The KDM Dairy Report 2/12/2023


Some strength in the international market as Global Dairy Trade was up 3.2 percent, and cheddar was up 2.3 percent.  That puts the cheese price at the GDT at 2.26.  This has lead to some support on the class 3 futures market this week as the market has been searching for a bottom the last couple of weeks.  Whether this is a bottom will depend on where demand goes after the Super Bowl. 

Weekly Spot Prices
Weekly Future Prices

Cheese: In the Northeast and West, cheese makers are running busy production schedules as they work through available milk supplies. Spot milk prices as much as $10 under Class III were reported again in the Midwest this week, and cheese production remains active. Some stakeholders in the Northeast expressed concern that milk availability may be impacted by a recent cold front that swept through parts of the region. Domestic demand for cheese is mixed in the West: some contacts report steady sales while others relay a decline in recent weeks. In the Northeast, retail demand for cheese is softening, and food service sales are mixed. Northeast pizza makers say pizza sales are strong ahead of the professional football championship game. Demand has shifted from steady to strong for retail cheddar and some Italian style cheeses in the Northeast. Meanwhile, sales of curds and barrels in the region are steady to slower. Cheese inventories are growing in the Northeast, and stakeholders say loads are available for purchasing in the West. Some western contacts report barrel inventories are greater than block inventories and suggest this may be contributing to the current block-barrel spread on the CME.  (USDA Cheese Highlights)

Butter: In all regions cream supplies are readily available for production. Cream multiples are holding somewhat steady in the Central region, while moving lower at the top end in the West. In the East, increased Class II production may be contributing to the rising regional cream prices. Butter makers throughout the country are operating busy production schedules. Butter inventories are outpacing demand in the West, though steady export demand for unsalted butter is keeping unsalted inventories tighter than salted. Spot butter availability varies throughout the East, as some processors in parts of the region are focusing on freezing butter in bulk. Demand for butter is steady to strong in the East from both retail and food service customers. Contacts in the West report soft retail sales for butter and some say demand is well below previously forecasted levels. Bulk butter overages range from 0 to 10 cents above the market, across all regions.  (USDA Butter Highlights)

Dry whey:  The price range and mostly price series for dry whey on the bottom of the range has moved higher, and the tops moved lower. Demand for dry whey is steady to higher in domestic markets as some stakeholders have relayed an increase in spot inquiries this week. Export demand is unchanged, though some contacts say interest from purchasers in Asian markets remains below previously forecasted levels. Loads of dry whey are available on the spot market. Liquid whey is available for drying as cheesemakers are operating busy production schedules. Contacts report lower prices for higher protein whey concentrates and permeate are causing them to shift more production towards dry whey.  (USDA Dry Whey updates)

March Class 3 price chart

On the chart above the overall direction in the class 3 milk price is still heading in a bearish direction, but if the price on March does not get back below 1740 the bottom may have been put in on this market.  The bottom of the market is always very hard to figure out.  This is because the market is the most bearish at the bottom that is how it gets down there.  Fundamentally, we know that these prices do not work for most dairies and we are starting to see dairy cows head for auction.  At the same time there is still extra loads of milk moving at $10 under class so there is still more then enough milk out there.  Recommendation; March – May 2023 buy 1750 puts for 25 cents, Jun – Oct buy call spreads 2150 to 2300 for 30 cents.  This will give you some cheap support if the bottom is not in yet and something to sell into on a rally.