The KDM Dairy Report 7/9/2021


With good exports and a little 4th of July magic this market is heading back up.  Across the board we have been hearing export interest is good.  The bottle neck is finding containers and trucks to ship it out.  Also with the 4th of July holiday, retail and food service picked up.  This all culminated in a 20 cent rebound in the blocks and 10 cent rebound in the barrels.  Now the only question is if the good times last long enough to show up in your milk check.

Spot Market Recap
Futures Recap

Cheese sales are strong on the East coast.  As milk production continues to be plentiful for manufacturing needs, production schedules are running at, or close to, capacity.  This is keeping inventories available for spot and contract needs.  In the Midwest, milk is available for manufacturing needs as spot loads continue to be discount to class.  Plant managers are running full schedules but inventories are still getting tight with because of strong demand.  Extra orders are starting to be harder to fill and Labor shortages are preventing some plants from maximizing capacity.  On the West coast demand is good for retail and food service.  The export market is strong especially to the Asian markets.  The biggest bottle neck is shipping as trucks and containers have been hard to come by.  Milk is still readily available for manufacturing needs and most plants are running near capacity.  Spot purchases are available but inventories have tightened in recent weeks.  Overall the cheese market is bullish on good demand out of all sectors. 

Butter markets are starting to see the effects of the heat as cream availability is beginning to tighten.  Some manufacturers paused production Monday for the holiday weekend but resumed normal schedules the rest of the week.  Inventories are growing in spite of steady retail demand and many grocers running weekly butter promotions.  Bulk butter is ranging from flat to 8 cents over class.  Overall the butter market is supportive.

Dry Whey Prices are mixed this week as cheese production is higher which has lead to more whey for the dryers.  Manufacturers are offering additional dry whey loads to the spot market at this time, as domestic and international demand have slightly softened.  Inventories are building mainly due to transportation issues as there is further interest in the international market.  The Dry Whey market is steady to weaker at this time.

Still no slowdown in sight for milk production but with the uptick in domestic and international demand the overall class 3 outlook is starting to look more positive.  One thing holding the dairy markets back is shipping bottle necks in the export market.  If the ports could get sorted out there is demand in the Asian markets.  As the summer heat sinks in we could see a drop in production but even with that most manufacturing plants are still going to be able to run at near full capacities.  The key depends on whether demand can out pace production.  At this point I would look to see a rally in the market on continued good demand.  Therefore, I would look to buy call or call spreads to cover sold milk or milk you would like to sell at a higher price in the future.  I like buying the $18 call and selling the $20 call in the first half of 2022 for around 50 cents.  Look for a rally into the $18 range to sell.  If 50 cents is a little steep you can take on some risk and sell the $16 put for 40 cents leaving you with a 10 cent cost.  As always give us a call and we can get more specific to your needs.