Let's Chat Markets is a weekly podcast presented by HighGround Dairy, hosted by analysts Alyssa Badger and Lucas Fuess. 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, or wherever you listen to your podcasts. Subscribe so that you never miss an episode!


Alyssa: Happy Friday from Chicago! We're heading into the weekend with temperatures finally in a desirable range following weeks of high heat here in the Midwest. Our thoughts are certainly with anyone being impacted by Hurricane Ida here in the US as well as the wildfires taking place out west. There are some heartbreaking weather conditions taking place right now. As Hurricane Ida rolls on, HighGround would just like to note that there is potential milk production impacts as well as manufacturing hiccups on the radar throughout the Mid-Atlantic and Northeastern regions of the US. CME Spot cheese prices moved lower to close out this week but we saw another notable rise on class four milk products: butter and nonfat dry milk. Butter prices are now at the highest levels observed in a little over two months and nonfat dry milk values are at four-month highs. Today, we have Eric Maier with us to discuss a bit of what we should expect from dairy markets as the Northern Hemisphere moves out of summer months and heads into fall. Eric, why don't you kick us off with what sort of key fundamentals are driving cheese lower this week and class four products a little higher? Is this price behavior something we should expect moving forward? What are your thoughts?

Alyssa, thanks so much for having me on the podcast this week--I feel like I'm such an unexpected or rare guest so I'm appreciative! We were also reminded by our colleague, Becca Kelm, that this is the 50th weekly podcast, so congrats on that success! We're excited to keep that going. 
As far as dairy market fundamentals here, heading into September and into our long Labor Day holiday, you'd mentioned that the cheese price has been coming off and it has--I would say the last couple of weeks have been a quiet and even somewhat bearish movement here as we struggle the take the barrel market back up above $1.40 and the block market has been quiet and has come off here a bit as well. That said, I do think that there's been a little bit more support that has come into those markets here of late. We've gotten through the period of ramping up with schools back in session and now we've got the fall sports and the football season. Mozzarella demand tends to pick up at this time of year at the same time that the overall milk production starts to trend down towards its kind of annual trough in that September-October time frame. This does tend to lead to support in the market. So as the cheese price failed to kind of find any real footing, we did see some support come into the class three milk and cheese markets here, struggling to move lower further, kind of coming into September. I think that there's still a lot of bearish fundamentals that are out there with covid and the labor market really restricting any kind of major recovery in the foodservice side of the marketplace right now, with milk production or milk flows slowing down, with the rate of growth of milk production coming off, with spot milk prices now starting to get elevated where we're now into the premium instead of the discount timeframe, we could see prices move up on really all commodities. I think cheese, while it's been slow, I don't think there's a lot of risk of the barrel market staying below $1.40 in the coming weeks. If you're able to buy and boost that I think is it's a good option and I do think that there is the potential for additional support in the block market as a 40-30 day old just naturally and seasonally become tighter.

On the butter and nonfat dry milk side, we have definitely seen support. We've heard of some tightness out of Europe that is increase prices out there and with Frontera continuing to reduce whole milk powder volumes, we've also seen both futures on the NZX platform in New Zealand moving higher as well. I do think that what we're seeing on the nonfat dry milk market here in the states is somewhat of a short-covering rally--people are needing product--but we do think that overall in the US, product is still available and then it's possible that we somewhat decouple from any further support the comes from the global markets. We're still struggling here with being able to get exports out of the country and while they have been very good, trying to add onto that incrementally I think would still be somewhat of a struggle here. General support but I do think that that's seasonal.

On the butter market side, we've also seen support come into that market. We do think that’s short-term, plenty of inventory, plenty of milk and butterfat for the moment and we struggle to see how Q4 demand and especially with where we're at as a country as it pertains to covid, that we've got some sort of broader bullish sentiment that's going to kick in on butter. We could certainly trade to the high end of the range $1.80-$1.85 isn't out of the question here but we still believe that the market on butter and butterfat in the United States is still of a bearish potential. So, seasonal, short-term, potential gains but struggling to kind of move above this and it may nestle back in a $1.65 to $1.80 style range for the coming months.

Speaking to that domestic uncertainty, July export data from the US was pretty impressive and jumping to a record high for that month. These significant export volumes have been critical in absorbing what has been record milk produced in the US here throughout Q2, but will it be enough to offset the anticipation of pretty solid milk availability to the end of the year, given that build in our herd size here?

Yeah so, the July export data came out here Thursday late morning. Really, I would say, strong numbers by and large. The only year-over-year declines that we saw on some of the major commodities: nonfat dry milk down 3% year-over-year and dry whey down almost 9%. That said, they were comparing against some enormous numbers last year, so, against two year-ago levels we were up over 40% from those. I would consider that to be really strong export numbers coming out. From the previous quarter, Q2, we saw some low price points here compared to the rest of the world, we did bring the global business to the table here and that should continue on here through the third quarter as we booked those exports. So, we would anticipate that exports would also provide just general underlying support. It's not blow-the-doors-off-we're-going-higher-because-of-export-volumes, but it does provide with where we've been from a domestic perspective on demand--just okay, the export volumes have kind of provided some general support here as well. Looking forward on milk production here in the US as you said, we've built up a really strong herd but we're starting to see that come off. Month-over-month cow numbers have been down here over the last couple of months. We are going to be comparing those to some very strong ramp-ups at the end of Q3 and into Q4 last year and I think we've seen the peak, you know those 3-4% year-over-year milk production growth numbers that we saw earlier this year are long gone and we're likely going to run into some resistance and see those numbers continue to fall as well and decelerate where I even think that by year's end--December or maybe early January--that we may have a flat year-over-year milk production number as we kind of understand the impacts of higher cost feed as well as what's going on here out west with drought and water availability. There’s been a lot of chatter of that over the last handful of weeks--if the West Coast doesn't get sufficient moisture and snowpack, things could be troublesome as far as milk availability in 2022. So, while for today you're seeing demand being quite uncertain and we still have enough supply and ample stocks of the number of different products, next year could be a different story. I think buyers should be looking out forward and we haven't even discussed inflation--that could be another day for another session as to what could occur in the markets here in 2022.

Thank you so much for that, always appreciate you coming on and sharing your thoughts. A lot to absorb there and I'm sure our listeners are very appreciative of that! Of course, I would like to remind the listeners every once in a while but this is just the tip of the iceberg. If you want more in-depth analysis of what we think about dairy markets into the foreseeable future and forecast opinions, head to head to our website. If you're not a customer already, you can request a free trial at highgrounddairy.com. Additionally, we are heading into a long holiday weekend and in the US, markets will be closed on Monday for the Labor Day holiday but we will be coming back from our mini-break on Tuesday to a Global Dairy trade event. It is becoming increasingly important for those auctions to produce some sort of reaction to the strong removal of product on offer volumes from Fonterra New Zealand. That does it for today! We thank you so much again Eric for coming on and we hope that everyone listening has a wonderful weekend!

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