Let’s Chat Markets – 30 June 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] Alyssa: Hello and happy Friday to all of you and thank you so much for tuning into Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. Today is Friday, June 30th, the end of the month, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy. It may have been a quiet report week but we have plenty to discuss. Joining me today is Cara Murphy, our Dairy Market Intelligence Manager. Cara—let’s talk CME dairy spot stats to kick off this episode.

[00:42] Cara: Sure thing, Alyssa! Yeah, we hit a lot of fresh lows across the spot complex this week. Blocks marked the lowest price since May 2020, while barrels hit the lowest price since  August  2021. Nonfat dry milk plummeted to the lowest since February of 2021 as well and dry whey recorded a new all-time low since trading began on the CME in March 2018.

[01:06] Alyssa: Those are some ugly numbers. Given that it’s the end of June, the USDA also released announced class and component prices for the month as well and June Class III came in at $14.91/cwt. That’s the lowest it has been since May 2020 as well. Since the beginning of the year, these prices are down nearly $5/cwt., or over 23%. In a tight-margin business, a loss of almost a quarter of one’s income is certainly significant, and producers are burning through equity as they face lower milk prices.

[01:42] Cara: Speaking of milk, we should discuss the USDA’s Estimated Fluid Milk Products Sales Report, last released on June 20th. In April, US fluid milk sales recorded the steepest drop from prior year on a percentage basis since June 2021 at 6.7%. In order to find losses comparable to what was observed in April 2023 in the US pre-COVID, one would have to go back to May 2004 but these were indeed the worst losses noted on record before March 2020.

[02:15] Alyssa: Man, those numbers were truly awful. The extensive loss in fluid milk sales in April would have meant that there was a lot more milk backing up into manufacturing channels throughout the second quarter of the year. Additional milk for processing was not necessarily fresh news here but this does help explain recent price behavior and cheap spot milk throughout the country. And to put this into perspective, the 6.7% drop in fluid milk sales was a loss of 242 million pounds from prior year, equivalent to 1.3% of April’s total milk production of 19.23 billion pounds. That would equal about 24.2 million pounds of additional cheese, around 2.1% of total cheese production that we saw during April. It’s no wonder CME blocks lost around 18% of their value in Q2 versus Q1.

[03:12] Cara: Yeah, a large portion of this drop is likely due to the fact that for nearly three years, Americans using the SNAP program were receiving an extra cash injection of at least $95 per month, which had been put in place during the pandemic era. Well, that has officially come to an end at a time when inflation is still hurting lower-income families. Interestingly enough, though, and not surprising given the nutritional value of dairy, of the top 100 commodities purchased with SNAP dollars, fluid milk ranks second and cheese ranks fifth!

[03:45] Alyssa: Such interesting stats there and if that’s the case, I can only imagine what the June and July fluid milk sales will look like. So, we have cheap milk, elevated grain prices and weakening consumer spend on dairy. It’s really no surprise that dairy farmers continue to cull cows at a high rate.

[04:03] Cara: No, it is not! Producer margins are growing thin and removing those old or under-producing cows is a surefire way to cut costs. Last week we saw quite the jump in weekly dairy cow slaughter volumes across the US and that elevated level has maintained through this week as well. Year-to-date, total US dairy cow slaughter is up 5.3% from 2022, that’s over a 75,000 head difference between this time last year. While cow slaughter has been on the rise across the major dairy-producing regions, we are seeing a large increase from Region VI, in that Texas-New Mexico area and more recently in Region V, the Upper Midwest.

[04:43] Alyssa: Yeesh. Plenty to keep us busy this summer analyzing and forecasting these markets. I think lastly here, I’ll just touch on the latest Global Dairy Trade happenings. After a surprisingly supportive GDT event on June 20th, this week’s Pulse event saw whole milk powder trade back to the downside, losing 2.7% on C2 whole milk powder versus the last auction event. Looking ahead to next week’s first July auction (read our Pre-GDT Forecast Volume Analysis here), futures traders have priced in a 2.9% decline for whole milk powder. Skim milk powder prices are also expected to fall at this auction, continuing the trend set at the last event while butter prices should remain supported as AMF ticks higher.

That does it for this week! All of us at HighGround Dairy hope you enjoy your 4th of July weekend, though a friendly reminder that markets are open on Monday, closing at 4 PM CDT ahead of Tuesday’s close to officially recognize the holiday. Looking forward to coming on next week to chat markets with you, cheers.

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