The KDM Dairy Report 03/13/2020


Covid-19 continued to dominate all markets as everything from stocks to commodities sold off. Block cheddar jumped 12¼¢ with fairly active bidding and just 4 trades as sellers were less willing to part with product. Barrels managed to gain 2¼¢ but the block/barrel spread widened to 37¼¢.

Spot Market Recap
Futures Recap

As Covid-19 was officially named a pandemic and the rate of U.S. infections grew, the economic impact became real as everything from professional sports, major theme parks, broadway, down to state high school tournaments and youth sporting events were canceled. Many colleges are finishing their quarters/semesters via online education setups. While we still believe, and hope, that the worst of this will be over in weeks, not months, the impact to the economy is real. The travel and entertainment industry will be hit particularly hard, and that includes restaurant traffic. Households are hoarding necessities, and that includes some food items, so dairy retail demand might actually improve in the near term.

The onset of spring is seeing milk flows increase across the country. Processors, including cheese plants, are running full schedules. There is obvious concern about the potential growth of inventories, but also some guarded optimism as current demand is keeping supply relatively in check. A prolonged crisis would obviously have a more bearish impact on prices, but if we see signs that the crisis is coming to an end, it would be positive for the market. But one thing is certain – volatility has arrived. This week saw the stock market see its largest single-day loss since 1987; that is truly epic, and something years from now we will be talking about and remembering. The Trump administration has declared Coronavirus a “national emergency” in a press conference today. Hopefully this action results in an all-out effort that is bipartisan and unifies agencies from the national down to the local levels so we, America, can beat this thing.

In regards to current milk prices, spot levels work out to about $15.85 Class III. With April futures settling at $15.90, futures are really trading at a 40-50 cent discount to spot when basis is factored in. Spot cheese prices have been creeping higher but futures haven’t responded due to Covid-19. Should bids come back again next week, Apr-Jun futures could start to move higher. Of course, that is all going to depend on if the current virus crisis worsens or not.

We would continue to recommend purchasing upside protection on milk locked in already, as well as courage calls to be sold in to at a later date.

Stay safe out there!