The KDM Dairy Report 12/18/2020

12/31/2020

I guess 2020 is not quite done yet. With another stimulus on its way and a new strain of Covid we are ending the year with more questions than answers. This is creating a lot of uncertainty and wild swings in the market on speculation. When and how much is the government going to intercede? There are a few positive fundamentals at play like lower cheese and butter stocks, but most of the updates are negative. Without government intervention in the dairy market we could easily be 4 dollars lower on class III futures.

Spot Market Recap

Futures Recap

Cheese: Northeast has strong milk production with plenty of cheese on hand for spot/contact demand. Food service sales are steady to slower. Mozzarella and provolone orders from restaurants are lower this holiday season. In the Midwest, cheese markets have begun to show some stability. There is ample milk available and cheese plants are running at full schedules. Cheese inventories are growing, but producers have been preparing for the ups and downs in the market so they are not overly concerned. In the West, cheese plants are at capacity with ample milk supply. Demand has been erratic with retail demand strong but food service demand weak. The two areas in food service showing strongest demand are cheese for pizza and fast food burgers. There is more than enough cheese in inventories but they are in balance.

Dry whey is in balance and has had a good year. The market tone is some what bullish and is expected to remain firm into 2021.

Butter production schedules are running strong through the end of the year with ample milk supply. Retail demand is not making up for the loss in food service demand.

Finally, there is one outlier that may help. The Dollar just hit a 2 1/2 low. Which makes our prices more competitive for export. We do need to see overall demand increase to make up for the increase in milk production. This could come from food service as we start to put Covid in the rear view mirror this next year. For now though the main hope for higher or even maintaining these prices is from USDA purchases.

The corn market remains in a steep uptrend. The rally has led to a new 6 1/2 year high for the nearby contract and new contract highs for the seventh session in a row. For the week ending December 24, export inspections were up 29% from the previous week with China as the top export destination.

As I am writing this commentary, March corn high today is 4.70 currently trading at 4.68. Statistically overbought conditions beg for a setback to the 4.50 – 4.55 area. For long hedgers: Buy the 450-march put option at 9 cents, then look for a market correction to 4.53 and buy the futures. The 4.50 put provides protection for your long futures position, then look to take profits at 5.00 .

We had some big swings last week with the passing and signing of the latest stimulus bill. It settled down by the end of this week and the numbers look pretty good for class III. There is still quite a bit of uncertainty out there. This has shown up in the wide spreads between the bids and the asks on the futures market. A bit of patience with getting your orders filled is likely to result in better fills than is chasing the market.

From everyone at KDM Trading, have a safe and happy New Year!