In Forecast Update Live, our analysts gather to discuss the highlights of our monthly Forecast Update.
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00;00;00;20 – 00;00;09;02
VOICEOVER
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00;00;09;05 – 00;00;30;16
JON
Hello and welcome to the forecast Update Live a video series from ever Agg Insights where each month we gather to discuss our dairy market forecast. I’m your host John Spain. Our we’re joined today by erica mackey and matt gould. To get us started. Erica, can you tell us how this month’s forecast might have changed as compared to last months?
00;00;30;18 – 00;00;55;11
ERICA
Hi, John, and hello to all of our listeners. Glad to be here again today. Our forecast has changed largely on the butter numbers. Definitely seen a lot of activity in that market in recent days. We’ve chewed up our nearby, definitely taking things higher by nickels, dimes, maybe even a quarter for the month of February. And then looking forward on the curve, taking that up about a dime for the rest of the year.
00;00;55;13 – 00;01;03;05
ERICA
Couple of tweaks and cheese taking the summertime down a smidge, maybe a nickel or so and a little bit of chewing up in. Weigh in on that.
00;01;03;07 – 00;01;16;13
JON
Thanks, Erica. Every month we like to have our panelists take you to the bull or the bear side of the story. This month, Matt’s agreed to be on the bull side of the ledger. Matt, take it away and let us know what’s so bullish about our markets.
00;01;16;20 – 00;01;37;21
MATT
Yeah, I think if you’re going to have more perspective today, it’s underpinned by a few things. The first is supply. So US supplies through December, we’re still contracting below prior year levels. Milk supplies in Europe have been down and in the growth rates that we’ve seen out of New Zealand have been quite mild. So from a big picture point of view, we just don’t have a lot of milk.
00;01;37;22 – 00;02;02;00
MATT
That’s not necessarily a new backdrop that’s existed for some time, but it’s a fundamental principle, as is just we don’t have a lot of supply here in the US. I’d say over the course of the last 30 days, we’ve picked up more anecdotes of farmers facing pressure from lenders as lenders have tightened availability of money. We continue to see, particularly in the southwest and northwest dairies, ends of the dairy business.
00;02;02;00 – 00;02;19;21
MATT
So I don’t think that there’s a lot to say in terms of seeing a rebound in milk supply. We just haven’t seen the pieces going into place for that to happen. So supplies are tight and so on. Supplies are tight. You know, if you’re going to have low milk prices, you’re going to have to have weak demand. And anything that looks like normal demand growth is frankly, bullish.
00;02;19;22 – 00;02;38;16
MATT
And so as it sits today, I think Erica will hit on demand. And there’s a lot to talk about domestically. But internationally, we are now sitting at discounts to the rest of the world in the case of cheese. And also we’re now approximately at parity in the butter market. And so the question is, are prices here low enough that we’re able to get those export orders?
00;02;38;22 – 00;02;41;07
MATT
And if so, I think you have to wear your bullish hat to them.
00;02;41;08 – 00;02;46;29
JON
Thanks, Matt. Okay, Erica, you’ve agreed to take the bear side of the argument. What’s your side of the story?
00;02;47;01 – 00;03;10;13
ERICA
Well, from the beer perspective, I appreciate where Matt’s coming from on supply being a little bit tighter, but the fact that our prices haven’t gone that much higher, again, speaks to the weakness on the demand side. So a bit of a repeat from last month that I think the weakness in demand is the story of the day. We’ve heard some anecdotes about promotions not being as effective, let’s say.
00;03;10;19 – 00;03;31;28
ERICA
So if consumers are out there and they see a deal 4×4 get the fifth free, that’s not as effective as it used to be, especially if it’s not on the pay day cycle. So if it’s not the first or the 15th, when people have more money, they’re not as apt to pick up a large volume. They just don’t have the money tied up, particularly among that lower income group.
00;03;31;28 – 00;03;55;09
ERICA
And I would say McDonald’s label that as under $45,000 a year in terms of annual income. They’re struggling to really sell to that group where they’ve been trying to offer value, as they mentioned in their earnings call. But actually having to get to the point where you really just have to be at a better price point. So I think that is starting to creep into the food space in general.
00;03;55;12 – 00;04;20;25
ERICA
And specifically, Matt talked a lot about milk supply. But if you think about the individual products, we actually have plenty of cheese. So there’s a little bit of a supply story there that says we don’t have to see a big increase in cheese prices and likely the additional supply is going to keep some pressure on that. And not to forget that we do have a nice powder dryer coming up in the Pacific Northwest pretty soon that will be adding additional supply there.
00;04;21;01 – 00;04;44;07
ERICA
The other piece to the demand side of things is, yes, there’s been some good news in terms of volume moving. But I think back to that McDonald’s story of you do need to be at a price point that is low enough to get people to get demand moving. So, yes, compared to the rest of the world, we are at a discount, but we need to keep that discount in order to be the leverage supplier to the world.
00;04;44;09 – 00;04;55;23
JON
Well, that’s a fantastic perspective from both of you, and I do appreciate it. Every month we like to take this time to share a slide that we call our favorite Look, Erica, take it away and let us know what you brought this week.
00;04;55;24 – 00;05;19;00
ERICA
So a big shout out to our new friends in the Fresh Agenda team for watching the data coming out of Asia. Now, as we think about food and food purchases, I wanted to highlight the inflation rates in places like Indonesia and the Philippines. So what’s different from an American’s perspective? We spend a very small share of our total income on food.
00;05;19;01 – 00;05;52;00
ERICA
If you look at developing nations such as Indonesia or the Philippines, a big share of their dollars are spent just on sustaining themselves and spending on food. So what’s changed in large part from an inflation perspective is the price of rice. So what I could do is overlay that with food inflation. As we look at these two nations and there’s been some very significant droughts in the rice growing areas of Southeast Asia, and they’re seeing and having to prioritize food spending because rice is a staple.
00;05;52;00 – 00;06;19;28
ERICA
Good. And as you think about dairy items in particular, that tends to be more discretionary, more on the periphery, a little bit more of that, that higher end luxury type of goods. So we’re seeing very strong food inflation that people are having to prioritize for dollars, just the basic commodities are where the money is flowing. And so the translation there is we’ve seen imports into Southeast Asia decline pretty significantly.
00;06;20;01 – 00;06;45;16
ERICA
The other factor to that is price matters. So in that smaller pie, we are seeing a winning share by New Zealand, especially when you look at cheese, where New Zealand is taking share. European Union is taking share and the United States is losing big time going into those nations. So something to watch out for as we think about what does demand look like and how does the US continue to export?
00;06;45;18 – 00;07;05;14
JON
Thanks, Erika. As always, it’s just a great look and I always appreciate what the team brings to the table on this. Okay. That’ll do it for this month’s edition of Forecast Update live. Thank you to all of our panelists. Thank you to everyone on the AG Insights team for their work on the forecast. And thank you, the viewers, for tuning in.
00;07;05;15 – 00;07;24;15
JON
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