Block cheese, barrel cheese and butter all made new multi-year highs in this week’s spot market. The block/barrel average settled at $1.82/lb, finally breaking above prior resistance near $1.78. The next level of resistance would be the high near $1.90/lb, made in Nov 2016. Spot butter settled at $2.41/lb, a level not seen since the week of June 1st, 2018. Spot buyers were aggressive, with trade volume up significantly for both butter and cheese.
Spot Market Recap
Class III futures pushed in to new highs in step with the spot market, especially the front months as they needed to play catch-up to spot prices. Futures could move even higher next week, as current spot components work out to about $17.65 Class III, not including the weekly NDPSR positive basis. One would think that the basis would narrow as spot prices have rallied, but time will tell. Even so, prices are trading at a discount without the basis.
With an improving demand situation, continued feed issues in the Midwest and potential drop in output in the EU, we could be setting up for more price strength next week. Producers should continue to reward these higher prices with PUT options. One negative about DRP is once it’s purchased, it can’t be rolled up to a higher level, like PUT options can. If futures prices continue to climb, most of those DRP policies are going to expire worthless. It may be wise to look at some higher levels of protection to replace your DRP insurance if premiums come down enough. Give us a call to discuss what might work for your operation.
Have a great weekend!