Forecast Update Live: Exports vs. Demand in the June Dairy Outlook 

Transcript

Let’s start today with an update on the dairy forecast. Kathleen, what have you got? Well, Phil, we’re heading into the June forecast. We’re getting close to the second half of the year. I’ll tell you what. We’re not making many changes to our forecast. Fairly neutral view on cheese compared to what we saw in May. We’re making some adjustments to the butter market in just the nearby months.

Nonfat similar story. Fairly neutral view compared to what you saw in our May forecast. Similar story for way. That’s it. Phil so you’re not bringing us much is what you’re saying, Kathleen. Yeah. No real big changes. I think that’s okay. We don’t have to have big changes every month. All right. Each time we do this, someone takes the bull story.

Someone takes the bear story and makes their arguments. This month, Melissa has the bull case, and she will go first. Hello, Melissa. Hi. Phil, I’ve got the bull story for today. And the story is exports. We have seen strong exports in cheese and butter and way. And this is really alleviating any supply overhang that we may be carrying.

US prices have been competitive on the global landscape. So if we lose that somehow there’s going to be issues. But for right now, you know, just looking at global butter prices and where the US is at, pretty pretty low cheese I mean there’s not a ton of room on cheese, but it looks like there’s a little real estate.

So, you know, we saw European cheese prices falling earlier a few months ago. That seems to have stabilized, even recovered a little bit. So we got to keep these exports rolling. But right now it looks like we’re we’re in gear. Is that your. That’s the view. Yeah. Yeah I think we’re we’re set up now in these markets to not have the heavy drag.

So it’s feeling a little bullish to me. Moving product overseas or out of the country is the bull story. Kathleen what’s the bear story. Phil to me the bear story is domestic demand. When I look at some of the foot traffic data, doesn’t really tell me a great story about where consumers are sitting. Today, we’ve seen QSR foot traffic that’s down for five weeks in a row, and by a meaningful margin, we have overall restaurant foot traffic that hasn’t been doing much.

The retail sales data, least on the cheese side, hasn’t been anything to shout from the rooftops about. A little bit spicier on butter, with some pretty good promotional activity helping to move the needle there. But generally, as I look at inflationary pressures from higher energy costs, primarily on the gas side of things, I think that there’s some real headwinds for us consumer demand for dairy.

Sure, we’ll still see fairly good demand for high protein products, which have been a real driver here. We’ll still see some growth on the fringe as value remains a key focus for consumers. But ultimately, I think that there are some serious headwinds from a US consumer perspective, which makes the export picture that much more important. Yeah, I mean, these these two stories fit together nicely.

Gasoline prices, they haven’t gone another level higher, but they haven’t gone down materially either. The last I think right. Correct me if I’m wrong. In the last data we saw on QSR traffic I think was down more than 5% year over year. Right. The last week we have measurement for yeah it’s a down 5.5%. Yeah. So you know not only are we down we’re we’re down by an increasing margin.

And so I think that ought to have people concerned because, you know, a fair amount of cheese anyway goes through those channels. Absolutely. And unfortunately, things like pizza and burger chains are not performing all that well. Those tend to be heavy cheese users. We haven’t noticed. Phil, what do you have for us for this month’s favorite look? Well, we’re coming at it from a little bit different angle this month, but we saw a story in the Wall Street Journal a couple of weeks ago that that focused on farm finance.

Now this is farm finance writ large, not just dairy farmers. I think dairy farmers are probably doing better than the average farmer general farmer. But high fertilizer prices again, another piece of the same story, high energy prices has translated to really, really skyrocketing fertilizer prices, much higher diesel prices. And so just and just sort of lingering inflationary effects for labor and materials of all sorts has farmers seeking more capital.

So that’s our favorite look this month. Farmers seeking more capital. According to a recent story in the Wall Street Journal. Many farmer customers are depleted. Their work have depleted their working capital over the last several years. Just this creeping cost and now this fertilizer things hitting hard. And so this measure shows the farm loan demand index reaching some of the highest levels we’ve seen since 2013, 2014, even above the 2022 inflationary levels.

So farmers need more money and there’s not a crisis. But with corn prices, you know, so so soybean prices, not all that great. The row crop sector is.

If not in trouble, they’re certainly not thriving. And so yeah dairies good cattle is good hogs. So so farmers are seeking more capital. And they’re going to see more stories about trouble in farm country as these lending activities go up. As it turns out, a new chopper, a new combine, a new grain cart. They’re not cheap, right? No, I mean, the cost of some of these things are staggering.

I mean, you can, you know, you start talking like these, like big, big combines. You can spend a million bucks on a combine easily. And, you know, it’s all it’s all big girl, big boy money involved in some of these. You know, you want to build it at 8000 Cow Dairy Farm. You’re looking at 50, $60 million plus.

So it’s not it’s not monopoly money we’re dealing with here. It is real cash. And it has larger implications on the on the rural economy. If you’re not buying the combine every five years, that impacts John Deere. That impacts the local implement dealer right. And dealer that you know all of the above. So interesting. Take Phil happy to provide it and very happy to do this show today.

That’ll do it for this month’s episode of Forecast Update Live. Thank you to Kathleen and Melissa for being here. Thank you to everyone on the Everett Insights team for their work on the forecast. And thank you, the viewers, for tuning in. If you don’t receive our forecast and would like to reach out via email to insights at ever, and if you like this video, be sure to subscribe to our YouTube channel, give us a thumbs up and share us with a friend.

We’ll see you next month for another edition of Forecast Update Live.