Podcast Description
In this month’s Forecast Update Live, the Ever.Ag Insights team breaks down a mixed outlook for dairy markets as strong export demand clashes with rising milk production.
On the bullish side, US cheese and butter exports remain highly competitive globally, with expanding opportunities across Central America, South America and Mexico.
But on the flip side, increasing milk supply, herd expansion and strong production levels are putting pressure on the market’s balance. Meanwhile, broader food demand continues to stagnate when adjusted for inflation, raising questions about how much support the consumer can provide moving forward. Watch the full discussion for insights into where dairy markets may be headed in the second half of the year.
Ag Smarter Forecast Update Live: Exports vs. Oversupply: Dairy Markets Face a Tug-of-War
Transcript
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00;00;02;26 – 00;00;12;10 Unknown Futures and options on futures trading involves significant risk and is not suitable for every investor.
00;00;12;12 – 00;00;38;00 Unknown Hello and welcome to Forecast Update Live, a video series from Ever AG Insights, where each month we gather to discuss our dairy market forecast. I’m your host, John Spain. We’re joined today by Kathleen Wolf Lee, Melissa Bischoff, and Phil Plaut. To get us started, Kathleen, please run us through the highlights of this month’s forecast compared to last month.
00;00;38;02 – 00;00;57;19 Unknown Well, John, we’ve got a little of this and a little bit of that on the cheese forecast. We don’t anticipate making many changes, as we’ve been mostly holding together in the market around that dollar 65 mark. In the nonfat space, though, we do anticipate that we will take our nonfat forecast, especially for the second half of the year, a bit higher. In the butter space, we are taking our forecast down as we roll into the second half of the year.
00;00;57;19 – 00;01;17;04 Unknown Okay, great. Thanks, Kathleen. Each month, we ask our panelists to take either the bull side of the story or the bear side of the story. This month, we’ve asked Kathleen to take the bull side of the story. Take it away, Kathleen, and let us know what you’re seeing out there.
00;01;17;05 – 00;01;42;02 Unknown I think the most bullish thing out there right now is exports. We exported 129 million pounds of cheese in February. We’re recording on Monday; on Tuesday we’ll get the March export figures, and I suspect they’re still going to be pretty strong for cheese. We’re competitive. Sure, the European prices pulled back a little bit. We’re narrowing that gap between US blocks and ex-mozzarella.
00;01;42;02 – 00;02;09;00 Unknown But I still think that there are tremendous amounts of opportunity for US exporters on cheese to be able to move into regions outside of just the contested areas like South Korea and Japan. We’re seeing big growth into Central America, some growth in South America as well. Mexico’s buying more. So as I think about the trajectory and the bullish opportunity for cheese exports in particular, I think those opportunities are still there.
00;02;09;02 – 00;02;33;03 Unknown Let’s look at a different product: butter. We’re competitive on butter exports versus the rest of the world, and I think that there’s opportunity for US sellers to find sales internationally, persistently, as we go into the second half of the year as well. And on nonfat, sure, we may start to see a little bit of pushback into Southeast Asia or other regions where they have more opportunity to buy European or New Zealand product.
00;02;33;03 – 00;02;55;15 Unknown But I still think that Mexico is a buyer here, even though US prices are higher at this point in time. John, I am really bullish on cheese. I’m pretty bullish on butter exports, and I think nonfat could be a toss-up.
00;02;55;16 – 00;03;26;25 Unknown Okay, great, Kathleen. All right, Melissa, you’re new to the panel, and we’ve invited you to take the bear case this month. Go ahead and let us know what you’re seeing out there.
00;03;26;25 – 00;03;54;07 Unknown That leads to the bear side. Sure. Thanks, John. For me, the bear starts with the milk. There’s a lot of milk, and it keeps coming. We saw an increase of 2.3% in March. Every day there’s more butterfat in every load of milk that’s getting produced. And seasonally, we’re in that time of year where milk is really long.
00;03;54;07 – 00;04;12;11 Unknown I think all types of dairy facilities are going to be full. We saw cheese production up 3.9% in February. I think we’re going to continue to see strong cheese and butter production. Can demand keep pace with all of this growth in supply? Hard to say. Kathleen, maybe those exports can help with that.
00;04;12;11 – 00;04;37;08 Unknown And it all kind of starts with the cows, right? Every month with the production report, we’re plus 187,000 cows in the last report. So not only is it maybe bearish in the moment, but we’ve got a lot of cows hanging around. And as long as that’s true, it’s hard to imagine milk production being really soft.
00;04;37;08 – 00;05;04;17 Unknown Yeah, definitely. Those cows are adding some longevity to this growth in production. And I
think farm-level prices are helping with that continued growth too. Okay, great. Melissa, welcome to the panel, and thank you for letting us know what’s going on out there.
00;05;04;17 – 00;05;30;28 Unknown Okay, each month we ask Phil to bring us what he refers to as his favorite look. I always enjoy seeing what he’s bringing to the table. Phil, take it away and let us know what you’re seeing this month.
00;05;30;28 – 00;05;53;10 Unknown Thanks, Sean. We continue to look at overall food demand and just figure that things are stagnant. Not really bullish—well, certainly not bullish—not really bearish, but just sort of flat. One of the ways that we measure this is by looking at food service and grocery sales adjusted for inflation.
00;05;53;10 – 00;06;16;06 Unknown And the graph on this particular month’s favorite look page shows that when you combine restaurants and grocery stores, we’re just not making up ground. So consider this: in the month of March, we saw grocery store sales up only half a percent year over year. Inflation was up 2%.
00;06;16;06 – 00;06;41;01 Unknown We saw food service sales up 2.8%. Inflation was up 3.8%. So that means the dollars collected didn’t outpace the rate of inflation of higher prices. And when you look back three years, food service sales are up 13.3% in nominal terms, but only 1% in real terms.
00;06;41;01 – 00;07;05;00 Unknown So we don’t know if it’s GLP-1, we don’t know if it’s zero population growth, we don’t know if it’s economic pressures. We don’t know if it’s a combination of all three or something else. But food sales in the US just seem a little blah.
00;07;05;00 – 00;07;20;00 Unknown All right. Well, thanks, Phil. I really appreciate it. Always an interesting take on things.
00;07;20;00 – 00;07;40;00 Unknown Okay, that’ll do it for this month’s episode of Forecast Update Live. Thank you to our panelists. Thank you to everyone on the Ever.Ag Insights team for their work on the forecast.
00;07;40;00 – 00;08;00;00 Unknown And thank you to the viewers for tuning in. If you don’t receive our forecast update and would like to subscribe, please reach out via email at insight@.
00;08;00;00 – 00;08;15;00 Unknown If you like this video, be sure to subscribe on our YouTube channel, give us a thumbs up, and share it with a friend. We’ll see you next month for another edition of Forecast Update Live.
