The KDM Dairy Report 10/1/2021


Good week for milk as cheese rallied in both blocks and barrels.  Good demand with lower production is leading to tighter supplies.  Cold storage may not have dropped as much as previous years but it is drawing down.  With the high feed prices and low class 4 prices this last year, there has been a number of producers in the heavy butter powder areas hanging it up.  Cream supplies should tighten up in then next few months, as that happens I expect to see class 4 push higher.

Weekly Spot Prices
Weekly Future Prices

Cheese Production is strong in throughout the country this week, but staffing and trucking shortfalls are a lingering issue.  Spot prices are still a discount to class at $1 to $1.25 under class but last week was $1.50 to $2 under class.  Demand is steady to growing seasonally in the East and Midwest.  With inventories are mostly in balance, some lingering port congestion issues have backed up warehouses in the West.  The Cheese market tone this week is steady to stronger.

Butter: Cream is available in the Central and Western regions, with spot availability tight in the East.  Cream prices have increased in the Midwest and in the Eastern region, which is limiting butter production.  Unsalted production is increasing as it has been tight that last couple of weeks.  Inventories are meeting current demand, with salted butter more available then unsalted.  Retail orders are steady and food service orders are steady to strong.  Overall market tone is steady.

Dry whey tightened this week with demand strong on both domestic and international markets.  Inventories available for spot purchases remain tight. Deliveries continue to face delays with limited truck drivers and port congestion.  Cheese producers are running busy schedules but dry whey production is limited as plant managers focus on higher protein products to maximize sale price.  Dry Whey market is steady to strong this week,

Dairy markets are getting a boost this week as buyers showed up at the spot market.  With blocks rising 9.5 cents this week and barrels rising 11 cent it was the strongest gain we have seen in some time.  Next week if the rally continues look for 19s in the front months and 18s next year.  Demand is good and the cow numbers are shrinking which is pushing this market into a bullish range.  I would look to those numbers to get covered.  It is easier to get your hedges on with the market is moving higher then after it tips over.  To finish out 2021 I would look for some risk reversals.  Buying the put selling the call.  If the rally follows through into next week look to buy 18.50 put sell 20.00 calls from even to 15 cent depending on how high November and December of 2021 can go.  For 2022, buying the 17.50 put and selling the 19.50 call for 15 cents.  All of these trades are going to require some margin funds and you want to make sure you can hold on.  Talk to your broker about the risks and as always if we can be of assistance give us a call.