Let’s Chat Markets – 6 October 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, October 6, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Dairy Market Intelligence Manager. Well, fall is definitely here in Chicago and it appears the markets are changing as quickly as the temperatures. What a week for the CME spot market once again! Cara, can you catch us up on what’s been going on?

[00:42] Cara: Of course! We have to start off by addressing the elephant in the room: BUTTER. We have been skyrocketing to the top marking a new record high every day this week and climbing over 16 cents since Monday. Today, we closed at $3.5025, the current record-high price. For reference, last year’s record high price of $3.2675 was set on this day, October 6, and today we are sitting 23 and a half cents above that—unbelievable! But I think the big question here is when will it fall and how hard will that be? The futures market doesn’t appear to be persuaded in the slightest by this impressive squeeze on spot with contracts for November and onward carrying heavy discounts. It’s only a matter of time before butter comes screaming back down to earth.

[01:33] For the rest of the market, it’s been a much more quiet week. Dry whey continues to bounce between 28 and 30 cents per pound, but trading has picked up and we saw a total of 55 by close today. Block Cheddar slid slower, now sitting just above $1.70 per pound with 24 trades, most of those occurring on Monday. In contrast, the barrel cheese price rose and closed today at $1.5775 but saw only 20 trades. Lastly, nonfat dry milk gained a bit of traction at the end of the week to end at $1.18 with a total of 10 trades.

[02:07] Alyssa: Pretty wild that the same thing is happening that we saw last year during the same exact week in butter—that’s crazy. It will definitely be interesting to see if we can eek out a few more record highs next week before we see that inevitable correction.

[02:20] Cara: For sure. With all the activity in spot butter, it was also a big week for US data as both the August dairy products report and trade data was released. Dairy products showed smaller cheese production in August, down 2% year-over-year as Cheddar and mozzarella volumes fell by 1.2% and 0.9% respectively, versus 2022. Butter volumes fell after ten months in a row of year-over-year growth, as milk and components tightened up in the West, where over half of the US butter is made. Increased production for Class II products likely shunted cream away from butter as well. In other parts of the Class IV complex, combined nonfat dry milk and skim milk powder output also tanked, with August totals the smallest since September 2018.

[03:05] Alyssa: As a reminder, we dig into that report a bit more on our Skim episode recorded Wednesday so be sure to check that out and if you want our full opinion on the data, head to the dashboard to view our comprehensive analysis of that report. Turning to US trade data that you mentioned, what did you see in the August figures, Cara?

[03:26] Cara: Well, it was another month of losses as total exports weighed in at 221,708MT, down 10.2% year-over-year, the fifth month in a row of double-digit declines. Butter exports were down for the seventh consecutive month in a row as the high prices keep the US uncompetitive on the global market. Cheese shipments also fell below the prior year for the fifth straight month led by losses to South Korea, down 50% from 2022. On the flip side, skim milk powder exports continued to gain backed by another monthly record to Mexico. WPC >80% exports also improved versus the previous year as demand picked up for high-proteins. Shipments have increased annually for 10 of the past 11 months.

[04:15] Alyssa: Yeah, boy, those high- protein markets are sure taking off after hitting their lows not that long ago. Thanks, Cara! The last thing I’ll add on US markets here is that the US weekly slaughter report is continuing to show year-on-year losses versus those aggressive cull cow rates that we were seeing earlier this summer.

[04:34] Alright, looking to international markets, aside from US butter, the Global Dairy Trade Auction on Tuesday was another hot topic for global dairy participants. This was the third straight auction that reported gains with the GDT index up about 12% from the lows we dropped to in August. We really get into the weeds on this event in our analysis so I highly recommend you read that but I’ll leave our listeners with this, North Asia—who we presume is mostly taken up by Chinese purchases—their volumes reduced by a third from the multi-year highs reported at the previous auction yet the region’s market share remained elevated. But what was really interesting is where North Asia lost market share, Southeast Asia and the Middle East stepped in to take bites of the action as dairy commodity values still remain at fair values versus what buyers were paying at not only this time last year, but the last two years. The economic engine in China is starting to show some blips of improvement but time will soon tell whether the region is truly back or not.

[05:39] Other than that, Australia released August milk production figures, showing a 0.8% increase over prior year but let’s be honest—small gains over last year’s terrible numbers doesn’t mean much here. New Zealand is, of course, heading into peak milk any day now and grass is certainly back in the paddocks but farmer confidence isn’t and margins are still tight on-farm. Lastly, European indices all mostly moved higher following the GDT event with milk in that region turning flat to negative rather quickly.

All right, 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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