Let’s Chat Markets – 13 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! 

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, October 13, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Dairy Market Intelligence Manager.

The dark and stormy weather in Chicago today is adding to the chill in the air on this Friday the 13th. Cara, any plans for tonight?

[00:39] Cara: Well I thought about going camping up at Crystal Lake, maybe taking a nice night stroll through the woods… No? Well then maybe I’ll just have a night in with my black cat watching some horror movie classics. How about you Alyssa?

[00:53] Alyssa: Just promise me you’ll run if someone in a ski mask named Jason approaches you. I don’t love a spooky movie so I’m sticking to Made in America with Tom Cruise and pizza. Fridays are for pizza.

[01:08] Well, getting into it, it’s been a bit quiet on the data side of things this week but our team has been hard at work preparing our October Global Dairy Commodity Forecast which will be published later today. And don’t forget our team will be hosting our monthly forecast webinar on Monday, October 16th. But, there’s always something going on in the dairy world and we’re going to talk about it! Kicking things off is Cara with our CME Spot market recap of the week.

[01:36] Cara: Thanks, Alyssa. After butter climbed to a record high last Friday, the peak has been reached and it looks like we have begun our descent, dropping by 14.25 cents since last Friday to close at $3.3600 with 8 trades. Block Cheddar has been mostly stagnant, settling at $1.7000 with only 2 trades while barrel cheese has been on the rise finishing $1.6450, up nearly 7 cents from the previous week with a total of just 3 trades. Nonfat dry milk (NFDM) has been trending higher as well, moving above $1.20 per pound for the first time since February of this year with 14 trades on the week. Lastly, dry whey finished the week at $0.3350. Activity on the market has picked up this week and traded 70 times with 21 occurring on Wednesday, 20 on Thursday and 18 on Friday.

[02:26] Alyssa: There is a lot to unpack in this market activity with so many of our customers that we talk to every day with differing opinions on whether stronger nonfat and whey prices are actually warranted. Again, be sure to check out our price forecasts, out later today, to see where we are expecting these products to sail to. Cara, now that farm margins have improved substantially from just a few months ago when they were awful and at decade-lows, that slaughter data has really backed off, hasn’t it?

[02:53] Cara: For sure. In the US, weekly dairy cow slaughter has been trending below prior year levels since August after an elevated spring and summer. Over the past weeks, we have been climbing back closer to parity. However, the week ending September 30, total dairy cow slaughter dropped to 56,600 head, a 7.5% decline or -4,600 head difference compared to the previous year, marking the largest year-over-year decline since June 2022. Slaughter rates in Region IX (the West) and Region V (the Upper Midwest) have pulled back hard, as both regions saw their largest losses versus the prior year since October 2022. With milk checks climbing back from the $13.77 mark we saw in July and income over feed margins vastly improving, farmers have a more optimistic outlook heading into the new year. Similarly, after heavy culling in the summer months, it’s likely that old and low-producing cows have been sold, and while beef prices remain very attractive, producers are much more hesitant to sell their high-value animals.

[03:59] Alyssa: Input costs had been waning but the USDA report out this week didn’t really help that situation from the feed side, did it?

[04:06] Cara: No. With harvest season in full swing, the USDA also released the October World Agriculture Supply and Demand Estimates and boy, that was a bullish report! The August pro-farm tour had a mixed bag of results with notes of patchiness across fields as crop conditions struggled in the summer heat. It looks like that damage was a bit more than initially anticipated as the USDA cut corn production by 70 million bushels on lower yields, and corn supplies by 160 million bushels from last month. December corn futures rose about 8 cents over the day to close just below $5/bushel. However, beans were the real story of this report. August temps hit the crop right at the crucial time of pod setting and man did those fields look rough when I was back home in Iowa in September! The report brought soybean production down 42 million bushels and while ending stocks were left unchanged, there were adjustments in many demand categories. The result was a 37-cent increase in the November 2023 futures contract to $12.90 per bushel, with contracts out through July 2024, marking a 30-plus cent increase as well.

[05:16] Alyssa: Yeah, those soybean figures were super bullish and ending stocks are still historically tight here in the US but also globally with lower stocks forecasted now in Brazil China, and India. This report resulted in some aggressive short covering from the traders that were short beans heading into the data release.

[05:34] Speaking of world markets, not much happened in international markets but we can chat Pre-Global Dairy Trade expectations. Let’s start with the GDT Pulse event that happened on Tuesday where the standard c2 regular Whole Milk Powder (WMP) contract was offered but Fonterra also started offering instant WMP and c2 medium heat skim milk powder. C2 regular WMP settled at $2,950/MT with Skim Milk Powder (SMP) settling at $2,600/MT, continuing the supportive trend from the last few GDT events. As usual, Fonterra released their offer volume forecasts ahead of next week’s full auction event with changes only made to fats as both butter and Anhydrous Milk Fat (AMF) volumes were reduced across the 12-month forecast. Fonterra notes that these changes to offer volumes and the cream group flex are a reflection of milk production in the North Island, unknown demand, product mix optimization, and weather impacts that Fonterra may respond to as the season progresses. WMP prices are expected to lose another 4.2% next week. SMP expectations, according to SGX traders, are also in for more price appreciation, with those traders expecting another 3.6% increase for Oceania SMP and on the milk fats front, there is little there is little doubt that the market will again respond to further reductions in offer volumes. Also of note, Fonterra revised their milk price forecast higher, adding 50 cents/kgMS to their forecast, with the range now between $6.50/kgMS on the low end and $8.00/kgMS on the high end, placing the mid-point of the forecast at $7.25/kgMS. On New Zealand dairy industry-average figures, this change in the forecast adds around NZ$80,000 of revenue to farmers’ cashflows.

[07:32] Otherwise, within our global forecast report, we continue to focus on the fact that we are reaching peak milk production from the southern hemisphere, global milk production growth has recently stalled, and China’s economic situation is still shaky but showing some signs of optimism.

That does it for this week’s market roundup! Be sure to join our webinar on Monday at noon Central Daylight Time where our executive team will dig further into our forecast figures as well as these global fundamentals. Thanks for listening and remember, steer clear of men in ski masks this weekend.

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.