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] Eric: A very happy Cinco de Mayo and welcome to Let’s Chat Markets, your favorite weekly dairy market podcast. Today is Friday, May 5th and I’m Eric Meyer, President and Founder of HighGround Dairy. Believe or not, after thinking about what day it is today, it’s HighGround’s half birthday! I know my kids are huge fans of thinking about their half birthdays but really once you hit that double digit mark, you should probably put those half birthdays to bed, so let’s do the same with ours and move to the markets. I’ll have a half a margarita today to personally celebrate.
[00:42] I know Betty and Stu chatted with you on the podcast last week to talk about our learnings at the ADPI Annual Conference here in Chicago, but I want to reiterate that it was really great to visit with everyone last week from here at home as well as around the world, even if the weather didn’t cooperate, but that’s Chicago for you. Next up is the HighGround Global Dairy Outlook Conference right back here in Chicago next month, taking place at the historic Union League Club on June 21st and 22nd. The agenda and speaker list is robust, and the early bird registration actually ends today, so be quick and sign up today! Visit www.highgrounddairy.com/conference to learn more and get registered. And if you are an avid listener to our podcast and somehow miss that deadline online, be sure to reach out to us at firstname.lastname@example.org. Perhaps there’s something we can do for our loyal listeners!
[01:39] All right, to the markets. This week’s CME Spot market saw some interesting action, as three of the weekly indices saw increases while two fell, though none were more than 3 cents in either direction. Let’s start with nonfat dry milk, because that was the one where most ADPI attendees were most bearish and since that conference, it’s done nothing but find support. Nonfat reached its highest CME Spot settlement since February 27, closing today at $1.1975 per pound and up 7.5 cents from the 2023 low set on April 17th. The gains helped drive the weekly spot average to $1.1855 per pound, up 1.7% or 2 cents vs. the previous week’s average. 13 loads did exchange hands this week.
[02:28] CME Spot whey prices continued grinding lower by an aggressive seller, and led the way for volume this week across all commodities in Spot with 54 loads trading, with the weekly average settling just above 33 cents, off by 1.1 cents from the previous week, down 3.2%.
[02:46] When looking at the weekly averages, block and barrel prices diverged, with the block average closing at 1.6625 per pound, down just eight tenths of a cent lower while barrels gained 2.2 cents to $1.5570 per pound from the previous week. But the market ended the week in bearish fashion as aggressive offers bombarded the block market, something we haven’t seen in some time, driving the Friday close down to 1.6125 per pound. That set the 2023 low and the lowest price since November 5th, 2021. Buyers appear to be very interested in accumulating product at or near these levels and the forward curve prompts them to do it, as the cash and carry opportunities at the moment for both block and barrel cheddar are quite juicy. Blocks saw 34 loads trade this week, 19 of them on Friday while barrels finished the week up at 31 loads, though just 3 on Friday so you could see where the action was in cheese.
[03:46] Rounding things out is the butter market with general support persisting there. The weekly average up 2.8 cents to $2.4210 per pound, with Friday’s settlement of $2.4450 its highest since February 28. Butter saw 14 loads exchange hands.
[04:04] A few interesting things happened this week in dairy—let’s first touch on the Global Dairy Trade auction from Tuesday. Gains were reported across most commodities, now marking the third straight instance that whole milk powder prices have settled higher, both the past two GDT auctions as well as the GDT Pulse in the middle of those, all saw strength. China, though, has largely remained out of the spotlight as their share of GDT purchases has not been notable, while the Middle East has shined bright with well above average purchases over the last two auctions. But given that the upward trend has held, and whole milk powder futures on SGX are starting to respond in kind, shaping the potential for further gains. It still seems a little early to call for a full turn in general dairy commodity markets to bullish for dairy, but we’re watching this very carefully. For now, GDT buyers are favoring New Zealand-sourced product which could just mean that very specific buyers are caught short and need to catch up with preferable product.
[05:05] Butter continues to surprise to the upside, both on GDT as well as at CME futures as sellers have backed off somewhat in a market that appears to be at the height of its range. Lack of a complete spring flush period in both California due to flooding and Texas due to a major barn fire along with strong retail volume sales in March, also noted by the net out-movement of butter stocks from February to March suggest that demand is doing better than people have anticipated. HighGround remains skeptical that an uptrend can persist in butter but do think the current 2.20-2.50 range will hold over the coming few months.
[05:43] On Wednesday, USDA published April’s Announced Class Prices with Class III settling at $18.52 and Class IV at $17.95, and these prices are not profitable for many dairy producers. May Class III milk may turn out to be around $2.00 worse than this, and farmers are going to start realizing some of the pain a bear market has to offer. Grain and feed prices have been grinding lower over the past weeks as the Brazilian corn crop has been robust and planting progress in the United States is also ahead of schedule, but those declines have not been enough to offset the loss in milk revenue.
[06:23] The National Dairy Product Sales Report published on Wednesday offered up a record high number. Nonfat Dry Milk volume sales for the week ending April 29th topped 54.4 million pounds, the highest sales figure for a single week ever, destroying the previous record set back in January 2008—that’s more than 15 years ago, by more than 7 million pounds. We suspect that producers holding on to inventory at the end of both the month and quarter wanted to clear the decks, and found buyers. With this much powder exchanging hands in a single week, driving the survey price down to $1.1219 per pound, had to be a smattering of players including sales to end-users, traders and potential exports to Mexico. While this has set a temporary floor in prices, and HighGround expects that this past week’s NDPSR print to set the bottom for the year, we’re not expecting the recent rally in CME spot and futures to last much longer, unless we get a stronger indicator that demand has actually picked up. Our feeling is that numbers between $1.05 to $1.10 were lines drawn in the sand of a place where it made sense to build additional inventory.
[07:38] Last, USDA also published the March trade data on Thursday, which is still holding on to some impressive levels as we close the books on Q1. While both cheddar and total cheese export volumes were below prior year for the second straight month, it was just barely and impressive they lasted as long as they did. However, the second quarter is going to be a different story as all reports and indications, as well as the current trajectory of the US market implies, that Q2 will have been pretty ugly for export business as Europe came in very aggressive at the end of 2022 and has remained very competitive for the past couple of of months. Butter and AMF exports have tanked, while whey and WPC 80 and lactose exports remain impressive. After this podcast will have been recorded, USDA will issue the Dairy Products Production and Dry Stocks report for March to give us an indication of what the product mix looked like for the milk production figures. Betty Berning will be recording a Dairy Skim podcast later today to give us a very brief look at what HighGround saw on the surface, and by Monday midday, our subscribers will receive access to our comprehensive written analysis as to what we thought the report meant. This Dairy Products report gives us the most data in a single publication to chew on, and HighGround does its due diligence to make sure we get the whole story written in between those data lines.
Well that does it for this week, thank you so very much for listening and remember, get registered for our Outlook conference before its too late! Visit highgrounddairy.com/conference to learn more and get signed up. Have a great week and we’ll catch you next Friday!
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