The KDM Dairy Report 5/7/2021


There was quite a roller coaster this week with $20 class 3 price just in reach by mid week.  The weekly updates remained strong but Thursday cash started to sell off with futures following suit.  Friday was down on cash again but futures held firm.  Have we seen the top or does next week surge back up?  

Spot Market Recap
Milk Production

Cheese Northeast has a stable undertone with spot market exchanging cheese with firm prices.  Manufacturers are working healthy milk volumes and cheese production is strong.  Buyers’ have kept inventories fairly stable with mixed retail demand but stronger food service demand.  Cheese Midwest said the spot offers of milk are lighter this week but still sub-class.  Cheese production is busy and is available for spot sales.  Orders are steady and food service acquisitions are beginning to level off.  Cheese is moving actively at current prices.  In the west retail demand has backed off some what but food service has remained strong.  Inventories are mixed with blocks available for spot market and barrels tight.  Reports of some Chinese buyers looking for product has push the market into a bullish tone.

In butter, supplies of cream are steady to tightening with ice cream production ramping up.  Butter inventories are stable as plants are trying to add some bulk loads to the freezer to hedge against a summer heat wave.  Food service demand is healthy as the pipelines have filled in recent weeks.  Retail demand is lackluster.  Product is moving from even to 8 cent above the market.  Overall the tone is stable.

Dry Whey prices have continued higher on both sides of the range.  Producers report a little more availability in the spot this week.  Contacts question the longevity of current bull market, however, interest from Southeast Asia continues to move the market higher.  The market tone remains bullish.

Higher prices have made buyers a little more hesitant to take on product.  As we saw this week as prices bumped up to the highs of previous weeks and then fell away.  There is good demand out there but with pipelines filling up end users are will to wait for better numbers.  This is also not helped with the amount of milk available for manufacturing where buyers know that product will be available.  I would look for the market to stabilize and these swings to narrow.  With that said there is still good volatility out there and option spreads should work well.  The option market has been very thin so getting these done is easier said then done.  For Aug – Oct 21 look to buy the $19 put and sell the $20 call for 10 cents.  For Nov-Dec 21 look to buy the $18 put and sell the $20 call for 20 cents.  Give us a call for further recommendations and have a good week.