2/25/2022
High volatility in all commodities right now it with Putin’s war throwing supplies of gains and fuel into question. With Ukraine accounting for 16% of global corn exports and 12% of wheat the price of feed has rocketed higher. This combined with higher labor costs have pushed Dairies’ costs of production to all time highs. Normally we would see large expansions when we are looking at $20 plus numbers for an entire year for class 3 and class 4. This year we are continuing to here about dairies going out and the January milk production was off by 1.4 percent. This does not mean that prices will be good forever. Price increases are also hitting consumers and as their budgets get pinched you typically see demand recede.
Weekly Spot Prices
Weekly Future Prices
Cheese markets are moving in a bullish fashion this week, on continually steady demand and balanced cheese supplies. Milk remains steadily available for production, but trucker and labor shortages continue to keep full production on plant managers’ wish lists. Cheesemakers in the Midwest reported spot milk prices at $1.50 under Class to Class III. A number of cheesemakers say they are more willing to use contracted or internally sourced milk supplies in lieu of spots, as milk prices continue to increase. Contacts in the East and West report steady to strengthened retail demand, as COVID measures continue to be relaxed at the local level. (USDA Cheese Highlights)
Butter: Cream is available to butter makers for now. In the East, where cream multiples are higher, some manufacturers are selling surplus cream. Across all regions, butter production is generally steady to more active. Some facilities, however, are operating under full capacity due to labor pool issues and production supply delays. Plant managers are working to expand tight inventories ahead of spring holiday demand. Vacillating prices lend an unsettled tone to the butter market currently. Some industry contacts are predicting short butter availability later this summer and fall. Orders are reportedly mixed from both retail and food service sectors. Across the country this week, bulk butter overages range from 6 to 15 cents above market. (USDA Butter Highlights)
Dry whey markets were steady to lower this week, as contacts continue to report increased availability of dry whey in the region. Downward movement on both ends: settling in the upper 70s to 80. Both ends saw a .5 cent adjustment, with the bottom sliding lower, while the top moved higher. Stakeholders say that prices at the top of the range are tied to certain indexes and may hold for a few weeks. Domestic purchasers have not changed their orders in recent weeks, though some say they are becoming hesitant to pay above 80 cents for dry whey. Contacts report that port congestion and a shortage of truck drivers continue to hamper their ability to deliver loads in a timely manner. Delays to load deliveries and labor shortages are causing some drying operations to run below capacity. Plant managers report that dry whey production is unchanged. (USDA Dry Whey updates)
Continued volatility this week sent prices to new contract highs before backing off. The weekly updates are running more bullish and with input cost going up dairy farms are going to need high dairy price to compensate. With that outlook right now the market is pushing higher fast. This is further escalating inflation and as that takes a bite out of consumers pocket books at some point demand will come down. At this point that has not happen yet as restaurant demand continues to push higher, more tied to loosening covid restriction then prices. World prices are also surging to all time highs which makes the US still a cheep place relative to the rest of the world to buy dairy. Recommendations: buy the $20 put April to Aug average 35 cent, buy the $20 put sell the $18 put Sep to Dec for average 40 cents. There will not be a report next week, so look for the next one on the 20th of March. Give us a call with any questions on the market and we can help you with your hedging needs.
