The KDM Dairy Report 1/14/2023


Volatile week in spot cheese.  With large moves each day, up one day and down the next, has left most traders scratching there heads on a direction.  Demand has been good but the mild weather in the Midwest has increased milk production to the point it is overwhelming demand.  With reports that extra loads of milk are going for $8 to $10 under class the over all sentiment is running bearish.

Weekly Spot Prices
Weekly Future Prices

Cheese: National Milk Day was January 11th and, fittingly, cheesemakers across all regions reported plentiful volumes for production. In the Midwest, contacts report some firmer sub-Class prices than last week’s $7 under, though milk remains available as low as $10 under Class. In the Northeast and West, cheesemakers are using available volumes of milk to run busy production schedules. Some plant managers in these two regions say labor shortages and delayed deliveries of production supplies are preventing them from operating at or near capacity. In the Northeast food service demand is steady and strong demand is present from retail customers who are replenishing their stocks following the recent holidays. Contacts in the West report steady to lighter demand from both retail and food service customers. In the Midwest, some cheesemakers report current bullish market swings are not reflective of recent demand tones, as sales have softened in recent weeks. In the Northeast and West, stakeholders say cheese is available for spot purchasing. In the Midwest, cheese inventories are expected to grow, and some process cheesemakers are concerned about near term inventory growth.  (USDA Cheese Highlights)

Butter: Cream remains abundant throughout the country, and contacts in the West report volumes are being offered at below flat market multiples this week. Meanwhile in the Northeast, some stakeholders say multiples are moving higher. Butter makers are utilizing available cream to run active production schedules. In the East and Central regions, butter makers are focusing their production on upcoming spring holiday demand. Demand for butter is steady to higher in the West, as purchasers are booking contracted loads for Q1 of 2023. In the East, demand remains subdued following the end of year holidays. Retail buyers in the Central region are focusing on buying what is necessary, though food service demand is gradually increasing. Spot butter inventories are limited, in the West, and unsalted butter is tighter than salted. In the East, stakeholders say butter inventories are seasonally light to comfortable. Bulk butter overages range from 3 to 15 cents above the market, across all regions.  (USDA Butter Highlights)

Dry whey: The price range for dry whey contacts held steady this week. Dry whey demand is unchanged in domestic markets, but a few stakeholders say spot sales are below some previous expectations. Export demand for dry whey is steady to lighter, though some contacts report optimism that loosening COVID restrictions in some Asian countries will contribute to increased demand for dry whey. Dry whey production is trending higher, amid strong cheese production. Some plant managers say lower prices for higher whey protein concentrates are leading them to shift their focus to dry whey. Spot purchasers say dry whey inventories are steady, but some anticipate increased availability amid lightening demand and increasing production. This has contributed to some bearishness in dry whey markets; the CME spot price for dry whey has fallen by 6 cents, since last Wednesday.  (USDA Dry Whey updates)

We have been hearing about a weaker market for a few weeks now.  With cheese production high and cheese demand high we could see the cheese market stay in this price range that it has been in for the last couple of weeks.  The real threat to class 3 is whey.  From the weekly updates on the bearish side, stocks increasing, and contacts in the industry saying buyers have backed off; dry whey could drop.  On NDPSR dry whey has been stable, but with the market running weaker when sports shakes and supplements should be moving off the shelf; dry whey is looking like it is heading for a drop in price.  Recommendation, sell the futures buy a call spread.  These are not good numbers for most producers there for I would add a call spread to your sold position so you are not locked in below your cost of production.