The KDM Dairy Report 4/9/2021

In the Northeast, warm weather has lead to high milk volumes as production has increased.  Cheddar cheese plants are working through milk supplies with strong production schedules.  Mozzarella and provolone processors are running on full operating schedules.  Inventory levels are stable as food service demands are slightly improving.  Retailer sales are stable as promotions for outdoor grilling are keeping cheese moving off the shelf.  In the Midwest, both block and barrel demand has strengthened from increased sales to food service.  Cheese production is higher as spot milk is available at discount prices up to $5 under class.  Retail demand is steady and with the increase in food services demand the market tone is slightly bullish.  In the West, retail cheese demand has held steady while food service demand has increased.  With more children returning to full-time in-person school, institutional demand has also increased.  Plenty of milk is available and cheese production is running  near full capacitiey.  Buyers report that cheese is generally available but some varieties are getting harder to find.  Over all a bullish tone and prices are moving higher.

WASDE report this week moved the market down at first then back higher.  In summary, USDA is seeing tighter than expected ending stocks Of Corn and soybeans.  Soybean crush operat0rs are going to have to pay up to buy Soybeans to crush into meal and oil as the year progresses.  This should at least hold bean prices at current value.  Look for spikes in the bean and Corn futures as weather becomes a factor. Current drought monitor is a bit scary (see map below).  China continues to be a steady buyer of our Corn and Soybeans. Even with the latest report indicating record bean harvest in South America.  For those wishing to sell corn or soybeans there are profitable prices in the current Futures market and basis levels should be good.   You can take some risk out of your sale with a, July Short dated call option.   Dairy producer needing to buy corn; look to buy the physical corn or Bean Meal for the time period you need. Then mitigate risk to the down side with a Short dated put Option using the July contract.  Why use the July contract?  It expires at the end of June, by that time we will know with some degree of certainty what the crop looks like. The futures market will have reacted to that news.  Cost of those options are cheaper than using the December options, therefore you’re not paying for time value on the December option.