The KDM Dairy Report 8/6/2021


With the summer heading into its last weeks and the kids getting ready to go back to school, we have seen some new orders come in from section 32 of the government buying program, primarily for string cheese and fluid milk.  We did not see much of a reaction from the market.  Without the big splashy head lines of Covid legislation, we did not see the bumps when the government contracts were announced.  Still new orders will use up some of the supply, and with our prices well below the rest of the world, exports should improve; which in turn will tighten up stocks, as long as product can get shipped out.

Spot Market Recap
Futures Market Recap

Cheese in the Northeast has strong production with plenty of milk running into cheese vats.  Inventories are stable as demand has increased with the drop in the cheese price.  In the Midwest sales are strong and bottling demand is chipping away at fluid supplies.  Spot loads of milk can still be found at discount but most are moving at class prices.  Inventories are still ample for current needs with the market tone as mixed.  On the West Coast, demand is steady and international demand is strong.  Exporters are still having problems with a slowdown at the ports.  Milk production has declined some but there is still plenty for cheese producers to fill busy schedules.  The current cheese market tone on the West Coast is stable to slightly lower.  

Dry whey prices dropped this week with offers at or above 50 cents.  Production has been very active as cheese production and sales have been strong.  Export interest has slowed do to swine herd concerns and port/transportation bottlenecks.  Domestic end users report stocks are growing.  Whey market tone is turning bearish this week.

Butter is steady this week as production is mixed across the country.  Cream supplies on in the western region are tight while the rest of the country reports cream supplies as available.  Demand in retail is steady to higher and food service demand is steady.  The butter market tone is mix as bulk butter ranges from flat to 8 cents above the market.

On grains, Midwest drought conditions on the left are from 8/3/2021. On the right 7/27/2021. (see maps below)  If conditions persist in a negative direction, we could see yields on corn and soybeans impacted driving the futures higher.  A simple trade strategy would be to buy 6.00 December calls with 112 days before they expire.  Bid 20 cents, risk 10 cents on the trade. 

There is plenty of milk for cheese production even after a dip in the milk production.  Which means we need continued good demand.  With the bottleneck at the ports, the cheese market is not getting its lift from exports.  Domestic demand has been good and has kept inventories in check but the question is, will it increase as we go into the fall?  Schools are looking to start back up and football season will get underway pretty soon which tends to give cheese demand a boost.  The caveat this year is that we have been watching sports with the Olympics going on and schools ran meal programs through the summer.  I would look to see a slight increase as we go into the fall as temperatures fall, pizza sales increase, and kids head back to school in-person, increasing the number of students eating school lunch.  I would look for calls and call spreads to sell into for the fall and into next year.  Without a big drop in milk production or an increase in exports, I think we can go higher but the market is not likely to blow the top off.  Give us a call next week and we can give you a more specific recommendation for your needs.