Let’s Chat Markets – 29 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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Transcription:

[00:09] Cara: Good afternoon and happy Friday to all of you! Thank you so much for tuning in to Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. Today is Friday, September 29th. Our wonderful Alyssa Badger is enjoying a well-deserved vacation so today you’re hearing from Cara Murphy, HighGround’s Dairy Market Intelligence Manager and the lovely Betty Berning, our Dairy Economist here on the team. Let’s hop into it and start off with the CME spot market recap of the week.

[00:38] Cheese blocks fell throughout the week settling at $1.7200 and trading only 2 times. Barrels also slid lower to $1.4800 with 30 total trades, the most occurring on Wednesday. Dry whey has bounced around a bit but hovers just below $0.30 per pound. Nonfat dry milk slid on Monday but rallied to close at $1.1850. The highlight of the week, however, was butter. Wow! Butter started off sitting right at $3.000 per pound, but on Tuesday it jumped 14 cents, by Wednesday we rose another 12 cents, and by Thursday it hit $3.3350 making a new all-time high for the CME Spot butter price! However, the market lost some steam on Friday, falling back to $3.3000 to close the week with a total of 7 trades.

[01:24] Betty, I don’t think anyone expected that type of move to occur in butter this week, but the August Cold Storage report was released on Monday. Was there anything in that data that can help to explain this surprise shift?

[01:35] Betty: Thanks, Cara. It was a bit of a shock but the data does help to explain some of it. Since May, butter levels have plummeted by more than 78 million pounds—the largest May to August drawdown since 1993. It’s much bigger than last year’s decline of 43 million pounds over the same period. There was a lot of fat going into cheese this summer. There was also high temperatures which pulled milk production down and components, and then strong domestic demand created a perfect storm of less butter at the most critical time of the year. However, while this climb to the top in the butter market has been impressive to say the least, the fall to the bottom will likely be equally as dramatic.

[02:20] On the cheese side of things, total stocks set a new monthly record in August, as inventories recovered from their year-on-year loss in July. Supplies from July to August dropped a modest 3.5 million pounds which is much less than the typical decrease of 25 million pounds. Natural-American levels gained 0.9% from July, posting the biggest August stock number since 1985. This month-on-month gain was counter to the usual July to August decline, which helps to explain the cheddar market’s direction lower on the rising inventories.

[02:59] Cara: Fascinating! Those summer temperatures seem to be giving us one last hoorah this week, climbing back into the upper 80s and 90s across the Midwest. But fall has arrived and the cooler weather appears to be helping milk output. Regardless, this is the seasonal low and availabilities are tight. What does that look like for the market?

[03:19] Betty: Well, in the Upper Midwest tight supplies have materialized in a $2.00 Class III milk average spot basis, and that’s the highest level we’ve seen since February 2019. Dairy market news reported this week that Class I processors continue to struggle to find milk while Class II and Class III manufacturers are seasonally busy ahead of the winter holiday demand. Mostly cream supplies are short in the Midwest which is contributing to the rise in butter prices.

[03:51] Also worth mentioning this week is the turnaround in the weekly dairy cow slaughter volumes. After a summer of high slaughter driven by narrow on-farm margins and high beef prices, the US total weekly dairy cow slaughter marked the largest year-on-year decrease since June 2022. Volumes in the West also marked the largest decline compared to the prior year since December 2022, while the South-Central region recorded the first fall versus the previous year since November 2022. Although beef prices remain historically high, it’s likely by this time that producers have culled what they want to of the herd, and with margins beginning to improve—particularly with the decline in feed costs—they’re holding onto those higher yield cows.

[04:42] Cara: Lots of great stuff there and an interesting dynamic change from what we have seen so far this year. Hoping across the ocean, Fonterra has not made any changes to their 12-month GDT offer volume forecast, but as a reminder beginning in October, instant whole milk powder and skim milk powder will be on offer on the Pulse auction platform. Most notable for both of the October GDT auctions is the concentration of milk powder on offer across the nearest three contracts with 91% of the whole milk powder on offer in Contracts 1-3 and 80% of skim milk powder on offer in the same period. There will need to be strong near-term demand to clear those volumes.

[05:25] Also, this week we published our latest Asia Dairy Import Volume Analysis, covering the latest import data for South Korea, Philippines, Indonesia, Malaysia, Japan and now Vietnam! We saw quite the spike in Southeast Asian market share and volume on the global dairy trade platform in June and July and it’s evident those shipments are starting to appear in the latest trade data. Customers can check out that report on our website for more details into individual commodities and countries.

Well, I think that just about wraps it up! As always, thanks for joining us and we look forward talking again next week on Let’s Chat Markets. Cheers!

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