In Forecast Update Live, our analysts gather to discuss the highlights of our monthly Forecast Update.
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00;00;09;26 – 00;00;31;08
Hello and welcome to the Forecast Update Live! A video series from EG insights where each month will 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. Erica, run us through the highlights of this month’s forecast and how that might have changed from last month.
00;00;31;11 – 00;00;52;16
Good morning John. Excited to be back for another month of forecasting. In general, our bias is higher as we look at our forecast numbers change. We’ve taken the next couple of months up a few cents. And then as we look at the butter curve, we’re also moving that a bit higher for the rest of the 2024 season. Other than that way, nonfat largely unchanged.
00;00;52;18 – 00;01;05;03
Thanks, Erica. Every month, we ask our panelists to take either the bull or the bear case of the story. This month, Erica has agreed to take the bull case. Erica, take it away and let us know what’s bullish about our market.
00;01;05;07 – 00;01;24;06
Thanks again John. And I think I got the easier end of the stick this month because as I just mentioned, we’re a little bit more bullish on our forecast in general. I would say a big factor behind that is milk production and in general continue to see negative year over year numbers across the major milk producing regions in the world.
00;01;24;08 – 00;01;49;26
So we’ve got the European Union in general feeling a little bit slower now. They were up a half a percent in March, but in general the components are down there. So I think there’s a general sense that the peak is off of spring flush. We may see a little bit more milk stretch into it, but if you recall about two months, three months ago, our folks at Fresh Agenda had put up the warning that we had the possibility for a strong European flush.
00;01;49;27 – 00;02;11;16
I don’t think that’s going to materialize due to the weather as it’s materialized so far this year in the U.S. we continue to see negative year over year numbers. New Zealand also in the negative territory. And I do want to caution that we do have some risks coming up as we think about avian influenza that is continuing to spread across the United States.
00;02;11;19 – 00;02;32;03
And while we didn’t see a huge impact in the month of April, I would say that continues to be a watch out and a risk factor for the entire industry as we think about milk supply here in the US. The other piece is it’s summertime and yes, we have heat every year. But as you look at the temperature maps and the forecasts, it’s going to be a hot summer.
00;02;32;09 – 00;03;07;21
That’s not good for milk production across the United States. And their outlook is for extremely warm weather from the Texas New Mexico all the way up into Idaho. So that outlook is for hotter than average big dairy regions there, less milk supply. The other piece to note, just in the general dairy space is that we are seeing additional promotional features, specials, a lot of retailers, restaurants, ours are recognizing that there are consumers out there that are really driving for value, and they need to provide that value to keep that customer traffic.
00;03;07;25 – 00;03;30;13
We’ve seen McDonald’s, Walmart make some big splashes in terms of features, promotions, reducing that everyday low price, and others having that following suit, creating their own special values. So that definitely has the potential to drive, especially a lot of cheese demand as we see a lot of these features having cheese prominent at the center of the plate.
00;03;30;20 – 00;03;38;01
Thanks, Erica. I appreciate your outlook. Matt. You’ve taken the beer side of the story. What’s bearish out there that we should be keeping our eye on?
00;03;38;02 – 00;04;01;05
I think although I have the bare side of the story, I think near-term Erica certainly wins the day, especially as it relates to supply. But I want to take a longer term view and wave a flag. Historically, it takes six months of profitable margins to trigger expansions in the country. May was the ninth consecutive average profitable month. June will be the 10th.
00;04;01;07 – 00;04;21;17
So if we look at history and how long it takes to trigger a milk supply expansion, where do I think as we stand today, when you talk to producers, they’ll tell you, you know, there isn’t a lot of milk around. It doesn’t stay that way for a and adding to that. I want to remind our viewers that a year ago, in July of 2023, milk production was down by 1%.
00;04;21;17 – 00;04;47;23
And during that month, milk per cow also decreased. Looking ahead, we’re starting to move into a territory where we are having easy to beat comparables and a market that has gotten used to the US being in contraction territory. You know, I could be surprised by more more supply, especially as we get deeper into the year. You know, August, September, October, very real possibility of growth is ahead of us even as we sit today with extreme heat.
00;04;47;23 – 00;05;09;22
We also have all these cheese plants coming online for many of those cheese plants. They’ve coordinated with farmers to build greenfield sites. And so we know that we’re going to have those new greenfield sites populated with additional cows. So we will have a milk supply response. It may not be here today, but it’s certainly coming in an environment where we’ve had a really poor demand.
00;05;09;23 – 00;05;34;20
Generally speaking, that specter of milk growth could wreak havoc on the market. That’s supply. And I’m not sure that I’m doing a very good job of being bearish for right this moment, but I think at least waving the flag for as we get deeper into the year, certainly that would be the bearish view. And then separately, as it relates to exports, what we experienced in March and April is we had very subdued prices for cheese that want us export orders.
00;05;34;21 – 00;05;52;01
And now that we’ve seen cheese prices rally, I expect that those cheese export orders are drying up. That has been a feature of the marketplace for the last more than a year. I don’t know, it’s been some time where when prices were low, we got exports and then as we rose, they dried up and then our cheese prices fell again.
00;05;52;01 – 00;06;13;19
I think that dynamic is still in place. And so although we are, you know, in the midst of a cheese price rally, as we speak, that downward pressure from exports is a significant risk or bearish risk to the marketplace, bigger than U.S. exports, total worldwide exports for dairy. We’re still seeing are struggling to find traction and specifically related to China.
00;06;13;25 – 00;06;21;23
I don’t want to go deep into China on this video, but we are still seeing issues out of China when China catches the flu, we all catch a cold that certainly exists today.
00;06;21;23 – 00;06;43;07
Thanks, Matt. So here in the immediate short term, not the biggest bear case, but longer term, looking forward, there’s reasons to be bearish these prices. Exactly. Thank you Matt. Every month we take an opportunity for Phil to give us a look at his favorite look. Where he does does a wonderful job of showing us something new and interesting about the marketplace.
00;06;43;09 – 00;06;45;06
So what do you have in store for us this month?
00;06;45;07 – 00;07;20;23
Yeah. The favorite look in this month’s forecast update concerns quick service restaurant price inflation. The people at Zero hedge the website. They had this really interesting data set one day showing changes in prices for five items at each of McDonald’s, Taco Bell and Chick fil A today versus the end of 2019. So sort of pre-pandemic levels. And when we wonder about the angst amongst consumers, about high prices, and we hear somewhat disappointing results from a lot of these restaurant chains over the past several months, these numbers put in pretty stark relief.
00;07;20;23 – 00;07;48;29
What’s been going on and why. Maybe people have been who you know and have backed off. You know, McDonald’s has pushed back against some of these numbers, saying, hey, at certain franchisees. And, you know, I don’t know that we can claim these are gospel carved in stone, but directionally they make sense. You know, Chick-Fil-A Chicken Strips $7.95 today versus 439 at in the 19 prosaic, very simple McDonald’s cheeseburger was on the dollar menu at the end of 2019 as much as 315 at certain outlets here recently.
00;07;49;01 – 00;08;11;10
So yeah, Zero Hedge found McDonald’s 100% plus inflation on the five items, Taco Bell 57% and chick fil A 80% increase in prices. And so if you believe that prices matter, we’ve certainly seen a lot of inflation in quick service. And I think we’ve all right. We’ve talked about the people in this group have said, wow, I went to, you know, such and such the other day and it cost me $12.
00;08;11;16 – 00;08;33;01
And I didn’t even get fries. And when we wonder about consumer malaise, consumer angst and slow demand from the restaurant sector, this is why. And to Erica’s bull case point, we are finally seeing a reaction with the hey, we’re going to promote value meals. We’re going to do some different things differently to try to drive traffic because the consumer has had enough.
00;08;33;04 – 00;08;53;29
Well, so I can definitely say, as a father of two girls under the age of ten, I’m an avid consumer of the quick service restaurants that you spoke of on the weekends, and I have been very sensitive to that price just because of the business we’re in. And I’ve been blown away by some of those pricing. You notice, you do notice, and that’s even at those restaurants go to some of the higher end restaurants.
00;08;54;07 – 00;09;19;26
And I think it really starts to inflate from there. Thanks, Phil, for that. Look. That was great. 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 Ever Insights team for their 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 egg.
00;09;19;27 – 00;09;30;19
If you like this video, be sure to subscribe on our YouTube channel. Give us a thumbs up and share with a friend. We’ll see you in next month’s edition of Forecast Update Live.
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