The KDM Dairy Report 2/13/2021


More big moves on rumors.  With another stimulus bill in the works and still money in the pot from the last one the trade is on edge waiting for the next round of buying from the government.  The last USDA solicitation for dairy products ended this week on the 9th of February and there was some expectation that this Friday there would be another round of buying.  This drove the market up limit on Thursday in March and April only to be sold back off again on Friday to end the week relatively unchanged.

Spot Market Recap
Milk Production

The next stimulus bill is making its way through the sub committees and as of now there is $16 billion earmarked for food and agriculture.  With a little bit of a break down of $3.6 billion for USDA to support food supply chains, $1 billion to assist farmers, 15% bump in SNAP benefits, and $500 million for rural hospitals and communities to expand access to COVID-19 vaccines and food assistance.

Cheese: In the Northeast there are continued heavy milk volumes and cheese production charges ahead at full production schedules. There are concerns that weather will disrupt hauling routes but there have been no delays at this time.  Inventory levels remain stable with Retail and food service sales remaining stable to unchanged from last week.  Fresh cheese stocks are growing with cheddar cheese spot sales a bit slow.  In the Midwest, milk is widely available with spot loads at a discount.  Retail cheese demand remains good and is stronger then last year with prices in the $1.50 to $1.60 range.  More cities have relaxed their COVID-19 restrictions and food service orders have picked up a little bit but still far behind last year.  In the West, cheese production is active with inventories growing.  Retail demand has increased with domestic and international buyers willing to take on cheese orders with the lower prices.  Food service demand remains lackluster even though restrictions on dining establishments have eased.

Butter churns remain full bore with plentiful cream supplies.  There have, however, been some hauling issues reported in the Midwest.  Retail demand remains good with food service demand still struggling.  Butter stocks are growing but the market tone is showing some signs of life after a notably weak start to February.

Dry whey prices moved up a penny on the top of the range, with spot trading active this week.  Supplies are limited with good domestic and export demand.  Animal feed whey traded up a penny this week with active trading.  Dry whey market tone is firm to bullish near term.

Above is this weeks price chart on March Class III futures.  There is a lot of volatility in the market as production outpaces traditional demand and the market looks to the government to draw down the excess supply.  A few processors have clamped down on producers output by reducing their base, but it is not widespread enough to make much of a dent in the overall milk production.  Also, if the government does step back in to buy, processors do not want to be caught short on supplies.  This is going to lead to a rollercoaster of a year as prices are concerned.  With volatility there comes opportunity to catch some pretty good numbers, but picking the top or bottom is nearly impossible.  Trade rec for this week is to look at buying some call spreads, with no announcement on Friday I think the market will drift lower.  The USDA still has a large piggy bank that may get bigger with another stimulus bill.  If and when they decide to crack it open the market should make a strong move upward.