The KDM Dairy Report 12/11/2021


Up, up, we go; this week as dairy shows strength on all fronts.  With a big jump in class 4 this week, and class 3 is pushing into the $20 range.  Milk has a strong bullish tone.  Starting with strong demand in both domestic and export markets.  The big question is does this demand carry past the holidays.

Weekly Spot Prices
Weekly Future Prices

Cheese: in the Midwestern cheesemakers report spot milk prices were at Class III to $1 over this week. Some Midwestern plant managers relay they are hopeful for holiday milk discounts, as buying interest has been very busy and production is somewhat active. Milk availability in the region compared to last year’s $8 to $4 under Class price range shows a somewhat clear difference year over year. Class I intakes are reportedly much stronger this year than last year’s atypical pandemic situation, but some contacts say retail demand is stronger than even in previous years to 2020, therefore milk is being spread out, which could tighten things up moving into football playoffs and super bowl timeframe, a seasonally busy season particularly for pizza and snack style retail cheesemakers. Cheesemakers say current cheese stores are balanced, but with lighter milk relative to recent years and generally strengthening demand notes, some contacts foresee tighter cheese availability. Cheese market tones are still on uncertain grounds, as barrel prices struggle to shore up the large block- over-barrel price gap.

Butter: Cream supplies are hearty in the West and Central regions. Availability is tighter in the East, but butter makers report that in-house cream supplies are adequate for current butter production needs. Butter churning schedules are mixed. Some manufacturers are wrapping up holiday butter runs and looking ahead to 2022 Q1 butter orders. Bulk inventories are tight, with unsalted butter proving more difficult to source than salted. Export interest is strong, and domestic butter demand is steady to higher across retail and food service sectors. Butter market tones are bullish. Across the country, bulk butter overages range from 4 to 15 cents above market.

Dry Whey: The bottom of the dry whey price range moved higher, while the top of the range is unchanged. The mostly price series shifted higher by 2 cents on both ends of the range. Demand for dry whey is steady in domestic and international markets. Contacts report notable interest in dry whey from purchasers in Asian countries. Dry whey inventories are tight. Spot purchasers say that finding loads of dry whey in the region is difficult, and some report looking to other regions to meet current market demand. Production of dry whey is limited, as plant managers are focusing their schedules on higher whey protein concentrates and permeate.

One of the big reasons class 3 price is staying high is the strength in the whey.  With drying facilities focusing on the higher protein concentrates and permeate this has left production on the low side this year. (see graph above)  This will allow block and barrel prices to remain at reasonable levels and still have a strong class 3 price.  Recommendation buy $19 puts sell $18 puts look to spend 35 cents.

Grains:  Currently grain exports are at 57% for the grain year 2021/22 year .  Well ahead of the 5 year average of 47% at this point in the marketing year.  March corn traded as high as 5.94 a whisper from the 6.00 mark today.  China is still shopping but relations may affect their buying of US Corn.  Brazil first crop corn will not harvest for several months.  If we push corn over the 6 dollar mark, we will need positive news to feed the bull. Evidently China still needs to build Stocks. 

On a futures move above 6.00 for corn. I would buy out of the money puts in May ,  (5.60 puts are trading at 20 cents) This will defend your current owned corn position without forgoing potential higher prices down the road.

With the May puts in place you could use a setback in the corn prices to buy feed needs without the risk of prices falling further.

“Never a bad day to buy a Put!”