Let’s Chat Markets – 26 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: Well folks, we’re heading into a long Memorial Day holiday here in the United States, and I know I am excited to kick off the summer with warmer temperatures in the coming weeks. A happy Friday to everyone and welcome back to Let’s Chat Markets, your favorite weekly dairy market podcast, powered by HighGround Dairy. Today is Friday, May 26th and I’m Eric Meyer, President of HighGround, here to give you some updates on what has been going on this past week.

[00:36] This week was a quieter one when it came to government reports and pricing events heading into this holiday weekend. This past Monday, China published their April import volumes and were overall flat versus the previous year across all tracked commodities. However, the divide between whole milk powder (sharply lower) and skim milk powder (sharply higher) continues with combined powders down nearly 10% from the prior year. However, bright spots include whey products (which include whey powder and permeate) up 13.5% from April 2022 along with lactose, up 38%, infant formula, which was 31% higher and cheese, up nearly 19% from the previous year. Fluid milk and cream imports were down nearly 13% in April and year to date, down slightly above 30%. Clearly, something going on in China that has kept imports sluggish in some of those commodities. Read more about it in HighGround’s detailed analysis of that data.

[01:38] However, New Zealand’s April exports were strong—suggesting some renewed demand at these lower price points. That data was released earlier this week as well with milk powders up significantly from last year along with fat products and cheese. Algeria, along with the Middle East, were the biggest contributors to the gains in powders while China also saw growth too. April cheese exports from New Zealand were at an all-time high. Again, HighGround publishes some comprehensive analysis on these numbers, so be sure to log in and check those out.

[02:10] The highly anticipated report for the US dairy industry this week was the April Cold Storage report,  giving us cheese and butter ending stocks. USDA made a pretty significant upward revision to March butter stocks, nearly 17 million pounds which added and represented an extra 5.4% to the inventory levels. However, a less-than-average build from March to April post-revision was a little surprising as well. In the end, nearly 328 million pounds of butter are sitting in manufacturers’ hands at the end of April. Nearly 10% more than last year but still well behind the lofty levels of 2020 and 2021. CME spot prices did not really react to those numbers which means we’re still very rangebound here. From a cheese perspective, a flip-flop in revisions between Natural American (largely Cheddar) stocks, and Other-Than-American (pretty much everything else) kept things fairly neutral. This was the second consecutive month that total cheese stocks fell below previous year, but the year-on-year gains in Natural American cheese along with the monthly build were enough to keep any bullish news from entering the market. Without much of an export market in Q2 along with sluggish domestic Cheddar demand, a lack of warehouse space to continue the cash and carry trade along with severely discounted milk in the Upper Midwest, we’re still mired in a bear market. Betty Berning, HighGround’s Contributing Dairy Economist, provided an excellent Dairy Skim podcast outlining the key points of the Cold Storage Report along with a comprehensive written analysis published on our site and to our subscribers on Wednesday evening.

[03:48] Another key thing to watch this week, although a bit peripheral to the dairy markets are grains. Weather forecasts in the heart of the Corn Belt have gotten really dry over the next two weeks and grain futures traders have taken notice. December corn settled below $5.00 a bushel at the tail end of last week but as of this recording on Friday before the close, prices had moved up more than 30 cents per bushel, or more than 6% versus the previous Friday. With milk prices falling quickly, rising feed costs is certainly not a good sign for the nation’s dairy farmers.

[04:22] Also creating a bit of volatility this week was a USDA government solicitation of cheese that was part of the American Agriculture to Feed Kids and Families program, something that had been previously announced back in September and again in November 2022, but little volume had actually been procured through that program. This past Tuesday’s announcement provided a whole lot of bark: very specific specs on cheese which included Mozzarella and Cheddar shreds, Cheddar chunks and Process cheese, and very specific volume, nearly 48 million pounds. But what we don’t officially know from that solicitation is the timeframe which they’ll buy this cheese along with the delivery points. That makes it very hard for cheese converters and manufacturers to bid on these kinds of programs from USDA. There’s been some chatter that the orders won’t begin flowing until October and USDA’s September 2022 press release did mention that orders from this program would be ongoing through Fiscal Year 2024 which means through September of next year, so the overall purchases could be fairly immaterial. However, if they front-loading demand into this 3rd quarter and milk production continues to fall away, then we may have something that could provide some bullish fodder to the markets. This week, CME spot cheese markets did not react to this at all and instead, fell back.

[05:50] Last, a quick spot recap to close out the week. CME spot block markets had a wild week which drove the weekly average up 5.6 cents to $1.5655. Blocks settled as high as $1.65 on Tuesday—which was prior to that USDA solicitation—only to collapse the last three days of the week, settling back below $1.50, just off the multi-year low of $1.47 per pound, settling this Friday at $1.4775 on 22 trades for the week. Friday’s settlement also saw the second time this month that the block/barrel spread was inverted. Barrels still outpaced block volume, trading 29 loads but the intra-week volatility was far less with just a 2½ cent spread between low and high. That said, while Friday’s settlement came in below $1.50, with most daily settlements this week above that level, the average price for this week came in at $1.5070 which was 3.4% higher than the prior week. Butter remained extremely quiet, both on price movement and volume, with just three loads trading and the average only declining by 1.7 cents to $2.4345 per pound. Nonfat dry milk saw the slightest of upticks in the weekly average with just a 0.2% gain from the prior week to settle at $1.1620 per pound and dry whey continued its grind lower on the weekly average to $0.2685 on 36 trades, which represents a 5.6% week-over-week decline, even though spot did climb two cents on Friday from its Monday $0.2550 all-time CME spot low going back five years.

[07:36] That’s all for this week, plenty more to come including now less than four weeks to go until the HighGround Dairy’s Global Dairy Outlook Conference on June 21-22 in Chicago! We published a podcast interview with Jeff Goodwin of Pivotal Ingredients earlier this week and are about to release an interview with Mike Brown of IFDA shortly, both will be speakers at this year’s conference. Be sure to visit the conference website for more details and to register. Hope to see you in Chicago next month and for our US listeners, have a great long Memorial Day weekend!

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