The KDM Dairy Report 1/7/2023


Happy New Year to everyone hope all had a good holidays.  2023 is starting off on a negative note as supply is out pacing demand.  Exports to Europe have dropped which has freed up some extra loads of cheese, and dropped the price.  The warmer then expected winter has kept milk production on the higher end and the Midwest is reporting discounts up to $10 under class.  This is weighing on the market as cheese plants are running busy schedules. There has been a $2 drop in the class 3 futures on Q1 of 2023 from the rally in mid November.

Weekly Spot Prices
Weekly Future Prices

Cheese: Cheesemakers say milk is available, with loads being sold for below Class prices throughout the country. In the Midwest and West, cheesemakers say they are utilizing this milk to run busy production schedules. In the Northeast, some cheesemakers relay lighter production due to the year-end holidays. In the Midwest, cheese demand varies as some contacts report lessening sales in recent weeks, while others report steady interest. Contacts in the Northeast report steady food service demand, though retail demand is softening. Lighter demand has been reported by Western cheesemakers in both retail and food service markets. Some contacts in the Northeast and West say lower prices for cheese produced in international markets are contributing to softening export demand. Others in the West report strong sales of cheese to purchasers in Asian markets. Cheese is available for spot purchasing throughout all regions.  (USDA Cheese Highlights)

Butter: Throughout the country cream is available. Contacts in the Northeast say volumes offered at low multiples are working through the market. Cream multiples were a little steeper in the Central region this week. In the West, some butter makers report current multiples have led to them using some volumes internally rather than selling on the spot market. Butter makers, in all regions, are running active production schedules. In the Northeast and Central regions, stakeholders say butter demand lightened around the holiday season. In the West, demand for butter is being outpaced by availability and spot loads are available for purchasing. In the Northeast, spot butter inventories have remained tight into the winter. Some contacts in the Central region say strong production, plentiful cream supplies, quieter demand, and a recent warehouse fire, have contributed to some uncertainty in the regional butter market. Bulk butter overages range from 3 to 15 cents above market, across all regions.  (USDA Butter Highlights)

Dry whey: Dry whey prices were steady, except on the bottom of the series, which moved up one penny. Trading activity was quiet, but more reported prices fell at $.40 or just above during the first week of the year. Some end users say there is a potential for more active purchasing toward the latter half of the first quarter, but they are currently stocked and not actively bidding. They also say offers have been somewhat quiet in recent weeks. Production is expected to increase, as milk is moving through Class III plants at heavy discounts to Class prices. Additionally, dry whey processing is expected to gain momentum, as high protein whey market prices continue to subside from their bullish peaks. Animal feed whey trading activity was quiet, as prices are unchanged. Market tones for edible whey are quiet.  (USDA Dry Whey updates)

We have seen a drop in class 3 price and the at this point the market is below the average cost of production for most dairy farmers.  The market does not always care though if it does not lead to a reduction in milk supply.  The updates are clearly running more negative then they were in the last couple of weeks and with out an uptick in demand the bottom is most likely not in.  With that said as cull rates go up, and with a lack of heifers in the pipe line I am expecting product to start to dip.  Recommendation this week is for the next six months; to ride out the lows, buy put spreads and sell rallies.  Feb-Jul buy the 19.00 put sell the 17.50 for 45 cent.