The KDM Dairy Report 5/6/2022


Class 3 has been trading side ways in that last couple of weeks.  With the average prices for the next two years near all time highs, the bullish news needs to continue for the prices to hold.  Dry whey has started to slip lower heading toward the 50 cent range.  If NDPSR dry whey prices drop to that level both blocks and barrels will need to move higher to keep class 3 in the $24 to $25 range.

Weekly Spot Prices
Weekly Future Prices

Cheese producers report that staffing shortages and supply chain snags are affecting production throughout the country. Milk is available and contacts in the Midwest report that spot prices are around $2 under Class III. Cheesemakers in the Northeast say that demand is good in both retail and food service markets. Higher market prices in the Midwest have not deterred purchasers, as demand remains robust in the region. In the West, educational purchasing has, reportedly, begun to slow as summer breaks are approaching. Contacts in the Northeast and West report that strong export demand is present. Spot inventories are available in the West, while Midwest contacts say that any loads that become available are moving quickly.  (USDA Cheese Highlights)

Butter: Cream inventories vary throughout the country. Contact say that cream is available in the West, while inventories are mixed in the Northeast, and slimming in the Central region. Ice cream makers are purchasing loads of cream as they increase producing in preparation for the summer. Butter production varies in the Northeast but has remained steady in the West. Demand for butter is mixed. Stakeholders in the Northeast are concerned that higher grocery store prices for butter may be causing some customers to consider alternatives to butter. Recent news suggests that customers may not switch to alternatives as there is a global shortage of some plant-based fats. Contacts in the Central region say that a seasonal decline in demand is allowing them to focus on building inventories for summer/fall. Bulk butter overages range from 5 to 15 cents above market, across all regions.  (USDA Butter Highlights)

Dry whey: Demand for dry whey is steady to lower from purchasers in domestic markets this week. Contacts in the West say that export interest is waning after picking up in recent weeks. Port congestion is causing delays to some internationally bound loads of dry whey. Dry whey inventories are readily available for spot purchasing. Prices for dry whey have slid lower across both the range and the mostly price series this week. Some contacts are, reportedly, bearish on whey markets and expect prices to settle around the low to mid $0.50s in the coming weeks. Regional cheese producers are running busy schedules, leaving plenty of liquid whey available for drying operations. Some plant managers say that delayed deliveries of production supplies and labor shortages are preventing them from running full schedules. Dry whey production is steady but limited as stakeholders are focusing their production on higher whey protein concentrates and permeate. (USDA Dry Whey updates)

5 Year comparison of Cheddar Cheese Production

With dry whey showing some weakness and international demand coming off.  The class 3 price come down from its highs and the bulls are running out of steam.  This is not to say that there will be a big drop in the class 3 price.  With production also drifting lower in most of the world; the supply and demand curve is still leaning toward more demand then supply.  This is not to say that we could not drop several dollars from where they are at now.  Recommendation this week is a three sided play.  On the second half of 2022, buy $22 put, sell $27 call, sell $20 put, all for an average of 35 cents.