10/30/2020
The pace of spot cheese price increases continued to slow down this week, but not before barrels picked up another 7½¢ and reached a new all-time record high of $2.53/lb, eclipsing the old mark of $2.49 set in July 2014 (see graph below). That brought the block/barrel spread down to 25¼¢ and the block/barrel average up to $2.66/lb. Also of note, spot dry whey reached 40¢ for the first time since May,
Spot Market Recap
Futures Recap
Despite the lack of any major reports, Class III futures saw plenty of volatility. The announcement last Friday’s of a 4th round in the Food Box Program saw limit up moves that day, followed by a strong Sunday evening open, with follow-through buying on Monday. The December contract settled an expanded limit up 83¢ that day. But then the bottom fell out as sellers got extremely aggressive when spot cheese appeared to stall. Tuesday saw red ink across the board with the Dec contract now an expanded limit down 76¢. Wednesday was wilder still as selling was relentless going into the spot market session at 11:00am. The November contract, being in it’s calculation period, was particularly affected, with early spot offers bring it to an intraday low of 21.80, only to see bids for cheese arrive partway through the session and a massive short-covering rally ensue. Over 1,000 Nov contracts traded, with over a $1.00 intraday move from low to high. Spot sessions the rest of the week continued to see barrel bids and a less frequent block bid, but it was enough to cause Nov to settle at $23.90 on Friday, a full $2.10 off it’s low on Wed. Amazing. The Nov contract might not be done. With half its calculation priced in and current spot numbers working out to about $25.35, the gap between Nov futures and spot will continue to close if spot can hold or go higher next week. Hang on.
Aside from the Nov contract though, most Class III contracts saw fairly heavy losses by week’s end. We have to admit we feel somewhat vindicated in our advice to get more milk price coverage in the 2021 contracts. We’re not always right and admit when we’re wrong, but the market is telling us something here. Case in point is today’s settlement, with the Nov contract up 62¢ and Dec up just 7¢. The market is saying this latest government involvement will be short-lived, and when it is, we will have plenty of milk. The herd size and cow numbers are both rising. Unless there is a strong increase in exports, help from mother nature or continued skewing of normal market signals due to government programs, $16 milk may look pretty good in the not too distant future. The Q1 average went from $17.25 last week to $16.98 today. The Jan-Jun average went from $16.92 average last week to $16.68 today. Those were opportunities which we may not see again. Consider whether you should be getting more protection in place for 2021.
