The KDM Dairy Report 05/10/2019


Spot cheese prices finished the week at $1.69 block/barrel average, finally breaking through the resistance level we’ve been highlighting the last few weeks, and a level not seen since November 2017.

Spot Market Recap
Spot Product5/35/10Change
Cheddar Blocks$1.6750$1.6800$0.0050
Cheddar Barrels$1.6625$1.7100$0.0475
Grade A NDM$1.0525$1.0675$0.0150
Dry Whey$0.3475$0.3475$0.0000


Spot Market Trade Volume
Grade A NDM
Dry Whey

With spot cheese prices hitting a multi-year high, one might have expected Class III and cheese futures to finished the week higher, but that was decidedly not the case. Last week’s Dairy Product Report highlighted the fact that dry whey inventories were growing, despite a big drop in output, due to demand destruction from the African Swine Virus. While spot dry whey finished the week unchanged with no trades, dry whey futures tumbled, with many making new contract lows.

With each penny lower shaving 6 cents off the Class III calculation, the drop in several futures contracts took 30-36 cents off of potential Class III settlements. As a result, Class III futures finished in the red, with double-digit losses June through March.

Futures Recap


Futures MonthClass III 05/03Class III 05/10ChangeCheese 05/03Cheese 05/10ChangeDry Whey 05/03Dry Whey 05/10Change
12 Mo Avg$16.68$16.40($0.28)$1.732$1.730($0.003)37.315¢38.000¢0.685¢

A tightening cream supply and good demand saw both butter and Class IV futures finish the week higher, but NDM gave up some ground.

Futures MonthButter 05/03Butter 05/10ChangeClass IV 05/03Class IV 05/10ChangeNDM 05/03NDM 05/10Change
12 Mo Avg230.406¢232.042¢1.635¢$17.07$17.15$0.08111.031¢111.002¢(0.029¢)


This week’s GDT auction saw the dairy price index gain 0.4%. Prices rose for the 11th consecutive event, but the increases are getting smaller. Cheddar cheese prices declined 2.4%. Tariffs appear to be punishing exports. The USDEC reported this week that total dairy exports in March were down 12% compared to a year ago. Sales to China were cut in half, with total dry whey exports plummeting 22%. WMP exports decliend by an even stronger 33%. One bright spot; record amounts of cheese were exported during the month, with new and growing markets found in South Korea, the Middle East and Central America. Total cheese exports in March were 10% higher than a year ago.

Moving along to this week’s Dairy Market News updates. Milk production in the EU has not met expectations so far in 2019. Feed quality issues and the lingering effects of last year’s drought has many disappointed with current EU output, which typically peaks in May. Demand for EU cheese is strong, but the lower milk production is keeping cheese output less than desired. Cheese inventories are being poached to meet current demand, with May production already sold. Cheese prices are expected to increase soon.

Here in the U.S., peak production has yet to cause any issues. In the Midwest, spot loads of milk are still trading just above or below Class, significantly higher than the past couple years. Cheese demand is good throughout much of the country, with grilling season giving barrel demand a boost. Western cheese producers even report that much of current cheese output is committed and supplies are a bit snug. Concern is growing among processors what milk availability might look like later this year. Cream availability has taken a hit across all regions, limiting churning activity. Stocks are still in good supply, but some contacts expect a spike in prices this fall. The tone for NDM has gotten more bullish as well, due to a tightening market for recently produced powder.

USDA reported that May 1st hay stocks are the lowest since 2013 and second lowest since 1950.

This corresponds to contacts we’ve talked to in the Midwest where a lot of winter kill was seen, resulting in record lows in MN and WI (see graph above).
While the market finished the week lower, we are still bullish longer term. Trade negotiations are still ongoing so there may be much uncertainty day to day, but we think we will put in higher lows, followed by higher highs. This market ran up in a hurry and is now in a normal retracement after overheating. Watch to see if cheese will find some support next week. If it does, and dry whey can find a bottom, Class III futures should respond. We continue to recommend hedgers target to buy PUT options or sell milk in the second half at prices above $17.50. Have a great weekend!