Are we starting to find a bottom? The futures dropped on another dollar this week and then seemed to hold, with the production report up more than 3 percent and cold storage up more than 4 percent there was a lot of bearish news to chew through. There is still the prospect of more government buying which is holding futures up. If not for the class 3 milk, futures would be much lower as the weekly updates paint a more negative tone this week.
Spot Market Recap
Cheese highlights this week: cheese production continues to increase as there is notably more milk throughout the country, Spot milk prices are ranged from $4 to $8.50 under class in the Midwest, and cold storage is overall increased throughout the country. Food service continues to have limitations on restrictions do to the COVID pandemic. This has pushed the block and barrel prices down more than ten cents and five cents respectively on a weekly average. This is further concerning due to the fact that the new administration is conducting a review of all USDA farmer assistance programs that came from the latest stimulus bill, indicating buying by the Farmers to Food Box program may be delayed or even cancelled.
Dry whey prices are steady to slightly higher with a firm undertone. Interest from domestic and international markets is healthy as several buyers pick up additional loads. Milk volumes are plentiful and drying operations are working at full production schedules. Inventories are in balance and the overall market is bullish.
Butter: Cream remains plentiful and churns are running heavy schedules. Bulk butter interest has erupted as buyers look for multiple loads. Food service demand is active and the food box program has driven up purchases. Retail sales are steady to strong but inventories continue to build which has unsettled the tone of the market. The spot market is down more than 15 cents from last week.
Another move higher for Beans and Corn this week. Continued bad weather in South America and very strong exports are creating Tighter ending stocks, pushing prices on corn and Beans higher. Is it time to protect the new crop with some options? Extra corn and Beans that will be sold, not used for feed, needs to have that 440 price in December protected . Recommendation: Buy the 440 December put and Sell the 380 put for a net cost of 29 cents. No additional margining is required beyond the option cost with a potential 60 cent gain on a drop below 380 December corn, with the top end open, and if Corn continues to rally. Your Top side is open with some limited protection if corn comes down.
Another rough week for the dairy market with little hope for higher prices without further rounds of buying by the USDA. I am looking for the market to hold steady to move a little lower next week as the government reviews its buying programs. My trade recommendation for the next week is look to buy some options as the volatility comes down. Either buy some puts around a dollar under the market in the 40 cent range. Or (if you would rather risk not getting your floor price on and shoot for higher numbers) look to buy calls one to two dollars above the market and wait for a rally in the futures on announcements from the USDA on further purchases.