The KDM Dairy Report 1/15/2021


More volatility this week as the USDA announced purchases of 40 million in cheese and 40 million in butter.  These purchases are not connected to the food box program which added some extra support to this market and pushed the class 3 futures up limit in the overnight session one Thursday.  Whey had another good week, finishing at its highest point since 2014.  This helped push the spot class 3 price up, but Friday’s drop of spot blocks and barrels leaves the class III calculated spot price at 17.07. That is a long way from 19.17 where February last traded. 

Spot Market Recap
Futures Recap

Cheese: In the Northeast, prices have firmed up slightly and cheese orders for manufacturing have increased.  Retail demand has stayed steady but food service sales are slow.  Milk supply is readily available for processing needs.  In the Midwest, cheese sales have ticked up for some producers but restaurant remains slower.  Some inventory concerns have been alleviated and orders are booked through the first quarter.  Production has picked up since the holidays as milk is plentiful and spot sales remain discounted.  In the West, there is plenty of milk for cheese makers.  With the announcement of the family to food box program, cheese prices have propelled upward.  At this time cheese inventories are readily available with sluggish demand in both food service and retail.  Pizza and and fast food sales have been able to clear some decent volumes but cannot overcome the decrease in other sectors.

Dry whey  prices have shifted higher across the board.  Mexican buying activity has been strong, and animal feed whey has picked up.  Some producers report being fully contracted through the first quarter, giving the overall dry whey market a bullish tone.

Butter: Across the nation there is an increase in butter production.  Freezer stocks area is growing with production schedules running at full capacity.  Butter prices have declined since last week.

Grains have continued on their upward trajectory with dry weather in South America, China buying, Russia increasing export tax on wheat,  and finally more speculation (see graph above).  This market is looking overbought, but that does not mean we will see the top any time soon.  My advice on grains:  buy dips but do not hesitate to bail out if things start to tip over. 

We had some big swings this week and the bottom line is if the government is buy we are heading higher in a hurry.  The real question that the market is trying to answer right now is if we have more product then the government is going to buy.  On the butter side it sure seems like are answer is yes, but the on the cheese side the market is still undecided.  This has created a lot of volatility and some opportunities.  I like spread trades right now or selling if you have plenty of money to hold on.  The milk market is closed on Monday for MLK Day, so have a good weekend and we will see what happens come Tuesday.