Let’s Chat Markets – 15 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! 

Subscribe on Spotify | Subscribe on Apple Podcasts | Subscribe on Amazon Music



[00:10] Alyssa: Good afternoon 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 15th, 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. It’s been a quiet week on the report side of things but the HighGround team has been hard at work on our monthly Global Dairy Commodity Price Forecast which will be published later today. And a friendly reminder to our customers: don’t forget to sign up for our webinar on Monday, September 18, at 12PM Central Daylight Time where our executive team will go over our monthly forecast, covering everything you need to know about what’s going on in the markets and give you the opportunity to tune in for a live Q&A as well.

With that let’s get into our CME Spot market recap of the week! Cara?

[01:07] Cara: Yeah, after moving up last week, dry whey hovered near $0.30/lb for most of the week seeing a total of 13 trades—9 of which occurred on Monday. The spot block Cheddar price dipped $0.0550 on Tuesday climbed back on Wednesday and Thursday but fell back on Friday to finish the week at $1.8800 per pound with 15 trades—the majority of which occurred towards the end of the week. Barrel cheese fell on Tuesday and regained some ground on Wednesday but stayed within the low $1.80s, trading only 6 times for the entire week. Butter keeps grinding higher, up roughly 9 cents by Thursday, where it stepped back a little bit and closed Friday at $2.7175. Butter traded 14 times on Thursday and 12 today, marking a total of 33 for the week. Lastly, after setting a new 2023 low last week, nonfat has seen some revival, up $1.1125 with 12 trades.

[02:04] Alyssa: Thanks Cara. July Dairy Supply and Utilization data was released this week. What were some consumption trends of note?

[02:12] Cara: Well, total cheese consumption moved above the prior year on higher domestic utilization—particularly of American cheese, which offset the very minor decline in Other-cheese domestic use. In contrast, total cheese exports were slightly below 2022 volumes as sustained losses in American cheese—which includes Cheddar exports—overcame the small year-over-year gain in July for Other-cheese exports after three consecutive months of declines. Butter utilization narrowly marked growth above the prior year levels, supported by higher domestic consumption, but exports continue to struggle. Nonfat dry milk exports rose again, supported by Mexican demand and domestic usage grew as well, likely on opportunistic buying of cheap product. Lastly, and I think most notably as well, huge domestic dry whey sales kept total dry whey utilization in July flat versus 2022, despite the worst export volume in nearly four years.

[03:10] Alyssa: It sounds like domestic consumption has really picked up a bit for a lot of dairy commodities, but this late summer heat did a number on milk output. Though it’s gotten cooler here in Chicago now as we move further into September, is that helping to alleviate some of those supply constraints that we were seeing just a few weeks ago?

[03:29] Cara: I’d say so. The cooler weather is much more optimal for cow comfort which helps milk flows. That appears to be materializing as well as the Class III milk average spot basis in the Upper Midwest ticked lower this week after climbing to the highest since June 2020 last week.

[03:46] I think something that has been on the mind of everyone in the Midwest is how dry it’s been lately. We just got the crop progress report and the September supply and demand estimates from the USDA this week. The crop progress report showed that the August heat took a toll on crop conditions in both corn and soybean, recording the lowest percentages of Good and Excellent condition acres in the past several years, worse than 2022. Corn faired better than soybeans as the heat came after silking and pollination but hit right as soybeans were setting pods. The dryness also helped to push crop maturity forward so we are likely to see the harvest season begin earlier this year.

[04:25] But despite worsening conditions, the World Agriculture Supply & Demand Estimates report has markets looking a bit more bearish than bullish. Corn and soybean futures fell across all contracts over the week. Higher corn acreage is offsetting the lower yields, and while a reduction in soybean yields has lowered production forecasts, the USDA dropped demand for new crop crush and exports. It’s likely exports will face greater competition over this next year in the global market, particularly from high harvest rates from Brazil.

[04:58] Alyssa: Always good to cover those input markets, that’s for sure. Thanks, Cara. The calendar is certainly inching closer to harvest, which also means it’s pumpkin spice season.

Alright, moving on to international markets, there is a lot to discuss ahead of next week’s Global Dairy Trade event. On Tuesday, GDT held their 32nd Pulse event with whole milk powder gaining 1% from the first September auction, settling at $2655/MT. Over the last 72-hour period, there has been a lot of volatility on the SGX board with the September whole milk powder contract now jumping to 2,730MT. If realized, that would mean a 7.6% gain on the C2 regular contract next week on the second September GDT auction. Speaking of, Fonterra left offer volumes unchanged on powders while reducing fat on offer, highlighting the poor start to the North Island’s milk production season in New Zealand.

[05:59] HighGround echoes Fonterra’s sentiment that the New Zealand milk production situation ahead of spring is under immense pressure. This coming auction is pivotal for the direction of the entire market and will determine sentiment for the coming months across global markets.

[06:14] There’s a lot to watch within the international space and while there are certainly bullish undertones from the supply side of market into the end of the year, the demand story is still shaky as China continues to work through their economic woes and heavy milk powder inventories.

[06:32] Last but not least, the European Union released July trade data today and while dairy exports to China were weak once again, strength into Algeria and southeast Asia definitely helped to offset overall volumes. That being said, 2022 wasn’t a great year for European dairy shipments so it is important to remember that the reported gains are against a lackluster prior year.

Alright, that does it for this week’s dairy market roundup. As always, thanks for joining us and we look forward to coming on next week to chat markets with you. Cheers.

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.