Let’s Chat Markets – 22 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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[00:09] 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 22nd, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy. With me today is Betty Berning, our Dairy Economist here on the team. Betty, what happened in the dairy spot markets this week?

[00:32] Betty: Thanks, Alyssa. It was a wild week in markets. Class III commodities went lower, while Class IV products rallied and here are the details. Blocks and barrels are sitting at two-month lows. They were up slightly today in trading after having big losses throughout the week. With Blocks in the high $1.70s and barrels sitting at $1.60 per pound today, that is not what many were expecting, I think, at the start of the week. On the flip side of this, Butter settled at $3 per pound today, which is its highest price since October 28, 2022, and since last Friday, has gained nearly 30 cents. Nonfat Dry Milk (NFDM) is back to early June price levels, finishing today at $1.17. Of the four major commodities, Whey was the sleepiest this week. It ended the week in the green, though, at $0.3025 per pound, on 30 total trades for the week.

[01:32] Alyssa: My goodness, there has been so much volatility these last few weeks. It’s so hard to keep up! Both domestically and internationally, actually. This week was truly dominated by international data but we did get US milk production figures early on in the week.

[01:48] Betty: Yes, those cam out on Monday. August milk production volumes were down 0.2% year-over-year. The losses were driven by a smaller herd from a year ago. US milking herd in August was at 9.39 million cows, and then there was a small yield drop, too, which made the August numbers smaller. Again this month, California, Texas, and New Mexico saw their output fall by large margins.

[02:15] The other notable part of Monday’s report were sizable revisions to the July data. USDA took US milk production down by 35 million pounds and revised milk cows down by 10,000 head from 9.4 million cows to 9.39 million cows. Also notable in the July revisions was Idaho’s production, Initially, Idaho’s July output was up 2% year-on-year and USDA changed that to flat. Milk per cow in Idaho was revised lower by 15 pounds, driving the revision. On the flip side of that, Texas’ year-on-year loss of 4.3% in July was changed to –3.2% loss and that was on increased yields. The loss of 15,000 head in the barn fire earlier in the year continues to weigh on herd size there as well.

[03:15] Alyssa, a lot happened overseas. It was a busy week. What can you tell us about GDT and Chinese demand?

[03:23] Alyssa: Yeah, I think the topic on everyone’s minds that is impacted by the global marketplace is the supportive Global Dairy Trade event and the fact that China might be back. North Asia showed up at the recent GDT event at the strongest pace we’ve seen in about five years and it was pretty shocking considering the region’s lackluster demand on every other auction event this year considering their sizable inventories domestically in China. The reason the auction wasn’t even more bullish was the fact that the stronger buying from China really kept the other big players away. As a result, while they were mostly positive, settlements did not quite reach the lofty levels that traders were pricing in for powders. C2 Whole Milk Powder (WMP) jumped 4.2%, c2 medium heat Skim Milk Powder (SMP) gained 7.3% and fats also saw a nice boost, which had been expected given Fonterra’s announcement that fat supplies were tightening up.

[04:21] Betty: So, China was back on GDT but was there anything positive within the August import data that was released this week from China?

[04:32] Alyssa: You know, the strong demand that we are starting to see on GDT was not evident on the August numbers just yet.

[04:37] Total dairy imports were the lowest for August since 2017 and with the US reporting the greatest losses, specifically whey products. Behind the US is the EU as China brought in less infant formula, SMP and whey from the European Union. The third steepest was reported from Australia due to lower milk imports given that domestic brands are kind of losing their luster for domestic consumers.

[05:04] Betty: You mentioned that Fonterra announced far supplies are tightening up. What is happening on-farm in New Zealand?

[05:12] Alyssa: The August data actually dropped last night with milk solids down 0.9% from prior year, which was the lower end of expectations from our team. It’s currently set up to be a tougher season for New Zealand with breakeven values hardly reaching current farmgate milk values and feed availability has been tighter than normal this season after a soggy winter. All eyes will be on this El Nino weather model that could spell dry conditions within the country rather quickly into the end of the year.

[05:44] Betty: Ok, Alyssa, you have to talk a little bit more. We still haven’t touched on the EU data. What happened there this week?

[05:50] Alyssa: Boy, we were busy weren’t we? I’ll start with the July European trade data. Losses are continuing to be shown to China and mostly in the form of whey and skim milk powder which was, of course, evident in those Chinese import numbers but demand from Middle East-North Africa region as well as Southeast Asia (Yemen, Pakistan & Malaysia, to be exact) has helped to offset that slowdown into China. The EU has been better positioned to move fat and cheese at an impressive rate due to spot prices that have been well below the US for much of this calendar year.

[06:20] European milk production data for July was also finalized this week with volumes up just 0.3% from prior year. As a result, the EU is really poised to experience a price boost given the slowdown in incremental milk, both seasonally and below prior year levels as collections should turn negative in August or September data.

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.

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