The KDM Dairy Report 07/10/2020


Records were made to be broken, and spot block cheese did that with gusto this week, jumping 24¢ to set a new all-time record high. Sellers were willing to part with product all the way up as blocks traded healthy volume, but after several loads were sold each session, bidders had more bullets left than those offering did. The chart below shows just how epic a move the block price has made.

Spot Market Recap

On the flip side, barrel cheese lost momentum and ground this week, along with butter and dry whey. NDM took the volume prize with 26 loads exchanging hands.

Futures Recap

With the relentless move high in the block price, the block/barrel average reached a new record high of $2.63/lb, despite the price decline in barrels. Front month futures finished the week sharply higher, with the August contract seeing the largest gain. August begins pricing after next week and is still trading at a decent discount to spot, which calculates out to about $24.90/cwt.

The U.S. Dairy Export Council reported at the end of last week that U.S. dairy export volume hit a 2-year high in May, and up 18% compared to a year ago. Gains were led by a 24% increase in NDM/SMP exports of 79, 163 MT, the most ever. Southeast Asia jumped above Mexico again as the number one destination. Cheese exports also had a good month, with exports up 8% and shipments to South Korea and Japan at multi-year highs. Exports as a percentage of milk production hit its highest level since 2018, at 17.4%

Tueday’s GDT auction saw the Dairy Price Index shoot up 8.3%, its biggest increase in over 3 years. Gains were led by WMP up 14%. Cheddar cheese increased 3.3%.


Dairy Market News reports this week remained mainly positive. Hotter weather in the NE is hurting milk output, while bottling has increased after the holiday break. Milk output is flat in the Mid-Atlantic and SE. That said, Class III operations in all areas are running near capacity. Milk output in the Central region is flat as restrictions remain in place (self or co-op imposed) and heat has entered the area. Components are falling and cream is limited, though spot loads traded exclusively at a discount. Heading West, CA milk production is stronger this week, with some plants full and running close to capacity. Higher temps in AZ are causing a decline in milk output, while NM is about flat. In the Pacific Northwest, milk production is at seasonal levels, with balancing plants running at full capacity in some areas.

Butter production across the country is slower as ice cream plants pull the majority of available cream. Sales have declined as more restaurants are being affected by the resurgence of COVID-19.

Dry whey prices are weakening as strong cheese output adds to the supply and sales are slow. Some sellers are getting more aggressive with offers in order to move product, while buyers wait to see if prices will go even lower.
Sharply higher SMP prices in this week’s GDT auction has improved NDM interest here in the U.S. Prices are trending higher as cheese fortification continues to utilize domestic supplies.
Cheese inventory in the NE is described as healthy to tight. But market conditions are unsettled as demand is variable from food service. In the Central region, sales are still relatively strong, especially for blocks, which are tight. Curd sales are also strong, keeping current production focused on those areas. Government buying programs and an active grilling season are so far sustaining prices. Western cheese contacts are starting to see slight breaks in demand due to high prices. Cheese inventories are still tight, but there is some worry over future demand by COVID-induced closings in some states of bars and restaurants. Dairy cow slaughter continues to lag year-ago levels as farms hang on to cows.
Friday’s trade was interesting in that we settled Aug and Sep limit up the prior day, causing an increase to $1.50 in the daily limit. Spot blocks tacked on another 8½¢ during the session, at which time we hit an intra-day high in Aug Class III of $23.70, which was up $1.42 at that point. However, as barrels continued to get offered lower with no bidders or trades in sight, we began to quickly come off the highs. Today’s Aug settlement at $23.04 was well off the high, though still up “only” 53¢ on the day. With today’s markets being so volatile, it’s amazing to see that as negative to the markets, but the combination of the weaker finish and the “barrel” drag, plus uncertainty on the affect of COVID-19 on food service, leads us to believe further correction is in store near term. We could be wrong on that, but hedgers especially should not be in the business of trying to call the top. If you have done little marketing to this point, you have an amazing opportunity to cover some of your production at very high prices. We would look at selling Aug-Oct near today’s settlement average of $20.61. That’s not bad. With NDM prices looking under-valued, a welcome price increase in that component should help close the giant negative PPD producers are currently experiencing. These are tricky times as a hedger. Call us for help with putting a hedge plan together for your operation.
Have a great weekend!