The KDM Dairy Report 04/18/2019

04/18/2019

In a holiday-shortened week, spot blocks managed to keep moving higher, but the aggressive barrel buyers from last week disappeared, allowing sellers to steadily offer loads lower. When the dust settled, barrels gave up over a dime from last Friday’s close. Butter and NDM also finished higher, but dry whey sagged under continuing supply-side pressure and weak demand.

Spot Market Recap
Spot Product4/124/18Change
Cheddar Blocks$1.6450$1.6675$0.0225
Cheddar Barrels$1.6175$1.5150($0.1025)
Butter$2.2575$2.2825$0.0250
Grade A NDM$0.9875$1.0000$0.0125
Dry Whey$0.3575$0.3400($0.0175)

 

Spot Market Trade Volume
0
Blocks
0
Barrels
0
Butter
0
Grade A NDM
0
Dry Whey

Class III futures had a weaker tone much of the week, but with the spot cheese average moving slightly higher, the front months closed out the week higher, with small losses seen further out. Despite spot dry whey finishing the week higher, dry whey futures continued their downward trend.

Futures Recap
Futures MonthClass III 04/12Class III 04/18ChangeCheese 04/12Cheese 04/18ChangeDry Whey 04/12Dry Whey 04/18Change
Apr-19$15.92$15.92$0.00$1.644$1.642($0.002)38.875¢39.000¢0.125¢
May-19$15.78$15.69($0.09)$1.634$1.620($0.014)38.350¢38.275¢(0.075¢)
Jun-19$15.83$15.95$0.12$1.643$1.650$0.00737.600¢37.750¢0.150¢
Jul-19$16.12$16.19$0.07$1.673$1.675$0.00237.500¢38.000¢0.500¢
Aug-19$16.33$16.42$0.09$1.695$1.701$0.00637.475¢37.525¢0.050¢
Sep-19$16.51$16.65$0.14$1.709$1.719$0.01038.000¢37.750¢(0.250¢)
Oct-19$16.51$16.65$0.14$1.713$1.729$0.01637.825¢37.825¢0.000¢
Nov-19$16.40$16.58$0.18$1.704$1.724$0.02037.900¢37.900¢0.000¢
Dec-19$16.23$16.42$0.19$1.690$1.705$0.01537.600¢37.600¢0.000¢
Jan-20$15.99$16.10$0.11$1.670$1.680$0.01037.625¢37.625¢0.000¢
Feb-20$15.96$16.05$0.09$1.662$1.676$0.01438.000¢38.000¢0.000¢
Mar-20$15.97$16.08$0.11$1.661$1.676$0.01537.900¢37.900¢0.000¢
12 Mo Avg$16.13$16.23$0.10$1.675$1.683$0.00837.888¢38.000¢0.113¢

 

Futures MonthButter 04/12Butter 04/18ChangeClass IV 04/12Class IV 04/18ChangeNDM 04/12NDM 04/18Change
Apr-19227.725¢227.525¢(0.200¢)$15.87$15.77($0.10)96.900¢96.700¢(0.200¢)
May-19228.525¢230.000¢1.475¢$16.14$16.25$0.11101.050¢101.250¢0.200¢
Jun-19230.500¢232.700¢2.200¢$16.43$16.61$0.18103.150¢104.250¢1.100¢
Jul-19232.325¢234.525¢2.200¢$16.63$16.83$0.20104.700¢106.000¢1.300¢
Aug-19233.950¢236.000¢2.050¢$16.80$16.97$0.17105.700¢107.250¢1.550¢
Sep-19234.600¢236.975¢2.375¢$16.89$17.10$0.21106.750¢108.625¢1.875¢
Oct-19233.325¢235.450¢2.125¢$16.95$17.10$0.15107.200¢109.375¢2.175¢
Nov-19231.450¢232.900¢1.450¢$16.89$17.06$0.17108.400¢109.975¢1.575¢
Dec-19227.300¢228.400¢1.100¢$16.80$16.93$0.13109.100¢110.675¢1.575¢
Jan-20222.000¢222.900¢0.900¢$16.63$16.77$0.14110.500¢110.500¢0.000¢
Feb-20220.700¢221.050¢0.350¢$16.60$16.80$0.20111.400¢112.000¢0.600¢
Mar-20221.000¢221.350¢0.350¢$16.70$16.84$0.14112.000¢112.225¢0.225¢
12 Mo Avg228.617¢229.981¢1.365¢$16.61$16.50($0.11)106.404¢107.402¢0.998¢

 

Commentary

Dairy cow slaughter for the week ending 04/06 totaled 66,100 head, up 8.4% vs. the same period a year ago. The stronger cull, likely a result of higher farm liquidation, is being felt across the country. Dairy Market News updates this week discuss a lighter than expected flush in many parts of the country. Concern is growing among the ranks of processors what milk availability will look like after spring. Raw milk production is reported to be below year ago levels, especially east of the Rockies, setting up for an almost certain Milk Production report with a negative output number at some point.

Cheese demand appears to be very good on the domestic side, even described as “booming” in the Midwest. That may be why the weekly cold storage numbers released on Wednesday showed a 6% (5.2 million lb) decline in cheese stocks at USDA-selected storage centers over the first 15 days of April. That is a counter-seasonal drawdown. In addition, the U.S. Dairy Export Council reported this week that cheese exports during the month of February surged 16% to the second-highest total ever. South Korea purchased the most in nearly four years, up 71%. Other export category leaders were fluid milk and cream, up 30%, butterfat up 34% and whole milk powder up 64%. On a total milk solids basis, the U.S. exported the equivalent of 14.3% of its milk production in February, recovering from 12.5% in January.

On the international side, there was a GDT auction this week, with the index climbing for the 10th consecutive time, up 0.5%. Cheddar cheese increased 1.4% to a U.S. equivalent$1.96/lb.

Despite a drop in the spot cheese price this week, Class III futures finished mostly higher. So did all other dairy futures contracts. The writing appears to be on the wall. Despite continued heavy stocks in some product categories and strong cheese output in the West, the trend towards a smaller herd and thus lower milk production is motivating buyers. Excess product can disappear quickly, given the right circumstances. Recognition is growing that a fundamental shift between supply and demand is underway. The higher prices currently seem are too little, too late for a growing number of operations. While we could still experience some softness in the market near term, as we continue through peak production season, longer term we are getting more bullish. Producers should get more aggressive in covering fixed contracts. Call us if you need some help putting together a strategy.

NOTE: Our offices will be closed tomorrow in observance of Good Friday. On behalf of all of us at KDM Trading, we wish you a very blessed Easter!