12/4/2020
Is this a bottom or just a head fake? The cash market is lower on the week but nothing like previous weeks. On Thursday it posted positive gain but sold back off Friday to end the week. The charts below are two weeks because of the shortened week last week with Thanksgiving.
The news to keep an eye on in the coming weeks is the new stimulus bill that is garnering support on both sides of the aisle, and some last minute holiday buying that might give us a bump going into the new year.
Spot Market Recap
Futures Recap
Cheese updates were negative again this week. Inventories are growing as the food service sector continues to struggle according to Northeastern cheese. In the Midwest, spot milk prices have large discounts which are not the norm for this time of year, but cheese demand has been steady. In the West milk production is ample to keep production facilities at full schedules. Manufacturers are hesitant on adding to their inventories while milk prices are dropping. However, we are seeing cheese buyers step back into this market now that prices have fallen. This all adds up to a negative tone to the market on the cheese side.
On the other side I think butter has seen the bottom and is starting to climb its way out. On the Highlights this week Butter makers note modest to good post-holiday retail butter purchases. Food service does remain slow and with more restaurant closures this is likely to weigh down the market for some time to come. With that said, the draw down on butter in cold storage is impressive. (see chart bellow) We are still higher then previous years but the curve is similar and that means demand has held in even with the hit to the food service industry.
My advice has not changed from a few weeks ago. Get some price coverage on your milk. With the class III future prices averaging around $17 for Feb – Dec 21. I think there are some hedge strategies that look pretty attractive. There are some risks if you are thinking of capping off the top end on your milk. With congress working on another stimulus bill that could include agriculture, the market could jump. When the government is buying, the sky is the limit.
On grains; There is a rumor on the grapevine that some ethanol plants are cutting back 20 % on corn purchases , because of the lack of demand for ethanol. Recommendation: Buy the 3.80 March corn put , 2 1/2 cents look to take profits if it gets to 10 cents, or use as a back stop for your physical corn.
