The KDM Dairy Report 4/17/2021


Food box is dead will it matter?  Strong food service demand and better than expected exports have pushed this market up without government demand.  The question now is can that demand hold at higher price levels and will food service continue buying after they fill their coolers?

Spot Market Recap
Milk Production

On the spot cheese market this week both blocks and barrels moved higher on Monday to then lost ground the rest of the week until Friday.  The contraction was most likely due to the announcement this week about the end of the farmers to families food box program.  Food service has picked up some more this week and we are starting to see tightening supplies.  This is with full production schedules at most plants.  Milk is readily available and spot prices are ranging from $1 to $5 dollars under class.  Over all the market tone is bullish.

Butter churns are running active schedules as supplies of cream are ample.  Ice cream producers are pulling good volumes of cream to build inventory before heading into summer which has tightened some of the supply in the central and east regions.  Retail is starting to show some of the demand shifting back to pre-COVID levels, but food service demand continues to build nationwide.  The market tone on butter is stable with bulk price ranging from 1.0 to 8.0 cents above the market across the country.

Dry whey prices moved higher again this week as there are continued reports of tightness in the sweet whey powder market.  Cheese producers are keeping production schedules at high levels as milk supplies are available.  Processing is focused on high protein blends as that has demanded the highest prices.  Dry whey stocks are tight keeping the overall market tone bullish.

Below is the May Futures chart.

It has been a roller coaster for the class 3 futures this week.  On Monday we hit new highs to then sell off on Tuesday through Thursday after the announcement of the end of the food box program.  Finally the market rallied on Friday not quite as high as where it was on Monday but still some decent numbers.  There is good demand right now as restaurants and large venues are opening up.  They are getting ready for a summer surge of business as COVID restrictions get dropped.  This has created better demand and tightened up cheese.  The question now is if demand will continue once the pipeline gets filled.  With the current prices I like buying an 1800 put, selling a 2000 call for an average of 20 cents in the second half of 2021.  For 2022 I like buying the 1700 put, selling 1550 put, and selling 1900 call for around even.  Have a great week and please give us a call if we can be of assistance.