In Forecast Update Live, our analysts gather to discuss the highlights of our monthly Forecast Update.
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00;00;09;21 – 00;00;32;04
Hello and welcome to another edition of Forecast Update Live, a video series from Ever AG Insights, where each month we will gather to discuss our dairy market forecast. I’m your host, John Spain Hour. We’re joined today by Erica McKee, Matt Gould and Phil Floor to get us started. Erica, please run through this month’s forecast and let us know what’s changed.
00;00;32;05 – 00;00;53;11
Good morning John. Happy to be back again this month. In general our forecast outlook is lower. Certainly tariffs have played into that bearish sentiment in the markets. But I do think a lot of the fundamentals are coming to bear. And as we look ahead our biggest cuts are in the butter market. Most notably more than two times in some months in the nearby.
00;00;53;12 – 00;01;15;09
But it’s taking 2025 down. In general we look at nonfat and cheese. We’re going to take up, let’s say, a nickel or so out of the the next quarter, next half of the year. Generally, again market sentiment feeling a bit heavy. I think there is still concern for the back half of 2025 with the new capacity. Is there going to be enough milk?
00;01;15;09 – 00;01;20;15
We still think there is the potential for some tightness. No changes in our outlook for way.
00;01;20;18 – 00;01;35;21
Okay. Well every month we ask our panel to discuss either the bear side of the story or the bull side of the story, and we alternate who gets to take each side. This month, Erica has agreed to take the bull side of the story. Erica, take it away and let us know what you’re seeing out there. That looks bullish.
00;01;35;22 – 00;01;52;17
Thanks, John. And you know, when everybody’s on one side of the boat and I feel like a lot of folks are in the bearish side, it’s good to be on the other side. So as we think about what could take this market higher certainly we’ve corrected lower. So we’re starting from a lower base. There’s a lot more upside.
00;01;52;19 – 00;02;13;23
But I think that the real key factors here are on the supply side. That’s where our big risk is in the markets today. My concern is in Europe we continue to see less milk coming out of the two major nations in Europe. Both Germany and France are down, whether that’s bluetongue related and ongoing health challenges there, whether that’s structural.
00;02;13;25 – 00;02;37;17
And we continue to see retirements, maybe that’s ongoing regulatory costs that we’re just not seeing more farms. Whatever way you want to look at it, we are seeing less milk and a concern going on for Europe. And I think as the world’s largest milk producing region, that’s a concern. Even in the short term. We are feeling a bit of a squeeze in the butter market in Europe, and that can have the consequence of spilling over into the world market.
00;02;37;23 – 00;02;58;17
I think back here at home in the United States, my concern is cows. We did see cattle number in January. On the lighter side, the U.S. herd down 40,000 cows and if you’ve been watching slaughter rates over the last two years, we continue to send fewer and fewer cows into slaughter, which implies that our herd is getting older.
00;02;58;18 – 00;03;24;02
So if we get to a situation where prices get too low, farmers aren’t seeing the profitability. And I wouldn’t necessarily say we’re quite there yet. Maybe $17 starts to feel a pinch if we start pushing towards 16 or $15 100 weight on the farms, you know, does that pencil out for sending more cows to slaughter? And certainly with beef prices have corrected over the last couple of days along with the rest of the commodity markets.
00;03;24;05 – 00;03;52;11
But cull cows still have a strong value, and that might be an easy off ramp either for a couple of old cows or maybe even some herds to be able to say, you know, this milking thing isn’t for us anymore. So I would say there is still a concern, particularly in the back half of 25, as we see farms adjust to tighter profitability, tighter margins, that it could very easily see fewer cows hanging around at a time when the industry is looking for more milk.
00;03;52;16 – 00;03;59;24
Okay. Thanks, Erica. Matt, you’ve agreed to take the bears side of the story. Let us know what you’re seeing on the market that it looks bearish this month.
00;03;59;25 – 00;04;18;22
Thanks, John. And I think I have the easier argument to make today. Over the course of the last month, it’s been pretty astounding to watch sentiment shift so hard in a bearish way. And the reasons for it. I think there’s a supply component and we’re going to talk about that. But then there’s also a demand component. So starting with with supply.
00;04;18;26 – 00;04;41;07
By no means are we sitting with a wall of milk facing us today or what we are seeing is we’re starting to see the trend reverse where we are returning to growth. I want to call out California, where in January was only down 5.7% after being down 8% in December. So we’re seeing a recovery from HpaI. Cow numbers are up year over year in ten states.
00;04;41;07 – 00;05;01;25
And most importantly, milk fat components are rising dramatically. And they’ve risen, so much to the point that cream markets have become sloppy and in fact, probably the sloppiest a band. Maybe even since the pandemic, we’ve definitely seen I’d say over the course of the last month, the trends that suggest it looks like the supply side of this market is becoming looser.
00;05;01;25 – 00;05;22;19
At the same time, we have been having new plants ramp up in New York, Kansas, Texas and South Dakota, and I think we’ve started to feel the impact of those plants on our cheese market specifically. But when we go on, we add up to see how full all of those plants or less than a third. So we still have another two thirds to go to fill up the new stainless steel.
00;05;22;19 – 00;05;42;21
And so we haven’t yet seen what could be, possible cheese production. To Erika’s point, if you want to be, bullish, you have the view that we just won’t make the milk. Certainly the bearish view today is that we do fill up those plants. And that would be a very price negative. Now on the demand side of things and I would say this is where we’ve seen the most change over the last month.
00;05;42;22 – 00;06;11;10
Broadly speaking we’re hearing about headwinds related to domestic demand. February was a particularly disappointing month for food service. We’re also hearing demand complaints more generally, I would say at grocery as well. We picked up kind of anecdotally, just a slowdown in the consumer environment domestically. What that means is that we have more supply, less domestic demand. We are very dependent on export markets right now for cheese, butter and whey.
00;06;11;10 – 00;06;34;08
And now with retaliatory tariffs from China and potential retaliatory tariffs from Mexico up in the air anyways, I it remains of the export side remains a very large wild card. So you take it together with with this supply situation which seems that there’s more supply and domestic demand that seems less robust, can see today it was the easier side given the bearish talking points.
00;06;34;10 – 00;06;42;18
Thanks, Matt. Okay. Every month so brings us what he refers to as his favorite look. So what do you have for us this month?
00;06;42;18 – 00;07;12;11
Thanks, John. The three favorite looks in this month’s report are all good, but my favorite of the favorites is one covering fourth quarter sales for Big Pizza, Domino’s, Pizza Hut, Papa John’s all publicly traded, all report results and they were not good for Q4. Domino’s was positive with same store sales up 4/10 of a percent. But that’s the worst showing for Domino’s since Q3 of 2023.
00;07;12;13 – 00;07;33;29
Pizza hut comp sales were down 2%, Papa John’s down 4%. It’s been more than a year since those chains were in positive territory. And then, you know, you have to keep in mind that these are dollar sales comps. Menu prices are up in the meantime. So the actual performance in terms of volume is even worse than those dollar sales numbers imply.
00;07;34;01 – 00;07;53;21
We’re not picking on the big three here. I’m not convinced that medium and small companies did much better. We’re dealing with inflation, tight consumer conditions, and we watch these numbers because pizza is a huge consumer of cheese. If you want it to be bullish the cheese market you want to see big pizza, small pizza medium pizza all doing well.
00;07;53;23 – 00;08;01;11
And that doesn’t seem to be the case in Q4. It wasn’t the case in Q4. And even today, the notes we’re hearing aren’t positive.
00;08;01;13 – 00;08;22;22
Thanks, Phil. That is a great segue as it comes out of Matt’s conversation on the bear side related to domestic demand. 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 Egg Insights team for their work on the forecast. And thank you, the viewers, for tuning in.
00;08;22;24 – 00;08;42;25
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