Let’s Chat Markets – 1 September 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 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, September 1st and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy. Joining me to chat markets is Cara Murphy, our Dairy Market Intelligence Manager. A few hot summer days are still lingering here across the Midwest, but autumn is on the wind. Let’s get into our CME Spot recap for this last week of August, Cara.

[00:42] Cara: Yeah, dry whey moved upwards this week, climbing above $0.3000 per pound this week for the first time since May 15 with a total of 8 trades. The block and barrel cheese price also rose this week before dropping slightly on Friday. However, trades were minimal with blocks marking just 3 trades and barrels with a total of 2. In contrast, the spot butter price slid lower, now into the mid $2.60s, with volume changing hands 44 times. A bearish outcome for nonfat dry milk as well, dropping to $1.0725 on Thursday, the lowest price since November 2020.

[01:19] Alyssa: Thanks, Cara. With milk output tightening up throughout the US and another hot week ahead of us, producers are beginning to pull back on culling of the herd. What have you seen in the data?

[01:29] Cara: Dairy cow slaughter rates across the US are definitely beginning to slow as the US total for the week ending August 19, marked the lowest year-over-year increase since July 8th. This was also the case for Region 9, which includes California. Looking at the Upper Midwest, some positive shifts on the balance sheet have flipped the script on the cow liquidation levels we have seen over the past months. Slaughter in that region turned negative year-over-year for the first time since July 8th, but most notably this was the largest year-over-year decline since March of this year.

[02:04] Alyssa: Things have changed quite quickly here in the US.

[02:07] Cara: They sure have! But what I want to hear about what’s going on on the other side of the world. Our new Asia Dairy Import Volume Analysis was released this week with some fantastic insights into Indonesia, Malaysia, Japan, South Korea, and the Philippines that you can check out on our website. Also, a very interesting announcement from Fonterra was released this week. Alyssa, what can you tell us?

[02:32] Alyssa: Thanks for teeing up the international conversation, Cara. There were really four key events this week that we dug into within our analysis on an international level. First and foremost, there was a Global Dairy Trade Pulse event on Tuesday with Fonterra’s c2 regular whole milk powder contract left unchanged from the last event at $2450/MT. Nonetheless, a bearish market outlook persists ahead of the Southern Hemisphere spring flush period. Later in the week, Fonterra released their offer volume forecasts ahead of next week’s larger Global Dairy Trade Auction and there were definitely some interesting things happening there. Fonterra removed 6,500MT from the 12-month Whole Milk Powder forecast volume to push that product onto the Pulse platform. They then reduced the 12-month forecast for skim milk powder offer volumes by 23,510MT. This was also a move to push product onto the Pulse auctions as of October, when the cooperative will be offering instant whole milk powder and medium-heat skim milk powder in addition to what they’ve already been offering—that c2 regular whole milk powder product. This shift in volumes ultimately leaves the exact same product availability intact but SGX futures are pricing in gains for both milk powders into next week. It should be an interesting auction that’s for sure as we continue to hear that demand is still quite lackluster.

[04:02] Speaking of bearish fundamentals, as you mentioned, Cara, we did release an overview and update regarding Asia trade flows and boy were they ugly. Most notably, some bad numbers on cheese and milk powder demand. The overall tone on Japanese dairy imports remained weak with July volumes the lowest for the month since 2012 across all dairy products. In Malaysia, there was a significant drop in market share from the US in their latest June data. South Korea reported the lowest cheese demand we’ve seen since December 2018 within their July figures. And in Indonesia, there was a very steep drop in milk powder imports from the European Union.

[04:46] Last but not least, within our Weekly European report, we started to see weekly milk production gains out of Germany begin to taper off a little bit throughout mid-August as the hot and dry conditions start to really bite on-farm and dig into those cow yields. Though given the stronger-than-expected milk throughout the first half of the year from the European Union overall, inventories have been ample as domestic and international demand has remained rather unimpressive.

[05:15] One last thing to mention before we close out the episode. HighGround Dairy is so excited—we are hosting our Third Annual Global Dairy Outlook Conference in this vibrant city of Chicago, June 18 through June 20th of 2024. Early bird registration is now open as of today, September 1st. Space is limited at the historic Union League Club so we suggest that you register soon and secure your spot. We are so excited and can’t wait to see you all in Chicago next year! (find more details here)

That’s a wrap this week! We wish you all a beautiful Labor Day weekend. Stay cool out there and we’ll catch up next week on Let’s Chat Markets. Cheers!

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