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!
[00:10] Alyssa: Hello and happy Friday to all of you! Thank you so much for tuning into Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. Today is Friday, July 28th, and you’re hearing from Alyssa Badger, vice president of HighGround Dairy. Joining me today is Betty Berning, one of our very talented dairy economists here on the team. Betty, what happened in CME spot markets this week? Movement was kind of lackluster on most products but I know butter saw a nice move higher.
[00:40] Betty: Hi everyone and thanks, Alyssa. Yes, butter seems to be on a rocket ship again. HighGround certainly isn’t anticipating $3 per pound butter again. However, that said, this week, CME butter did break above $2.60 per pound. That was right out of the gate on Monday. On the week, butter settled at $2.68 per pound. The big question is, what finally got butter markets in particular to move higher? This was likely driven by a bullish cold storage report and weather, which we are going to talk about in a little bit.
[01:15] Cheese markets dumped a bunch on Monday, too, and then leveled off the rest of the week. So, blocks held around $1.86 per pound settled $1.9075 today. Barrels trading as high as $1.83 per pound this week before settling the week at $1.7625. Notably on Monday, barrels actually had their second biggest daily gain of 17.5 cents and our data set going back to the year 2000. Moving on to powders, nonfat dry milk continued coming off its 2023 low, and traded at $1.16 per pound today, back to values it was at in mid-June. Whey saw the least amount of price change on the week, down a quarter-cent from last Friday and settling at $0.25 per pound today.
[02:08] The hot weather is the big storyline right now—or at least one of them. Milk is tightening up seasonally, which it does, but these very hot temperatures that have rolled across the country are causing milk production to fall off more than normal and components really drop off in oppressive heat. Lower milk volumes are providing supply-side pressure right now, and that is pushing some of these markets higher.
[02:33] Alyssa: Thanks for the update, Betty, and we also saw—you mentioned earlier—some interesting numbers on the June cold storage report that helped explain the boost to butter prices as well.
[02:43] Betty: Yes, USDA released June data on Tuesday for Cold Storage, and butter stocks from May to June plummeted 20 million pounds. That’s counter to normal seasonal build over that time frame, but it’s also a really significant number. It’s a pretty big drop. The last time we saw May to June inventories fall that much was in 1984. And for those of you who remember, in 1984, the government had very healthy stores of dairy products and was trying to offload them. So, in 1984 that’s why butter stocks fell so much. We don’t have that going on right now. This big, precarious drop begs the question, what is going on here? We won’t have the full answer until all of the June data are released, but the drop suggests either butter production slowed in June, demand picked up, or both. Using the information that we do have, like lower milk production in California in June (one-third of the US butter is manufactured there), it does seem plausible that production may have just slowed. Processor output may be down. Another thing to think about is demand. We know this year international demand for US butter has been just terrible, but domestic demand has been decent. So, this could be a story of decreased production and increased domestic demand. It’s good to note that the overall butter inventory number is healthy, but these dropping supplies are certainly providing a boost to prices.
[04:13] Alyssa: And on the other side of the token, these cheese numbers were pretty bearish and likely helped to subdue that rally we saw earlier in the week on the futures board.
[04:22] Betty: Yeah, cheese was slightly bearish to HighGround’s expectations. Total cheese stocks actually grew month-on-month and year-over-year. Just a couple of things to point out: (1) this was only the second time in 2023 that total cheese stocks increased year-over year. (2) The other-than-American cheese category, which includes things like hard Italian and mozzarella, pushed the overall total cheese stocks up. The other-than-American cheese category increased 16 million pounds from May to June. That is a notable increase. It’s the biggest May to June jump since at least 1980.
[05:03] Alyssa: Wow, the 80s—that’s pretty wild. So, while that sentiment on milk production is changing quickly, there was certainly plenty of milk around in the spring to help build out those inventories for sure.
[05:15] Betty: Yeah, a lot is going on with milk production and there is a few factors at work. Milk supplies fall seasonally in the summer, and we have these hot temperatures right now across US. So, the summer effects are just being amplified. Some things to point out that were interesting in the data this week: Upper Midwest spot basis midpoint was $3.50 per hundred weight under class pricing for the second week in a row, That is a much more historically average number, after spending six months at absolutely dismal levels. Another interesting datapoint this week was that livestock slaughter popped right back up in Week 28—that was the week ending July 15th—as farmers continue to send cows to the packing plants on both dispersals and selective culling. Feed prices remain very high so certainly, it’s helping farmers to pay the bills. And then you add in the hot weather. That decreases cow comfort and causes milk volumes and components to fall, making the supply side shrink.
[06:19] On other thing that we have also been watching is heifer numbers. So, USDA released July 1st heifer inventories. They were at 3.65 million head, and that is the lowest July 1st level since 2004. So, what does this all mean? It means that cows are exiting the herd at a pretty good clip, faster than last year but it also means there are going to be fewer heifers to replace them. So, at some point here we will see some correction.
[06:46] Alyssa, let’s let you have a chance to talk. What is catching your attention this week in the international markets? I know New Zealand dropped June milk production data earlier this week. Tell me all about it.
[06:58] Alyssa: Yeah, a lot happened on a global level as well. We kicked this week off with a Global Dairy Trade Pulse event that saw even weaker whole milk powder values for the Fonterra C2 regular spec, dropping to $3,000/MT, an additional 1.2% loss from the prior auction. Interestingly enough, we also got some strong export numbers out of New Zealand in the June data that was also released this week. A result of pretty strong end of season milk from the country that just needed to find a home. Combined exports of key commodities form New Zealand expanded about 24% from prior year but were still down 6% from levels that we saw just two years ago. Last year was an exceptionally weak time for New Zealand exports, so the gains are a little bit easier to make there. Product shipping to China is very notable but inventories are already quite high in China so this could ultimately lean bearish into Q4 when milk will also ramp up from New Zealand as well as Australia.
[08:04] Speaking of milk that you mentioned earlier, you are right, June production figures were released from New Zealand and officially turned negative, down 0.4% from prior year to kick off the first month of the season but that was just about in line with HighGround expectations.
[08:22] Lastly from the region, Pre-GDT figures were released from Fonterra ahead of the first August auction which ultimately leans bearish in our opinion for whole milk powder and fats. Traders are pricing in a notable gain on skim milk powder but fundamentals are supporting a move in the opposite direction.
[08:43] Betty: Perfect, that’s a really great recap of what’s going on in Oceania. Last but not least, we better touch on Europe. What’s news across the pond this week, Alyssa?
[08:52] Alyssa: Just a bit of news there. Prices are certainly mixed but weighted to the downside again, most across butter cheese, whole milk powder, while there was some relief for the skim milk powder on the EEX. There are concerns about the existing heatwave throughout the continent that will most certainly mean a hit to milk production in the region. We are already seeing some pretty ugly numbers from France with the UK also turning negative throughout July. But other than that, not much news out of the region otherwise. Hopefully we get an update to their milk production and export numbers in the next few weeks here!
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