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;28
VOICEOVER
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00;00;09;28 – 00;00;32;07
JON
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. Our we’re joined today by erica mckee, Matt gould and phil Plourde to get us started. Erika, please run through the highlights of this month’s forecasts as compared to last month’s.
00;00;32;08 – 00;00;54;17
ERICA
Good morning, John. Happy to be here today. So our forecast did have some tweaks this go round in the cheese space. We’re not changing much in the nearby, but certainly as we’ve been talking to people about what 20, 25 looks like, the cheese is coming and our numbers are down by about a nickel or so. The other thing is that spills over into the class four space.
00;00;54;24 – 00;01;17;27
ERICA
Certainly as we look at powder, that market seems very sideways. We flatten the curve for 2024 and then as we get into 2025, that pull between the new cheese and balancing plants, we think that milk is still going to cheese and we’ve taken up our powder numbers in the butter space. Certainly the build has been a little bit slower than buyers would like to see.
00;01;17;29 – 00;01;23;18
ERICA
We’ve taken up numbers in the nearby nickels, dimes, not quarters.
00;01;23;21 – 00;01;32;04
JON
Things that Erica, every month we ask matter, Erica to be the bull or the bear. This month. Matt is agreeing to be the bull. Matt, take it away.
00;01;32;06 – 00;01;56;08
MATT
Thanks, John. I want to highlight three bullish developments that we’re seeing. One is corners of the grocery store where we’re actually seeing not just decent demand growth, but impressive demand growth. Secondly, I want to talk about how our anecdotal conversations are going around milk supply now that we have the latest fundamental data to start the year. And then thirdly, I want to ask the question, how cheap is too cheap?
00;01;56;09 – 00;02;19;10
MATT
Because especially when we look at that cheese market, we’re just too cheap right now from my perspective. First, I want to highlight the area of demand that we’re seeing just just go totally gangbusters. And that’s the dairy protein space. Bellring Brands in their latest quarterly report, their sales are premier nutrition, which is really their flagship brand. We’re up 29% over the last quarter in their track channels.
00;02;19;13 – 00;02;49;11
MATT
Then we had Glanbia, who has the largest market share in the high performance nutrition space. Their sales for their optimum nutrition brand was up 14%. And then it’s not just the powders. It’s also ready to drink that we’re seeing double digit sales growth. And that’s just just a shift in consumer trend, is that we’re seeing customers trade up for higher quality proteins and then trade down or away maybe trade away from what was previously perceived as the diet section of the grocery store.
00;02;49;13 – 00;03;17;29
MATT
So even to the point that we’re hearing stories of grocery stores allocating more space to dairy proteins to take advantage of these trends. So although I think as a team, we would say broadly speaking, demand isn’t going gangbusters. There are definitely pockets where we’re seeing really, really impressive growth. I think it’s important to point out, especially when we think about the protein side or the protein type of products where we are seeing strong domestic growth.
00;03;18;01 – 00;03;49;07
MATT
The second thing I want to talk about is is milk supply. And I’m not sure that we have a lot of real positive things to say about milk supply in our conversations in the southwest northwest California. We’re still hearing stories about farmers being under financial pressure, credit lines being tightened and there being an uptick in farm auctions. So if we if we take the last milk production report, milk production for the US was down 1.1% and we take the cow number in a park.
00;03;49;07 – 00;04;08;26
MATT
If we were even able to hold that cow numbers steady for the rest of the year, which I don’t think we’re going to be able to do, we’d still have cow numbers being a drag on overall milk production by the end of the year. So the milk production situation has not turned at all. If anything, we think we’re still very much in consolidation.
00;04;08;28 – 00;04;34;06
MATT
And then finally, I want to just compare us to the rest of the world as it sits today. Our cheese prices are 40 to $0.50 per pound cheaper than the rest of the world, comparing us on a spot basis to other regions. Our butter prices are at parity, so there’s no reason to bring in international fat. And so I think there’s a good argument to make that says given where prices are for cheese, we just can’t go too much further.
00;04;34;06 – 00;04;36;01
MATT
Gravity is going to pull those prices higher.
00;04;36;06 – 00;04;42;22
JON
Thanks, Matt. I really appreciate. Appreciate your outlook there, Erica. Let us know what’s on the beer side of the ledger.
00;04;42;27 – 00;05;07;08
ERICA
Thanks, John. Interesting that we just had a new teammate start and the question they asked was, gosh, you guys seem pretty pessimistic. Is there any hope? And on the beer side of things, there’s not a lot of demand hope. As we look around the space, especially when you focus in on a middle to lower income consumer, whether that’s here in the United States or around the world, we’ve seen a lot of trade down.
00;05;07;08 – 00;05;34;02
ERICA
And in some places around the world, it’s a trade out. So as we look ahead, we recognize that demand hasn’t been very strong, even up against not very strong supply and prices haven’t been able to move much. Again, just speaking to the weakness in that mainline type of products, if you think about your your basic cheeses, your basic dairy products, the other thing you’ll be watching is restaurants.
00;05;34;08 – 00;05;55;09
ERICA
And we have not seen a lot of good numbers. Whether you’re looking at the higher end restaurants, your quick serve restaurants, even comments from folks like McDonald’s and their CEO talking about really challenged in that lower income bracket to make sure that they’re coming into the restaurants, that they’re their ticket to tend to be a little bit smaller.
00;05;55;11 – 00;06;18;10
ERICA
And people really have to drive for value to attract that demand. And what is that value? It’s price points. And so we’re seeing that from a high inflationary environment. Yes, inflation is slowing down, but it’s on top of multiple years of high inflation. So if you’re looking back, not just the 3% we’re seeing now, but over multiple years, it’s more like 20.
00;06;18;13 – 00;06;41;11
ERICA
And that starts to hurt. And people have to make a choice in their discretionary dollars. The one other thing that I am watching is kind of a key indicator is that European milk supply. So they’re very early in the season, but there’s some early warning that France and Germany might be on the upswing. They’ve had good weather. They’ve had some very strong pay outs.
00;06;41;13 – 00;06;52;25
ERICA
And if you think about the U.S., if we’re 100 in terms of milk output, Europe’s about 160. So for them to be positive year over year, that really matters in the world space.
00;06;53;02 – 00;07;02;19
JON
Thanks, Erica. And if I’m not mistaken, the fresh agenda forecast is actually calling for European milk supplies to grow in the second half of the year.
00;07;02;25 – 00;07;11;26
ERICA
That is correct. So between our friends at Fresh Agenda and other contacts in the European space, there is the chance for some good strong milk growth there.
00;07;11;29 – 00;07;25;10
JON
Boy, that’s something that a lot of people aren’t talking about right now. Thanks for bringing it up. Okay. Every month, Phil brings us what we refer to as his favorite look. Phil, take it away and let us know what’s on your mind this month.
00;07;25;12 – 00;07;50;22
PHIL
But one of the good news stories out there and 2023 was U.S. cheese exports and nonfat dry milk exports to Mexico. Cheese exports were down overall for the year from the U.S. but in Mexico, they were up £55 million, 20% year over year. And so thank goodness for that. You know, if you want to be bullish on these markets, I don’t know where we would have been without Mexico last year given that trade was lackluster elsewhere.
00;07;50;23 – 00;08;15;00
PHIL
So that’s all interesting. But it’s in the past. I think the critical questions going forward are, can we do it again? And so last year, U.S. cheese prices were cheap at a wholesale level. But on top of that, the peso was very strong. Kind of unusual among global currencies. The peso gained against the dollar to the tune of 14%.
00;08;15;02 – 00;08;41;03
PHIL
And so you had U.S. cheese on sale twice. Really. It was cheap at a wholesale level. And it was the purchasing power of the Mexican consumer was up. And so that helped propel things. I’m not sure that cheese prices will be as cheap this year. And I guess I’d be surprised if the peso has another double digit run versus the dollar, although I think Mexico’s economy is really a decent position.
00;08;41;06 – 00;09;07;12
PHIL
But if you want to be bullish, we need Mexico to keep bringing the cheese in because we’re going to keep making it by all accounts. And so that’s our favorite look is the big jump in U.S. cheese to Mexico in 2023 and questions about whether it can continue. I will say we did have a little debate internally around favorite look and the European milk production situation that Erika talked about is our favorite look at number two.
00;09;07;12 – 00;09;12;08
PHIL
A little teaser for you to turn to. Page two of the favorite looks section this month.
00;09;12;11 – 00;09;20;20
JON
Thanks for all. They’re both really interesting topics and I know I’ve been really excited to learn more about both of them through the Insights team.
00;09;20;23 – 00;09;28;19
PHIL
You know what, John? That brings up a point. We are planning on putting out a special report on Mexico sometime in the next few weeks, so stay tuned for that as well.
00;09;28;22 – 00;09;53;14
JON
What else could be better than that? That’ll do it for this month’s episode of Forecast Update live. Thank you to all of our panelists. Thank you to everyone on the AG Insights team for your work on the forecast. And thank you, the viewers, for tuning in. If you don’t receive our forecast update and would like to subscribe. Please reach out via email at insights at ever dot AG.
00;09;53;16 – 00;10;03;27
JON
If you like this video, be sure to subscribe to our YouTube channel. Give us a thumbs up and share with a friend. We’ll see you next month for another edition of Forecast Update live.
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