Let’s Chat Markets – 20 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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[00:10] 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 20th, and you’re hearing from Alyssa Badger, Vice President of HighGround Dairy and Cara Murphy, our Dairy Market Intelligence Manager. Cara and I, along with our lovely Betty Berning, and new member to the team, Alex Gambonini, will be in Madison, Wisconsin this next week attending the National Workshop for Dairy Economists and Policy Analysts and are excited to see some familiar faces there. And if not, you can catch us back in our home turf of Chicago for the CME-ADPI Risk Conferencethe following week on November 1st and 2nd! HighGround will be cohosting the opening reception with Nui Markets on November 1st and you won’t want to miss it. With that, I’ll hand it off to Cara for the CME spot market recap of the week.

[01:07] Cara: Thanks, Alyssa. Dry whey is moving up, up, up, ending the week just below $0.40 per pound with 30 trades on the week—slightly less than we saw last week. Block and barrel cheese has also been climbing. Block cheese broke the $1.80 per pound mark on Thursday, but dipped back to $1.7875 today, while barrels hit $1.7000 mark on Thursday and closed the week at $1.7100. In total, blocks saw 29 trades while barrels marked just 15. Butter began its descent last week but ran into some support on Tuesday and climbed back up 6 cents to $3.4100. Since then, however, it dipped back down, closing at $3.3600 today with 13 trades. Lastly, nonfat dry milk has bounced within a 2-cent range near $1.22 and 23 this week marking 18 trades.

[01:57] Alyssa: Thanks, Cara. Let’s talk Milk Production now. We got some very interesting numbers this week, not only in the US but also from the European Union.

[02:06] Cara: Absolutely. We had US Milk Production data for September published this week along with August data for the EU. US milk production was below the prior year for the third consecutive month in September, down 0.2%. A standout in this report was the significant revisions made to data going back all the way to April 2023. But, the most notable was in August with total US output revised down 119 million pounds, taking the original -0.2% to -0.8%. California milk output rebounded in September to -1.8% after a negative 5% revised year-over-year print in August, and Wisconsin turned to more than 1% growth after dipping below that figure the previous month. Lastly, while the overall US herd was revised 14,000 head lower, the Top 24 states—representing 95% of total milk in September—saw their milking herd revised up 1,000 head. Even so, the 24 state production total was revised down 73 million pounds.

[03:14] Moving across the Atlantic, EU Milk Production was up 0.3% in August, supported by growth from Germany, Poland, Belgium, and the UK. However, negative weekly milk collection figures from Germany, France, and Britain, along with early September data from the Netherlands reporting declines, suggest that total EU milk output will fall below the prior year in the next month. Bucking the seasonal trend downward from July to August, butter fat production in France, Germany, Poland, and Belgium moved higher month-to-month to post substantial growth over the prior year. We also noticed that German cheese output jumped an impressive 8% year-on-year in August, to set a new all-time high.

[03:54] Greater cheese output year-to-date in powerhouses like Germany, Italy, and Poland keep exports moving above prior year levels. August Trade Data for the EU, also published this week, highlighted the holes of demand that European exporters have managed to find over the course of 2023 so far. Skim milk powder figures continue to outpace the prior year, with larger shipments headed to Southeast Asian and Middle Eastern ports. Fat-filled milk power volumes also rose to mark the third-largest volume since January 2020, while butter and anhydrous milkfat sailings pushed higher as more product moved to the Middle East. However, infant formula exports keep falling, the smallest amount since February 2014 primarily due to losses to China.

[04:37] Alyssa: Boy, we really stayed busy this week, that’s for sure. Backing up to earlier in the week, how about that Global Dairy Trade event? That was the fourth consecutive positive result on the platform and it will certainly have New Zealand dairy farmers smiling this week, marking the first such streak the market has seen since March 2022. The month of October overall was marked by an improving presence of buyers from North Asia (presumably China) but the real story lies within other emerging markets as China’s demand on the platform is still below pre-COVID levels. While every commodity reported gains, fat results were especially strong, as Fonterra’s reduction in offer volumes left little volume to fight over.

[05:19] And today, China and New Zealand released their September trade figures so let’s discuss what we saw at first glance. (View China’s September trade figures here.) Starting with China, while the year-on-year changes looked very similar to what we also saw in August, whole milk powder (WMP) losses into  China worsened further as they only imported 15,132MT from New Zealand last month, which was 35% from prior year. WMP volumes from Uruguay also continue to be aggressively lower than one and two years ago, dropping 96% from prior year. It is worth noting that product from Australia was strong, up 63% from prior year. The slower WMP imports during the month will have helped continue to consolidate internal inventories which has aided recent buying from China. The European Union experienced the strongest losses into China last month, primarily represented by losses in demand for infant formula, whey and fluid milk and cream, though milk powder imports from Europe were also weak.

[06:25] Total Q3 imports to China were the lowest for the quarter in five years and while the EU as a region recorded the biggest losses during that timeframe, the US reported the largest drop as a single nation as whey demand but also skim milk powder volumes remain rather light from the US.

[06:45] New Zealand’s exports during September also showed a lot of losses against prior year, though skim milk powder (SMP) moved higher due to larger shipments to China. September exports to China were the lowest for the month since 2019 with the biggest drop recorded in the form of fluid milk & cream. It is no secret that China has had plentiful milk flowing domestically, as well as weaker consumption trends throughout this calendar year, which has limited the need for supplies from New Zealand.

[07:16] After fluid milk, losses were notable for WMP, infant formula and fats against year-ago levels. It is important to call out that September 2022 was a record for the month into China so it was always going to be difficult to outpace. These numbers were not surprising to the market as early milk production collections within New Zealand fell short. Into this month though, there has been evidence that global demand is resurfacing to take advantage of historically competitive commodity values from the region, which will surely result in larger trade figures throughout Q4.

That does it for this week’s market roundup! Thanks for tuning in and we hope to run into you at the upcoming dairy conferences here in the Midwest. Cheers.

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