10/22/2021
Big week for dairy this week with the milk production report on Wednesday and the cold storage report on Friday.
September milk production was up 0.4 percent from last year at 17.3 billion pounds. This was a steep decline from August which came in at 17.9 billion pounds which was a revised decrease of 75 million pounds from last months report on August milk production. Cow numbers also drop by 22,000 head from August. This report read extremely bullish and shot futures up to contract highs.
Monthly Milk Production - 24 Selected States
Cold storage came out Friday and dashed a little cold water on everyone’s excitement. Total natural cheese stocks in refrigerated warehouses were up 2 percent from last month, and up 8 percent from last year. This brought class 3 back down. On the other hand butter stocks were down 9 percent from last month and down 4 percent from last year. These are extremely bullish numbers and class 4 put in new highs.
The reports dominated the market this week. This gave a good opportunity to lock in some high prices. There is still good demand in cheese and reports that milk has started to tighten in some areas. However, it is not enough for cheese plants to slow production schedules or pay over class 3 for spot loads of milk. Butter production is also unchanged from last week. Cream supplies are tighter and bulk butter has increased in price.
Overall class 3 will most likely be steady to lower in the coming weeks. I would look to sell some and also do some put spreads and/or DRP. On the class 4 side the market looks bullish and I think it will continue to go higher in the next month. As this market moves higher, the stress from the low class 4 prices this last year will ease and I would expect cow numbers to stop dropping. Look for class 4 prices to hit highs by the end of November or some time in December with current market conditions.
March Soybean Meal
Soybean meal has been in a downtrend since May, topping $420 per ton, Low point a couple of weeks ago of $312. Current fundamentals point to tight stocks at least thru First qtr of 2022. You should consider buying March meal near $325 as a hedge against higher meal prices. 360 calls for 5 dollars a ton keep you out of margin requirements, history tells us $300 dollar Soybean meal is a good price.
