Let’s Chat Markets – 18 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!

Listen on Spotify | Listen on Apple Podcasts | Listen on Amazon Music


[00:10] Alyssa: Hello and happy Friday to all of you! Thanks so much for tuning into Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. Today is Friday, August 18th, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy. Before we jump into markets, I do want to mention that we officially locked in dates for our Global Dairy Outlook Conference in 2024 and we can’t wait to see you all there. The past two years we’ve had an incredible turnout and we know year three will be even better. So, mark your calendars for June 18th through the 20th, 2024 to be in Chicago for our networking receptions as well as our conference at the Union League Club of Chicago. (click here for more information). Joining me today is Betty Burning, our very talented Dairy Economist. Hey, Betty, we talked with Cara last week about the Iowa state fair. What sets the Minnesota State Fair apart? Which one is better?

[01:10] Betty: Good question, I was hoping that you would ask. Minnesota is the better one! We also have butter sculptures and we have more than just a butter cow, we have busts of butter! There are twelve girls that run for Princess Kay, the dairy princess for the state and they all get their head carved out of butter and you can go see that and it’s conveniently located next to the best shake and ice cream and milk place at the fair. Oh, and we have pronto puffs which are like corn dogs but better. So, there you go. Visit Minnesota, it’s amazing!

[01:46] Alyssa: Alright, back to business. What happened on the CME spot market this week? I think it’s safe to assume you’re going to start with butter because wow. We had a massive amount of trades on that spot market.

[02:00] Betty: Massive amount of trades—wow is the word for it. So, 98 trades this week. That’s the most since November 2004. Wow, again. We waited half a year for butter to top $2.50/lb., which it did a little over a month ago and it hasn’t traded below $2.50/lb. since then. Then, this week it broke through the $2.70/lb. mark, traded as high as $2.77/lb. yesterday and then today, settled at $2.70/lb. So, a lot of momentum there and I don’t think anybody expected so much to trade. Just, wow.

[02:35] Let’s also talk about blocks because they had a big week too. Big price action broke above the $2/lb. mark and that’s a price not seen since the spring rally earlier this year. 4 to 30-day-old cheddar continues to be short and that’s likely driving the prices higher at the CME. Today’s market settled at $2.0275/lb. after taking on incremental increases Tuesday through Friday of this week.

[03:03] Cheddar Barrels were their own animal. They bounced around again this week, settling as high as $1.85/lb and as low as $1.75/lb, before settling today at $1.8075/lb. On the week, they are down a penny and three-quarters from last Friday.

[03:23] We’ll switch gears and talk powders. Powders were not nearly as exciting as cheese and butter this week but on the powder front, whey closed at $0.27 per lb. which was the same price as last Friday. Sixteen loads traded on the week. Nonfat dry milk was pretty quiet, with no trades Monday or Tuesday, and a total of twelve trades on the week. The weekly average was $1.098/lb. which is $0.022 lower than last week’s average.

[03:50] Alyssa: Awesome, thanks, Betty. So, what about the slaughter data that came out this week? It’s been trending way ahead of 2022. Did that continue into this week’s data release?

[04:00] Betty: Absolutely. Yeah, as milk prices are covered, we are kind of anticipating that things may slow down a little bit but that is not what happened with this week’s data release. So, an increase of 5.4% versus the same week in 2022 and big numbers from the same regions of VI and IX which include California and Southwest. Year-to-date slaughter is tracking 5.8% or 104,400 head ahead of 2022. When I look at the gains this year (that 104,400 head), those two regions that I mentioned—VI and IX—are actually responsible for 95% of that additional slaughter rate. So, just a lot of changes happening there and feeling the pinch of tight margins.

[04:54] Alyssa: Right, it makes sense that we saw milk come off so aggressively in those regions as well. And then, in the Upper Midwest, we watched the spot basis pretty closely there. It soared aggressively last week—did that stay positive as well?

[05:08] Betty: Yes, positive for the second week in a row with a midpoint of $1.25/cwt, up just a quarter from last week’s big jump. Dairy Market News reports that school has started in some parts of the Central Region and across the country. That’s pulling Class I milk. So, what we’re seeing is milk from the Upper Midwest moving to the Southern Plains states, to fill needs, and right now, there are not many, if any, spot loads being offered. Milk is just kind of tight all over. So, lots of upward movement in the domestic markets this week—what I’ve covered—but global markets have done the opposite, Alyssa. Can you give a recap of what happened at GDT on Tuesday?

[05:54] Alyssa: Yeah, bearish news has been piled onto Oceania dairy markets in recent weeks, from economic disruptions in China to a huge drop in milk prices as a result of demand uncertainty for New Zealand. So, heading into this Global Dairy Trade Auction event, we had higher offer volumes from Fonterra. We also got a fresh set of data from China that leaned negative early in the week, setting up for disappointing results on this auction platform and that’s what we got. It was an overall bearish event. August proved to be incredibly negative for GDT’s C2 regular whole milk powder price that now sits at seven-year lows. While whole milk powder demand from North Asia looked stronger on the surface, their volumes remain well below pre-COVID levels. When we talk about North Asia, we are typically thinking of China as representing that region. So, just an ugly outlook for Chinese demand. Losses were also strong across skim milk powder, and fats while cheddar values moved higher.

[07:04] Betty: So, a very dismal auction with lots of low data points there. Then, Fonterra had some breaking news yesterday in response. What happened, Alyssa

[07:15] Alyssa: Yeah, Fonterra ended up reducing its 2023/24 season forecast Farmgate Milk Price range with the midpoint dropping another 25 cents per kgMS. This news came just a couple of weeks after the co-op reduced the midpoint a whole dollar not that long ago as they highlighted that it has been a very challenging time for the New Zealand dairy industry as well as producers there in the region. This will certainly impact the dairy farmers’ budgets as well as their sentiment as cost of production will be, unfortunately, much higher than current milk price expectations. Be sure to listen our Skim episode, out earlier this morning, with more thoughts on that from Stu Davison.

[08:05] Betty: Yes, yikes. Big breaking news yesterday and I am definitely going to be listening to Stu’s podcast on that. Our very astute team of Alyssa and Stu have been saying that milk is overvalued in New Zealand due to the weak Chinese demand, and it seems like we are really starting to see these words come to life in the markets this past week.

We should switch gears, though. What about the EU, Alyssa? What happened this week in the markets there?

[08:34] Alyssa: There was a lot of data out from Europe this week there was some spillover pressure, of course, into the European markets as well after the bearish Global Dairy Trade Auction. We got some June trade data and updated June milk production statistics, so there was a lot to dig into. While we are still waiting for Spain and Sweden to release their milk production figures, the month of June is looking like it was basically flat over prior year and that is following a stronger-than-expected spring.

[09:06] European milk production is kind of becoming a tale of two halves: the north and the south. The northern nations within the European Union are retaining strong milk production growth, while southern countries have been impacted by early heat and dry this summer. France, Italy, and Ireland all recorded really strong losses in June but large milk collections from Germany, Poland, and the Netherlands pretty much offset those losses.

[09:36] Betty: It seems like the story across the pond is similar to what we are kind of seeing stateside. Milk production overall is up, but shrinking in certain regions, and the rate of growth is slowing. So, growth at a decelerated pace. You and I were working a little bit on trade yesterday. Stu was, too. We should talk EU trade. What did you find in all of the data, Alyssa?

[10:01] Alyssa: Interestingly enough, the export data was actually very strong in June which pretty much tells us that they had a lot of product lying around. Similar to what’s been shown from the rest of the world, though, exports to China were weak as a lift in dairy products moving to the Middle East-North Africa region actually expanded. In fact, exports from Europe into Algeria were the strongest since April 2014. Additionally, during Q2 of this year as a whole, the EU achieved the strongest quarterly exports since Q3 of 2021 with shipments to that Middle East-North Africa region really driving overall strength.

[10:42] Well, that’s a wrap on markets this week but as always, you can find a lot more of our thoughts, opinions and price forecasts on global dairy markets located on our company’s dashboard at highgrounddairy.com. Be sure to request a free trial if you aren’t a customer just yet.

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.