In Forecast Update Live, our analysts gather to discuss the highlights of our monthly Forecast Update.
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Hello and welcome to 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 McKee, Matt Gould and Phil Lord to get us started. Erica, please run through the highlights of this month’s forecast. Compared to last month’s.
00;00;31;06 – 00;00;58;18
Good morning, John. Excited to be here with you and the rest of the team today. I think one of the big stories is USDA’s cattle report last week showed a notable downtick in the heifer population here in the United States, and that has a direct spillover into our modeling efforts. As we look at fewer heifers, both in the pipeline and ready to come into the herd, that is going to tighten down milk supplies here in the US from where we had projected previously.
00;00;58;18 – 00;01;13;03
From that perspective, less milk, along with higher demand from the new capacity, we are going to be in a tighter situation, taking prices higher. I would anticipate that that has a greater impact in the class war space, in our balancing products.
00;01;13;06 – 00;01;29;06
All right. Well, great. Erica. Every month, we ask our panelists to take either the bull side of the story or the bear side of the story. And this month, Erica has agreed to take the bear side of the story. So, Erica, take it away and let us know what you’re seeing out there that’s potentially bearish in our market.
00;01;29;07 – 00;01;51;00
So, John, I would say there’s two things I want to touch on in terms of the bear camp. The big headline that everybody’s been talking about is tariffs. Now we’ve got a 30 day reprieve with Canada and Mexico. But it’s only 30 days. We also have 10% tariffs going on with China. So that’s been the big talk. And obviously tariffs are a tax on goods.
00;01;51;00 – 00;02;18;18
It increases the cost to our export countries. It likely leaves more product back domestically if they go into play in the amounts that folks have talked about 25% a lot, that definitely would have a bearish impact on U.S. domestic prices for dairy products. But I think the other and maybe more important to bear story is really demand. We have been talking about demand for a long time that the American consumer is up against inflation.
00;02;18;18 – 00;02;36;20
As we look at a lot of the wholesale numbers, as you look at retail food service, there’s some cracks in the armor there. Foot traffic has been down in food service. I can give a personal testimonial there for our, you know, anniversary dinner. We didn’t go out for a steak dinner. We had steak at home. Now we’re a dairy house.
00;02;36;20 – 00;02;56;09
So we had a cheese board and we had ice cream for dessert. Maybe that is better for dairy consumption. But I think people are definitely feeling that price inflation in that food service space. We are seeing smaller menu tickets. Many of the restaurant tours are complaining that people aren’t sticking around for that second and third drink. They may not be ordering that appetizer.
00;02;56;17 – 00;03;02;17
So I think that is definitely questionable for dairy demand going forward and a bearish note on our markets.
00;03;02;18 – 00;03;24;05
Thanks, Erica. And certainly the last few days here at the CME and and throughout all commodities have been very volatile due to the impending tariffs and potential trade war that was, you know, looming over the marketplace. Okay. Let’s switch gears here and go to Matt. Matt, you’ve agreed to take the bull side of the story. What are you seeing out there that’s potentially bullish for our market.
00;03;24;06 – 00;03;45;27
Speaker 4
Yeah thanks John I want to draw everyone’s attention this month to supply. In previous months we’ve talked about all the new manufacturing capacity coming online. And we’ve talked about supply from that angle. But we’re going to take a step back and talk about supply specifically at the farm level. And if you’re going to paint a bullish picture today, I think the view is all around the lack of milk production that we’re seeing in the US.
00;03;46;00 – 00;04;08;20
Speaker 4
Now USDA stunned markets, if you will. Certainly hit us, I think upside the head with two recent reports. One was the cattle report which shows copper inventories that were tight. The other was the milk production report, where they estimated cow numbers down for two consecutive months and compared to October or USDA is current estimate for Cow numbers are down 14,000 head.
00;04;08;21 – 00;04;27;15
Speaker 4
So in a world where you have new plants coming online, the only thing that you know in terms of its impact on the marketplace is that only matters if you can fill those plants. And so there’s concern around whether we have enough cows or when we will have enough cows. That I think, is the concern that paints the most bullish picture that’s in the US.
00;04;27;16 – 00;04;49;11
Speaker 4
I’m going to also highlight the supply situation in China. In November they had milk production down 8%. So if milk supplies get tight in China and we see any sort of return to normal demand considerations, there will have a much stronger import demand coming out of there. And we are seeing some initial signs of that. But today the bullish picture is supply supply, supply.
00;04;49;16 – 00;04;52;16
Speaker 4
And we’re talking about supply. We’re talking about supply at the farm level.
00;04;52;16 – 00;05;16;10
Well thanks Matt. We had a GDC this morning. And just to point that out without being able to look into the details on the geographic regions, I would just point out that both whole milk powder and skim milk powder were up almost 5%. So likely echoes part of what you’re saying related to China. Okay, it’s time to move to Phil’s favorite look, which is a section of this report that Phil does every month.
00;05;16;12 – 00;05;28;12
Just really highlights something interesting out there in the market, and it really has become part of the highlight of this report for me. So I’ll take it away and let us see what you’re seeing out there. That’s interesting. This month.
00;05;28;19 – 00;05;45;06
Speaker 5
Yeah. At the risk of continuing to beat the same drum, the cattle report, look, it’s not a surprise that heifer numbers are scarce. We’ve been dealing with that beef on dairy breeding. Although it’s not a new story, I think that we expected it to. And the marketplace expected to see those heifer numbers a little bit higher than what came out.
00;05;45;08 – 00;06;10;03
Speaker 5
And so our favorite look this month is replacement heifer inventories. You’ll see from the graph the ratio of replacements to milking cows was 41.9%, down from 42.3 last year, and it’s the lowest level since 1991. The overall cattle inventory situation? Well, we’re looking at dairy cattle. This ties back to beef cattle. The all injury number was the lowest since 1951 in this report.
00;06;10;10 – 00;06;31;26
Speaker 5
And so just illustrating the pretty radical change in heifer availability from 2016 when it peaked to today and just drives from scarcity in terms of replacement animals and raises the price of those animals and makes rapid growth more difficult, doesn’t prevent growth, period. It’s still it prevents rapid milk production growth.
00;06;32;00 – 00;06;50;06
Thanks though, as always, that is a unique look, and I think it’s something that we’ll all be a little more dialed into as we progress through the year here. 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 Ever AG Insights team for their work on the forecast.
00;06;50;06 – 00;07;12;28
And thank you, the viewers, for tuning in. If you don’t receive our forecast and would like to subscribe, please reach out via email at insight at ever Dot egg. If you like this video, be sure to subscribe on the YouTube channel, give us a thumbs up and share us with a friend. We’ll see you next time for another edition of Forecast Update Live.
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