Let’s Chat Markets – 4 August 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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[00:10] Alyssa: Hello and happy Friday to everyone! Thank you so much for tuning into Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. Today is Friday, August 4th, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy, and Cara Murphy, our Dairy Market Intelligence Manager. Let’s start off with our CME Spot recap of the week, Cara!

[00:32] Cara: It’s been a rather quiet week in the spot market, Alyssa. After the impressive price movement we saw in cheese last week, blocks climbed to $1.96 per pound on Monday and held there for the rest of the week. While barrels jumped another 10 cents on Monday before falling back into the upper $1.70s on Friday. Butter saw 25 trades on Tuesday around $2.67 per pound but closed the week at $2.62 per pound. Dry whey has been hovering between 25 and 26 cents per pound for the past two weeks now, and nonfat dry milk slid lower over the week settling at $1.1250 today.

[01:06] Alyssa: Eek. Thanks, Cara. While much of our comprehensive analysis was focused on international markets this week, it was still a week chalked full of US-centric volatility. Sure, the spot market was quiet but concerns about herd dispersals, increased slaughter rates, and tight margins are still very much top of mind for US producers. We got an ugly announced price for July Class III Milk didn’t we, Cara?

[01:33] Cara: Indeed! Class III Milk printed a $13.77 per hundredweight announced price for July, a difficult number to work with from a farm profitability standpoint. With the average weekly Class III spot basis in the Upper Midwest at a $3.00 loss, this brings the actual average Class III spot price to roughly $10.77, an increase of about $2.00 from the previous month but still historically low for this time of year. Feeling the pinch on margins it’s no surprise that liquidation of the cow herd continues. The week of July 22 saw the largest total US slaughter volume since April 8th and is well above historical levels for July. The Upper Midwest continues to cull aggressively, but it appears producers in the Pacific Northwest have backed off a bit as slaughter in that region fell to the lowest since December 2021.

[02:22] High beef prices are helping to drive the reduction in the dairy herd with the USDA’s July 1 cattle inventory report marking the lowest beef cow herd since 1962! On the dairy side, heifer inventories were the smallest July tally since 2004, and taking a look at the restocking rate, roughly 39% is the lowest percentage going back to 1998. Ultimately, the shrinking herd will help to reduce milk production but I think the big question on everyone’s mind right now is: will a supply-side correction be enough to bring markets back into balance given that global demand is so weak? We will see.

[03:00] Alyssa: Yeah, thanks for the recap, Cara. Shifting to the southern hemisphere, wow, how about that Global Dairy Trade Auction? Stu Davison and myself unapologetically warned about Chinese demand and lower milk prices within New Zealand on our webinar (view the recording here) a couple of weeks ago and this auction result we saw this week meant that our sentiment rang true. Sure, China showed up to buy some milk powder but at a very discounted level and certainly didn’t have to compete very much for product. As a result, whole milk powder fell eight percentage points, just ugly really. As expected, the continued downward trend on GDT meant Fonterra released an update to their farmgate milk price forecast, dropping it a whole dollar per kilogram milksolids. The midpoint now sits at $7. It’s not often that the co-op drops the milk price that aggressively, something that likely has not been done since the 2015/16 season.

[03:57] In more exciting news, the team actually pushed out a brand-new report this week titled Asia Dairy Import Volume Analysis. We already have a monthly report focused on China and their import volumes and domestic trends (find those reports here) so we thought it would be great to continue to add value to our international customers and give more insight into other key Asian nations and their demand trends. It’s a monthly look at dairy import volumes to Indonesia, Japan, South Korea, the Philippines, and Malaysia. So be sure to check that out on the dashboard if you missed it.

What am I missing Cara?

[04:35] Cara: We haven’t discussed Europe yet!

[04:37] Alyssa: Great idea, what happened in Europe this week?

[04:40] Cara: Well, the two key areas of focus for the dairy industry remain on weather and consumer sentiment. Europe is currently experiencing some of the hottest temperatures of the summer so far, with yet another heat wave expected to push the mercury close to record-breaking levels in the coming days. This situation will most certainly put a damper on milk collections. Though, from the demand side, headline inflation is starting to cool but certainly still biting into consumer pockets, offsetting some of those expectations for tighter milk over the next couple of months.

Alyssa: Thanks, Cara! I think that does it for today’s market chatter, we look forward to coming on next week to discuss dairy with you. Enjoy your weekend.

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