The KDM Dairy Report 8/27/2022


Class 3 futures moving higher this week despite Milk Production and Cold storage coming in higher.  Milk Production came in 0.2 percent higher for the month of July compared to 2021 and the cow numbers moved up by a 1000 head from last year.  Also, natural cheese stocks moved up 1 percent from the previous month which made it 5 percent higher then a year ago.  Normally these would not be bullish numbers but there are some market forces that want to be long this market which forced futures higher.  

Weekly Spot Prices
Weekly Future Prices

Cheese: Cheesemakers are running busy production schedules in the Northeast and West. In the Midwest, production is mixed as downtime at some plants is contributing to increased milk availability for others. Cheese inventories are available for spot purchasing in the Northeast and West, but some producers in the Midwest say orders are starting to outpace availability. On August 22, NASS released the Cold Storage report showing inventories at the end of July. This report showed that total natural cheese inventories in cold storage were at a record monthly high. In the Northeast, retail demand for cheese is steady to lower and food service purchasing is steady. Midwest contacts say retail sales of cheese are steady, but food service orders are mixed as some restaurants facing staffing issues have reduced operating hours. In the West, domestic demand is steady to lower. Some stakeholders in the region expect the upcoming football season to contribute to increased pizza sales and demand for mozzarella cheese.  (USDA Cheese Highlights)

Butter: In the Northeast and Central regions, cream volumes are tight. Some stakeholders in the West are paying premiums for additional loads of cream, as availability is tightening in the region. Demand for cream is strong from butter and ice cream makers in the West. High cream multiples have enticed some butter makers in the Northeast into selling into Class II markets, reducing availability for butter makers. Some butter makers in the West say limited cream availability is impacting their ability to run full production schedules. In the Northeast, tight butter inventories have caused some purchasers to look to the West for loads. Western contacts say inventories are tightening, amid strengthening bulk butter demand. Butter producers in the Central region report sales are relatively stable week-to- week. Domestic butter prices are higher than some international values; due to this some, Central region contacts expect an increase in import trading to meet seasonal baking needs.  (USDA Butter Highlights)

Dry whey: The price range for dry whey contracted this week, as the bottoms of each moved higher and the tops moved lower. Downward movement from certain indexes contributed to lower prices at the top of the price range. Domestic demand for dry whey is unchanged. Contacts report international demand is steady, though exports to Asian markets are below some expectations and down from last year. Inventories of dry whey are available for spot purchasing. Production of dry whey is unchanged, as labor shortages and delayed deliveries of production supplies continue to prevent some drying operations from operating full schedules.  (USDA Dry Whey updates)

As you can see from the chart above, cow numbers have held relatively steady for the last three months.  With production per cow above last year overall milk production is above last year.  As we push into the fall I would expect milk production to out pace last year as the cow numbers started to drop significantly last year at this time.  With higher milk production there needs to be higher demand to maintain the elevated numbers in the class 3 market.  Recommendation: If these numbers are profitable I would look to sell up to half your milk for the next 6 months.  I know these numbers do not work for everyone so we could see cow numbers start to drop if input costs do not start to come down.  With that in mind look to take profits on a drop of $2, or get call over the top as the down side is probably limited as well.