In Forecast Update Live, our analysts gather to discuss the highlights of our monthly Forecast Update.
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00;00;09;27 – 00;00;33;08
Hello and welcome to another edition of 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 Spey Network, joined today by Erica meek, Matt Gould and Phil Plourde to get us started. Erica, please run through the highlights of this month’s forecast compared to last months.
00;00;33;11 – 00;00;56;27
Hi, John. Thanks for having me back again. Today’s forecast numbers. As we look at cheese, they are up a little bit as we look in the near term through about the middle of next year. On the nonfat those numbers are also up largely through the curve, even in the 25 way numbers up a little bit as well. The one place where we have taken some numbers down is in the nearby butter.
00;00;57;00 – 00;01;04;07
Really adjusting to the correction we’ve seen in the CME market recently. All of 2025 for butter we had left unchanged however.
00;01;04;11 – 00;01;20;06
Thanks Erica. We look forward to seeing the forecast okay. Each month we asked two of our panelists to take either the bull or the bear side of the story this month. Matt has taken the bull side of the dairy market story. Matt, take it away and let us know what you’re seeing out there.
00;01;20;07 – 00;01;45;15
Thanks, John. I want to start with where we sit compared to the rest of the world. Our products released. Many of our products today are on sale and in some cases on dramatic sale. We look at Europe with cheese today, a spot market nearby in the two 40s per pound. International buyers have a terrific incentive to look to the United States and forward contract with us, not just for the remainder of this year, but in the next year.
00;01;45;16 – 00;02;04;18
You know, one of the things that appears to be the case today is that our exports are going to hold up better than I think most people expected. Then, you know, we can look at other products like the high protein whey complex, which continues to be off to the races as we see consumption and high protein whey and dairy proteins in general be very strong.
00;02;04;19 – 00;02;23;18
And then thirdly, in the bull case is China. We’ve seen the Chinese government several months ago announced that they are going to trim the dairy herd. And then most recently, we’ve seen stimulus measures announced out of China, which I think at this point it’s too early to tell exactly what it means. But we can see the stock prices of dairy companies shooting higher.
00;02;23;20 – 00;02;42;13
And we also are tracking inventories in China of dairy products, which are increasingly looking low. So if you’re going to be a bull today, I think it’s largely predicated on this export story holding up in the next year and surpassing expectations. And that’s a bit of a shift in.
00;02;42;13 – 00;02;57;23
Situation that certainly is specifically on the Chinese side of things. That’s the first signs of life we’ve seen out of China. Seems like a year and a half to. Okay, Erica has agreed to take the bear side of the story. Erica, take it away and let us know what you’re seeing.
00;02;57;24 – 00;03;23;28
Thanks, John. And thanks, Matt, for those good insights. Let me start with your China comment, because why would somebody stimulate the economy? So I would say that there’s a underlying issue in the macro economy there. That is certainly concerning. And even if they are contracting their herd, are consumers buying? I think that’s still an open question. That leads me to what I think is the true bear case here is that demand just isn’t that good.
00;03;24;01 – 00;03;59;10
Whether you look to China here in the United States, European or other developing countries around the world, that’s a real challenge right now. When we talk to people domestically, you know, there are some people winning, but there’s usually somebody else that’s losing. It seems to be more about trading share than it is really about increasing consumption. And for consumers, I think price still matters, especially in this very inflationary environment, that when we see retail prices go up, we do see volume go down and there’s a delay between when we see wholesale prices go up and when the consumers actually see that price.
00;03;59;12 – 00;04;24;25
So I think we still have more price transmission yet to occur. So consumers will see higher prices yet to come this year and maybe even into next year. And then finally, I think from a bear perspective, we’ve all been talking about the $7 billion of additional dairy plant capacity coming online. I’ve just been working on updating that map, and we are seeing at least three more additions, expansions, new investments going in.
00;04;24;26 – 00;04;35;13
Most of them, I would say yesterday, are brownfield, but we’re still seeing people invest in this industry producing more dairy products, and that’s likely to add some downward pressure to our markets.
00;04;35;19 – 00;04;44;01
Thanks, Erica, and thank you, Matt as well. Okay. Every month still brings us what he calls his favorite look. And I’m excited to see it. So take it away.
00;04;44;01 – 00;05;01;21
Speaker 5
So thank you John. First of all I found some data a few weeks ago on frozen pizza sales in the United States. And look, Americans love pizza. We average per capita 40 pizza pies per year per person in the United States. It’s basically 9/10 of a slice per day. And I would say I would probably be on the over on that personally.
00;05;01;23 – 00;05;29;20
Speaker 5
So we love pizza. But here’s the reality pizza has gotten expensive out of the house. We’ve seen the big restaurant pizza chains. They reported very lackluster results, generally speaking, for Q1 and Q2. Part of the commentary around that was that prices have just gotten high concurrently. Now, we’ve seen data that’s on this favorite look, showing frozen pizza sales up by double digits on a volume basis in the U.S. over the last four reporting periods.
00;05;29;20 – 00;05;59;19
Speaker 5
And we just think this reflects the larger story about food at home, inflation versus food away from home inflation, the migration back to grocery stores and eating at home, and some of the impacts of such. I think it’s interesting at that level, but I think when you look at those price gaps, it’s sobering or it’s material. I do a little bit of research in the Madison, Wisconsin market last weekend, I looked at five pizza chains here in Madison, and I came up with an average price of $12.87 for a medium pepperoni pizza.
00;05;59;22 – 00;06;15;07
Speaker 5
Pretty simple stuff. The low end was 7 or $8. The high end was, you know, close to $15, if I recall correctly. So family of four, you know, a medium. I mean, I can eat a medium pepperoni pizza myself, right? It’s that can feed a family of four. So you’re talking, you know, 30 bucks if you want to delivered.
00;06;15;07 – 00;06;34;14
Speaker 5
I mean, you’re pretty big numbers. Whereas the frozen pizzas. I looked at five brands, including the Walmart house brand, $5.09 average. And so, you know, I think for that kind of price gap, I think we’re seeing some shift to at home pizza consumption. Again, it could ebb and flow. So I do think we are seeing this gravitating towards at home a little more intensity.
00;06;34;14 – 00;06;51;01
Speaker 5
The restaurant businesses are generally flat. The big question from a demand perspective is are we losing cheese consumption? Take out pizza versus home pizza. I think the answer is a little bit. So folks in that area say, well, why don’t you put some extra mass on your frozen pizza? I’ve never heard of that from anybody outside the dairy industry, so I’m not sure how common that is.
00;06;51;02 – 00;07;04;21
Speaker 5
I would say there’s some of that going on. So I think it’s a fascinating take on the at home away from home menu price inflation dynamic, as well as ask some questions about overall cheese consumption. So that’s our favorite look this week I love this one. In case you didn’t notice.
00;07;04;27 – 00;07;25;14
Yeah. So I’ve talked with you about this several times in the last couple weeks. So I’m excited to have you where we’re here okay. That’ll do it for this month’s edition of Forecast Update Live. Thank you to our panelists. Thank you to everyone on the Drag Insights team for their work on the forecast. And thank you, the viewers, for tuning in.
00;07;25;16 – 00;07;45;26
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