Forecast Update Live – September 2023

00;00;00;20 – 00;00;09;14
VOICEOVER
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00;00;09;16 – 00;00;31;26
JON
Hello and welcome to Forecast Update live. A new video series from ever.ag insights where each month we will gather to discuss our dairy market forecast. I’m your host, John Spinner. We’re joined today by Erica Maedke, Matt Gould and Phil Plourd to get us started. Erica Maedke is going to lead us through our forecast. Erica, are there any changes to this month’s forecast.

00;00;31;28 – 00;00;59;26
ERICA
Hi, John. Thanks for having me. As we look ahead to our September forecast, we have made a few changes on the cheese market. Our near term, basically the rest of 2023, we’ve taken a bit higher. What are the big changes back half of 2024 as we look ahead to where do we think buyers are setting budgets? Generally, we think it’s going to be a little bit higher to nickel dimeish type of range in the next year.

00;00;59;29 – 00;01;10;16
ERICA
And then as we look at the current state of the nonfat, dry stock market, we’ve taken quite a whack at that again, in that nickel dime range for the next 12 months or so.

00;01;10;19 – 00;01;15;15
JON
Matt, you agreed to take the Bear case this month. I’m interested to hear your side of the argument.

00;01;15;15 – 00;01;44;19
MATT
Thanks, John. I want to start with a Jerry Drierism. Jerry Dryer was the chief market analyst at Rice Dairy for some time. And what he would say today is if the market doesn’t rise on on bullish news, it must be bearish. And so, you know, when we think about just the picture in the United States where we have declining milk production, we have relatively subdued milk prices, at least at least compared to any other time when we had this type of a milk supply.

00;01;44;21 – 00;02;16;08
MATT
You have to wonder how bad is demand out there that even with milk production declining, we we have struggled to rally our cheese market at two bucks in our milk powder prices are still on descent. And so, you know, if we’re if we’re going to make the bear case today is totally driven by demand. And there’s issues with domestic demand as consumers are backing off in a still high inflation or at least high food inflation environment.

00;02;16;10 – 00;02;40;17
MATT
And then we also have to talk about exports, where the US is uncompetitive globally when we have a weak China. And so everywhere we look, we see some amount of demand crack. And that’s the case today is that demand really stinks. And if we look forward to an environment where we’re know seasonally have more supply, I think there’s reason to believe that it spells trouble.

00;02;40;22 – 00;02;56;17
JON
You’re right, Matt, That’s an old trading axiom that’s been around for a while, and Jerry certainly like to share that axiom with us every once in a while. Erica This month you’ve decided to take the bull side of the coin. I’m interested to hear how you might refute Matt’s argument.

00;02;56;18 – 00;03;17;25
ERICA
Well, I appreciate Matt’s comments about demand. And let me start off by saying supply is the other half of the equation. As we look at areas of the United States, particularly Southwest, that’s been a mess. We are definitely short of milk in those areas. Hearing about some of the base access plans being modified to allow for more milk.

00;03;17;28 – 00;03;42;28
ERICA
Reports coming out of Europe that there’s been some heat there and seeing some declines in milk output and the demand side. I don’t know that it’s quite as bad as Matt is talking about. As you look at some of the consumption numbers and usage for butter for cheese at retail, we’re still moving in positive territory. Consumers do seem to keep spending even if the economic news doesn’t look really rosy.

00;03;43;00 – 00;04;14;12
ERICA
The other thing, as we look in the short term coming up, we’re coming into the seasonally strong part of the year for demand. So I think there is a bump as we think about going into the holidays and filling those supply chains. Other interesting note, some folks have been talking about the high protein whey market starting to firm a little bit, which again, if you want to go back to some of those axioms that whey leads the way or way is the canary in the coal mine to see that starting to firm certainly gets my attention.

00;04;14;15 – 00;04;39;05
ERICA
And then finally, as we look globally, it’s not like places like China are sitting on their hands, just allowing a bad economy to happen. The government is trying to stimulate the economy. There is activity in China. They were definitely buying at this last GDT. The other really strong bull note is Mexico. And I think Phil’s got a little bit for us on that.

00;04;39;05 – 00;04;47;21
ERICA
But Mexico has been up in terms of overall volume this year for both cheese and powder coming from the United States imported into Mexico.

00;04;47;28 – 00;05;06;20
JON
Thanks, Erica. You and Matt would both be far better at the debate team than I would have been. So I appreciate your willingness to have those arguments. So you always have a unique perspective every month that you like to bring to us. I think you call it your favorite look. I’m interested to see what you’ve got on deck this week.

00;05;06;23 – 00;05;32;00
PHIL
Yeah, this month’s favorite look deals with Mexico and specifically the strong peso. The U.S. dollar has been reasonably strong this year. It’s been defying expectations in that to that degree. But the peso has been an outlier. It is up 14% year to date versus the U.S. dollar. And that translates into increased purchasing power for Mexico, which is already our most important trading partner for products like cheese and milk powder.

00;05;32;03 – 00;05;56;13
PHIL
But the stronger peso is essentially cheapened the cost in U.S. dollar terms. And so if you think about it, through the first six months of 2023, U.S. cheese prices were down 18% year over year in dollar terms. But when you adjust that with the peso strength for Mexico, the U.S. cheese market has actually been 28% cheaper year over year.

00;05;56;18 – 00;06;19;06
PHIL
So it’s like a one third off price for U.S. cheese for Mexico. We think that clearly played a role in sparking record levels of U.S. exports of cheese and powder down to Mexico for the first part of this year. And we think that, you know, the economic situation out there looks pretty stable. They are having some milk production struggles, much like what we’re seeing in the U.S. Southwest.

00;06;19;09 – 00;06;23;28
PHIL
And so we think Mexico is going to be a good news story on multiple fronts. To your end.

00;06;23;29 – 00;06;45;06
JON
Thanks, Phil. As always, you bring a unique perspective, and I think that is a great segway into Erika’s talk about demand not being so bad, especially in certain export regions of the world. That’ll do it for this month’s episode of Forecast Update live. Thank you to all our panelists. Thank you to everyone on the Ever.AG Insights team for their work on the forecast.

00;06;45;06 – 00;07;08;20
JON
And thank you, the viewers, for tuning in. If you don’t receive our forecast update and you would like to subscribe, please reach out via email at insights at ever.ag. 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.