The KDM Dairy Report 9/3/2021


Have we seen the bottom on the class 3 milk price?  Milk production continues to slide lower, and cheese inventories are tightening with good domestic and international demand.  However, prices have yet to rebound mostly do to warehouse stocks continuing to build do to shipping delays.  This has pushed product in to lower priced markets as cheese makers have had to turn down orders for export. 

Spot Market Recap
Futures Market Recap

Cheese market this week; the northeast is seeing lower milk supply and the cheese makers are operating at steady to lower production schedules.  Food service orders are strong and retail sales are stable.  Cheese inventories are mostly in balance.  The northeast market tone is stable.  In the Midwest milk production is unchanged from last week,  Cheese production is busy.  Cheese demand is strong with some reports of pizza cheese producers turning down orders.  Mozzarella inventories are tightening.  On the west coast milk is available despite a seasonal decline in production.  Cheese plant managers are running reduced schedules due to labor shortages.  Retail and food service demand has held steady. International demand is strong although export demand is still hampered by port congestion.  Market tone is mixed.

Butter production is unchanged over last week.  Some manufacturers report that cream supplies continue to tighten.  Food service demand is stronger but retail demand is sluggish.  Inventories are sufficient for current demand.  Bulk butter is ranging between 2.5 to 7.5 cents above the market.

Dry whey prices shifted lower this week.  Steady demand in both the domestic and international markets.  Delays in shipping are causing warehouse inventories to build up.  Some cheese producers are running lighter schedules which is limiting dry whey production.  Stocks are available for spot purchases.  The market tone for dry whey is mixed.

The class 3 are still looking for a foot hold as the most of the market signals are bullish.  For the last few weeks I have been looking for a good rebound in class 3.  Domestic demand is good, export demand is good, milk production is sliding, schools are getting back in session feeding more milk into school lunch programs, and cheese production is no longer running full bore.  This should all add up to a pretty high milk price.  However, there is one big stumbling block, shipping.  There are not enough trucks and truck drivers, the ports are backing up, containers are hard to source, and the rail system can not get the products to every place they need to go.  This has kept a firm lid on the cash market and why we have not seen much of a rally in the class 3 future prices.  I would look to puts and put spreads this next week as this problem seems to persist with out an end date.  Buy the 1700 put sell the 1600 put Nov-21 through Apr-22 for 35 cents.  With Labor Day the markets are closed this coming Monday, we will be back in the office Tuesday.  Give us a call and we can tailor a hedge plan to your operation.