Still waiting; we had the USDA step back in this week on butter and fluid but no cheese orders as of yet. This did help butter move higher this week, but Class III has premium built into the futures price expecting more cheese buying out of the government. This does not happen every week, the front months on Class III drop a little bit.
Spot Market Recap
This week’s outside forces came in the from of a cold snap over the middle of the country. This battered the southern states, especially Texas, where we had plants shutting down and farms dumping milk. This could tighten up some supplies but more than likely be on the Class IV, which also had a boost from some government contracts this week. Most of the cheese plants are further north where there were interruptions from the cold snap, meaning less likelihood of tightening in the cheese stocks.
In the cheese market there are ample milk supplies for cheese production with spot loads selling for $6.50 to $8.50 under class. This is keeping cheese production active throughout the country. Retail demand remains strong and food service has picked up a little more from last week with easing restrictions on restaurants. Food service demand is still nowhere near pre-COVID levels and cheese inventories are growing. With no new government contracts there is uncertainty to where the cheese market will head next.
Butter had a bullish week to end at a high on the spot market at $1.55; that is up more than 15 cents on the week. Butter production nationwide is very busy with plenty of cream available. In the southern part of the country there was widespread havoc with weather causing problems on farms, delaying transportation, and shutting down plants. Demand has improved with customers looking for Q2 and Q3 coverage, also bulk butter sales have increased. Still, butter stocks are readily available.
Dry whey prices continues to push higher, with producers running mostly full schedules. There are very few extra loads to offer to the spot market, as export buyers remain interested. There is more of a push to produce high protein blends as animal feed whey trading has slowed.
“Disaster, Texas style” is this morning’s Bloomberg news update in my inbox. This cold snap did hit Texas and the surrounding area pretty hard. With farmers in this area dumping milk; trucks were having a hard time getting through. Plants shut down meant no other place to go with the milk but on the ground. Furthermore there maybe lasting effects – as temperatures plunged into negative numbers and teats froze, some of the milking herd may need to be beefed. On the national level this will have an effect but for Class III it will be muted as most of the cheese production comes from areas that were not as affected. To see a true rally in Class III I think we will still need further government intervention. The result is too much production for our overall demand. I still like option spreads and selling some of the months where the futures are in the high $17’s.