With August Class III beginning its pricing period Monday and buoyed by $3 cheese, the futures contract hit an intra-day high of $23.70. Today’s settlement is a buck and change under that. With no major reports released this week, there are opinions all over the board on what happens going forward. Some would contend that this week’s sell-off is bearish and more is in store next week. They point to slowing sales, price resistance and restaurant closures in California as evidence. They may be right, but we’re not so sure yet. Even with this week’s decline in spot prices, current cash works out to about $24.10 Class III (using Aug whey futures). Barrel prices improved so it seems reasonable to conclude that blocks will stop the slide at some point. Dairy Market News reports fresh blocks are still tight around the country and demand remains strong. Milk output is mainly flat to declining slightly, depending on regional heat. While the spot market has taken a break from setting a new all-time high on Monday, this may be closer to a normal correction than a change in trend. If block buyers begin to show more of a presence next week, the Aug/Sep contracts would most likely see a solid rebound, being they are trading such a large discount to spot. We would recommend producers hold off selling aggressively up front. If you are concerned about Aug/Sep falling, buy some cheap put options, even if they are below the market. The Aug $20 PUT traded at 18¢ today. Load up on these and keep your upside open, while protecting a margin-positive price. It looks to be an exciting week ahead, so get ready.
Have a great weekend!