

Anyway, that’s the key highlights from the International markets, but if you need more, read the reports we’ve published this week, or get in touch and we can help out! Cheers.

Betty: Thanks, Stu. Well, that’s all we have for today. We covered a lot of ground We had a great time seeing you this week in Chicago. Please come back and see us June 21st and 22nd for HighGround’s Second Annual Global Dairy Outlook Conference. We promise much better weather as we kickstart summer in the Midwest. Visit highgrounddairy.com/conference for more information. Have a great weekend! Cheers!

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