2/27/2021
No news is negative news. There were no orders this week from the USDA and I expect that more cheese will come to the market next week and drive the price lower. The cheese market tone held reasonably well this week, with a nice rally on Thursday but did come back off on Friday. I think there was an expectation that we might see some solicitations from the government this Friday, but when that did not materialize the market came back down. The other major factor this week is the reverberations of the polar vortex and what that will mean for production going forward in the Southern states.
Spot Market Recap
Milk Production
The dumping has stopped but milk production could be affected for the foreseeable future in states like Texas and New Mexico. With some milk production not coming back and pipe lines slowly refilling, this should slow class 3 & 4 production and give some support to this market.
Cheese Northeast had healthy milk supplies keeping operations at max capacity. Inventory levels are fairly stable as retail orders are firm and cheese orders from schools are steady. Food service demand remains lower. In the Midwest, cheese makers report cutting back on schedules, doing some plant maintenance and cleaning because milk supplies have tightened up for the havoc the winter storm brought the last couple of weeks. There are still reports of spot loads trading at $2 under class as the cheese market tone is somewhat muted with no new government contracts announced this week. In the West, manufacturers report ample milk supply with plants running at full schedules. Food service demand has yet to return and retail demand is a bit lackluster. There is interest in exports, but at the present time the ports and transport channels have made expedited shipments of cheese difficult. This has all resulted in facilities reporting heavy inventories.
On the class 4 side, butter churns remain active as cream is plentiful nationwide. Food service demand remains slow but export interest has increased. Butter stocks have increased this week but prices did push back into the $1.50s. Overall, the butter market tone is steady to a little bullish.
Dry whey prices shifted higher this week as several market participants are purchasing spot loads. There are reports of stable export demand. As cheese production remains active, whey dryers are running full schedules. This has kept inventories available for spot demand. The market has a bullish tone.
Too much production – not enough demand. That is the story of this year. Even with the winter storm that had forced farms in the southern plains to dump milk for several days we are still outpacing demand. There are a few spots: we could find some more demand with increased exports and restaurants slowly opening up to more customers. Things are not all doom and gloom. With the government money and low feed prices the dairy industry jumped up production last year and it has continued into this year. If we do not see the government step back in I do not think the futures will maintain their prices. I would look to a combination of strategies to hedging your milk as a dairy producer; as the market can change rapidly. If we can be of assistance give us a call.
