Let’s Chat Markets – 19 May 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 on our dashboard, 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 Friday to everyone and welcome to Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy.  Today is Friday, May 19th and I’m Eric Meyer, President of HighGround, here to give you some updates on what has been going on this past week.

[00:26] For those hoping that CME markets had seen their lows earlier this week or this year, think again.  CME spot whey prices reached their lowest level on Friday, which was $0.2650 per pound. That’s the lowest since March 13th, 2018, which believe it or not, was the second day ever that the CME spot dry whey market actually traded.  75 loads traded this week, which matches the week ending October 25th, 2019 as the second-highest week of CME spot transactions for dry whey all time. That all-time high was the week ending October 4th with 80 loads.  The tail end of 2019 was also quite bearish, with prices falling to $0.2675 per pound on October 29th that year.  Similar to 2019, could we be close to the bottom on dry whey?  Buyers seem very interested in accumulating at these levels, as whey is cheap, not only historically but relative to other commodities and the ability to capitalize on cash and carry or buy and hold on significant quantities ties up less cash in dry whey than other commodities.  We expect buyers to continue accumulating inventory here and that sellers have to run out of bullets to keep pressure on these markets at some point soon.

[01:43] As for the cheese market, it has been a battle at the exchange this past week as CME blocks set a new 2023 low and its lowest price since June 2021 at $1.47 per pound.  Buyers did rally some support later in the week only to see a setback to $1.50 on Thursday but propped it back up to $1.5350 by Friday with 37 loads exchanging hands for the week.  Barrels have also seen very strong volume this week with 54 loads trading, but prices remained in the low to mid $1.40s Monday through Thursday, creeping up on Friday to settle at $1.4750.  Just wait until we tally up the monthly volume in May, it’s going to be extraordinary if this pace keeps up.

[02:28] The sharp declines in both class III milk and cheddar cheese futures are the real story though.  With the CME spot market at lows not seen in quite a while and futures carrying a huge premium, everyday physical markets do not provide an indication that the rally is coming, it puts pressure on futures and encourages selling to come into those deferred contracts.  Recent declines in the corn and soybean meal futures and a number of other commodities also puts pressure on those premiums that are back in the market in those late-Q4 and 2024 months.  Farmers have to be looking at the milk futures board, observing the Chicago Board of Trade corn December 2023 onward and thinking that breakevens are starting to appear much better than they were just a few months ago.

[03:15] CME spot butter markets remained fairly quiet this week but supported with the past three days settling at $2.46 per pound, the high price of 2023 thus far.  Just 9 loads of butter traded this past week, though futures markets are following the lead of other dairy commodities and have come off their highs, settling lower these past few days, even though the spot market has not come along for the ride, yet.

[03:40] Last, nonfat dry milk spot prices ended the week at $1.1525 per pound, down from $1.17 last Friday with just 9 loads traded this week.

[03:50] On Monday, HighGround published its monthly Forecast Snapshot report, giving the industry updated prices and the full scope of what’s happening in the US and global dairy markets in written form, followed up by our Monthly Webinar this past Tuesday.  Subscribers can access those on the b at highgrounddairy.com.

[04:10] On Tuesday morning, the Global Dairy Trade auction provided a little support to global whole milk powder and butter markets, but the gap was closed between Fonterra and Arla skim milk powder and additional fuel was not put onto any bullish fire for nonfat dry milk and skim milk powder markets, and we’ve seen a rollback in prices throughout the week.  Stu Davison did a fantastic job with digging into the numbers on GDT this week and I would encourage all of you to read his comprehensive analysis.

[04:40] Supply and utilization data was published by the USDA on Tuesday as well for March 2023 and what we thought was most interesting within that data was the 12% decline in Natural American-style cheese exports that month versus prior year.  Given that Cheddar cheese exports were only down just over 4% year-on-year, Other American cheese exports were 31% below March 2022, which is yet another reason why we’re seeing excess cheese showing up at the CME.  Butter utilization was up sharply in the month, +15% from prior year, though some are questioning the early Easter holiday in 2023 bringing demand forward, while dry whey demand was also strong, near 12% higher domestic strength which was up 17% year-over-year, suggestive that the lower prices are bringing more buyers out of the woodwork.

[05:33] European Dairy export volumes were published late this week and both Cara and Stu worked on some great commentary on that data and then later today, the USDA will publish the April US Milk Production report, giving the industry insight into how dairy producers are doing given the current economic environment.  How many milking cows will they remove from Texas in April after the barn fire took out 18,000 head of cattle, and will California production continue to deteriorate given both the flooding and negative margin situation there?  We look forward to listening to Betty Berning later today on a special Dairy Skim Podcast once the report is published for her quick take after reviewing the data.

That’s all for this week—plenty more to come including just over four weeks to go until the HighGround Dairy outlook conference on June 21st and 22nd! Be sure to visit the conference website for more details and to register. We’ve announced new speakers this week and have one last one to announce on Monday, so stay tuned!

Be sure to subscribe so that you never miss an episode. And if you’re interested in receiving more information, as well as our analysis, please visit highgrounddairy.com to request a free 30-day trial today. Futures and options trading involves substantial risk and is not suitable for all investors.