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;18
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00;00;09;20 – 00;00;30;23
Hello and welcome to another Forecast Update Live, a video series from Egg 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 med kit man Gould and Phil Plourde to get us started. Erica, please run us through the highlights of this month’s forecast compared to last months.
00;00;30;24 – 00;00;50;03
Good morning John. It’s exciting to be here talking about our forecast, which is dramatically lower on most commodities across the board. And fundamentally, that’s really due to our expectations of more milk supply coming on faster than we had thought before. So for individual commodities, check out our forecast update publication.
00;00;50;08 – 00;01;03;28
Okay. Well, each month, one of our panelists take the bull side of the story and another panelist take the bear side of the story. This month, Erica has agreed to take the bull side of the story. So, Erica, take us away and let us know what you’re seeing in the market that’s bullish.
00;01;04;00 – 00;01;31;20
John, it’s been fascinating to look ahead in the markets for 2025. And for the many years I was a buyer, as is my usual frame of reference and in my career, I don’t know that I’ve seen as much uncertainty about the upcoming year as I am looking ahead to 2025. With the amount of investment coming online. With the uncertainty of whether the milk supply will be there or not, I think that’s where we could see a fair bit of these bullish moves if things don’t materialize on time.
00;01;31;20 – 00;01;51;28
So from a supply side, as you think about all the new plant investment coming online, the bullish factor would be delays. You know, if start ups are slow, start ups are late challenges in getting good product out the door. That’s certainly can keep the markets tighter for longer. At the same time, will the milk appear to fill those plants?
00;01;51;29 – 00;02;19;05
I think that’s a big question of can you find the cows? Will the milk be available to satisfy all the plants and even have a little extra for some more nonfat production? I think that’s certainly a bullish argument. If the milk isn’t there, if the cows aren’t there. On the demand side, U.S. is still fairly competitive, so that certainly can provide some support and maybe even a bit of a lift to US prices when we start getting calls from Mexico or Southeast Asia.
00;02;19;07 – 00;02;34;13
Our last trade report came out, and we saw some healthy volumes of both cheese and nonfat moving into those regions. So I think as Europe has been a little lighter on milk production, that’s allowed the United States to earn some share in some of those swing developing markets.
00;02;34;14 – 00;02;40;11
Thanks, Erica. Matt, you’ve agreed to take the bear side of the story, take us away and let us know what you’re seeing in the market.
00;02;40;12 – 00;03;01;15
Thanks, John. I want to start with focus on me. I would say the latest data we are extrapolating into the future has been pretty disappointing. As it relates to domestic demand. We’re seeing quick service restaurants really struggle to get traffic. We’re seeing consumers shift from food service back to retail. One of the realities on dairy consumption is that when you go out to eat, you need more dairy.
00;03;01;16 – 00;03;27;13
The demand trends that we’re seeing are resulting in domestic demand growth. That’s that’s almost non-existent or lethargic in the demand environment here at home has not improved. We’ve really had a relatively weak 2024. If we take that same trend and bring it to 2025, where we’re now seeing a milk supply response and we’re seeing all this new capacity come online, it paints a picture where we’re just going to be in surplus of product in when we’re in surplus of product.
00;03;27;13 – 00;03;44;14
I think, as Erica had pointed out, we need to be at a discount relative to the rest of the world to clear that product, to incentivize foreign buyers to come to the US. And so I think the bearish view really can be characterized as a current trend. The demand environment, which is weak, more supply coming. And you put those two things together.
00;03;44;14 – 00;03;45;25
You know you end up with a price negative.
00;03;46;02 – 00;04;04;12
Matt, I know you said it many times before, but when we look at exports like Erica was talking about, sometimes that’s something that can really make us go higher. In this case, I’ve heard you say before, we’re going to need those exports in this situation just to stay afloat simply because of the domestic demand being weaker and the new supply of finished goods.
00;04;04;14 – 00;04;20;26
Yeah. And I think that’s an accurate characterization for the cheese market. I think if we look at, let’s say nonfat dry milk, so a different commodity, it’s a little bit of a different situation. We don’t have a ton of new nonfat dry milk capacity coming online. But then we’re still seeing weak global. And China still is on the sidelines.
00;04;20;26 – 00;04;32;02
And their latest retail numbers that are showing fluid milk sales down on the order of 10%. The global demand environment also remains somewhat subdued here. So some do demand more supply that spells, you know, lower prices.
00;04;32;02 – 00;04;46;29
Matt, thanks for that outlook. Every month Phil brings us what he refers to as his favorite. Look. I know I always love to get a peek at it, and I think it really dovetails into your piece of the conversation. So Phil, take us away and let us know what you’re seeing. That looks so interesting this month.
00;04;46;29 – 00;05;16;10
Yeah. Thanks, John. This month’s favorite look actually comes from Matt’s grab bag of goodies and analysis, and it plays into his story because I think you were talking about more supply from the farm side a little bit there, Matt. But we also have more cheese capacity coming online. And so this month’s favorite looks shows the stacked progression of capacity expansion that’s anticipated in 2025 from a cheese plant perspective, and then plots out the historical growth and demand for your trend in demand against that.
00;05;16;10 – 00;05;35;29
And at some point, you know, the demand trend falls behind the capacity growth, which makes sense, right? We grow capacity in big chunks and then demand grows incrementally into that capacity. We’re adding a lot of investment in 2025. It’s been very difficult for domestic demand to keep up. And that goes right back into the well. What do we do with the extra cheese?
00;05;35;29 – 00;05;48;16
Probably gonna have to export it and at what price. And so that dance, that interplay is a big deal. And this particular look really provides a vivid illustration of the challenge.
00;05;48;16 – 00;06;06;05
If you I think it’s just a great chart. And I know we’ve used different versions of that over the course of the last few months, and it’s been a very powerful chart to me. So I’m really glad that we brought it to the table on today’s. Okay. That’ll do it for this month’s episode of Forecast Update Live. Thank you to all of our panelists.
00;06;06;05 – 00;06;26;22
Thank you to everyone on the Ever AG 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 insight, at Evercore. If you like this video, be sure to subscribe to our YouTube channel. Give us a thumbs up and share with a friend.
00;06;26;26 – 00;06;31;14
We’ll see you next month on another episode of forecast Update Live.
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