6/26/2022
More price volatility this week with spot moving lower, futures moving lower, and NDPSR moving lower but not by as much as expected. The week started out the week with the production report which had production lower then last year by 0.7 percent. This was a little surprising with the milk price across all sectors at all time highs. There was 2,000 dairy cows added from last month, but with the 84,000 head we are down from last year that number is not going to close the milk production gap. This supported prices until Thursday when cold storage came out. Natural cheese stocks are up 2 percent from last month and 4 percent from last year. The combination of lower milk production and higher cold storage painted a negative picture with the reality that high price are killing demand at a rate fast then the drop in milk production. The one bright spot is exports and the fact that they should continue to increase as prices come down.
Weekly Spot Prices
Weekly Future Prices
Cheese: Cheesemakers are running busy schedules across the country as Class III milk supplies remain widely available. Labor shortages and delayed deliveries of production supplies are causing some Western cheesemakers to run below capacity. Cheese inventories are available for spot purchasing. Contacts in the Northeast and West report that domestic demand in both retail and food service markets is softening. In the Midwest, interest for barrels and curds is strong, while other cheddar is seasonally quiet. Across the country, cheese inventories are available for spot purchasing. Cheese markets, reportedly, are experiencing some downward pressure. Contacts in the West relay that softening domestic demand and increased spot availability are contributing to this. (USDA Cheese Highlights)
Butter: Cream is available throughout all regions, though contacts in the Northeast and West note that availability is declining seasonally. Strong demand for cream is present in the West, but contacts report that high transportation costs and limited tanker availability are causing most loads to stay local. Butter makers in the Northeast are running lighter schedules due to higher cream multiples and softening demand. Meanwhile, contacts in all regions relay that staffing shortages are limiting their ability to run full schedules. Demand for butter is declining in the Northeast and West. Central region demand for butter is soft, following seasonal trends. Across all regions, bulk butter overages range from 4 to 16 cents above market. (USDA Butter Highlights)
Dry whey: The top of the dry whey price range held steady, while the bottom of the range and slid lower. Market prices for dry whey have fallen by 1.25 cents, on the CME, since last Wednesday. Contacts report that dry whey inventories are available and building. Export demand for dry whey is steady to lower, and sales to Asia remain below some stakeholder expectations. Demand for dry whey is unchanged in domestic markets. Cheesemakers are running busy schedules, leaving plenty of supplies of liquid whey available for drying operations. Dry whey production is steady; plant managers continue to cite labor shortages as preventing them from running at capacity. Meanwhile, some drying operations are focusing their schedules on the production of higher whey protein concentrates and permeate. (USDA Dry Whey updates)
Cold storage is the dominate news event this week and we could see the buy side back off and wait to see where cheese prices will bottom out. Prices will most likely keep moving lower this next week, but with exports continuing to strengthen and end users still not loaded up for the fall this could be a softer landing then would otherwise be expected form the reports of last week. Recommendation, the 23’s are still a sell this week as spot class 3 price currently is at $21.40, further out then that look to option trades. For next year look at buying the $20 put, sell $18 put, and sell $25 call for 20 cents. Give us a call next week and we can tailor our recommendation to your operation.
