The KDM Dairy Report 2/18/2023


Football is behind us but warmer weather is on the horizon.  We have college basket balls March Madness and then Easter soon after that.  These events are typically not as robust for cheese consumption as the fall but still supply a little extra bump in demand.  Milk Production and Cold Storage will be out this next week which will give us some of the first numbers on 2023.  I do not expect these reports to be game changers, but if you want to get something traded before they come out they are out, milk production is on Wednesday the 22nd and cold storage is out Friday the 24th.

Weekly Spot Prices
Weekly Future Prices

Cheese: Milk is plentiful in the Northeast and West, allowing cheesemakers to operate strong production schedules. Some cheesemakers in the Northeast are operating below capacity due to labor shortages and delivery delays. In the Midwest, cheesemakers note milk is available, and some spot loads continue to move at $10 under Class III, though milk offers vary throughout the region with some cheesemakers relaying prices closer to $4 or $5 under Class. In the Midwest and West, demands for cheese are mixed, while contacts in the Northeast relay steady domestic cheese sales. Export sales of cheese are trending higher in the West. In the Northeast, cheese block inventories are lighter, seasonally, than in previous weeks. Cheese is available for spot purchasing in the West, but some stakeholders note barrel inventories are larger than blocks. Some western contacts suggest this is contributing to the greater than 30 cent block barrel spread seen on the CME throughout this week.  (USDA Cheese Highlights)

Butter: Cream is available throughout the country, and contacts in the Central region note volumes are actively flowing into butter plants, while cream remains at favorable pricing for churning. Cream demand is steady to light in the West, though butter makers are operating strong production schedules in the region. In the East, some plant managers report churning every day of the week. Some stakeholders in the Central region say they are micro-fixing to meet specific needs, but they are also actively churning available cream supplies. Butter inventories vary throughout the East, with some contacts relaying tightness depending on where they are in the region. Demand for butter is meeting seasonal expectations in the Central region, though contacts note expectations are often low in February when compared to other parts of the year. Butter sales are steady in the East, and contacts are relaying light demand in the West ahead of spring holidays. Bulk butter overages range from 0 to 14 cents above the market, across all regions.  (USDA Butter Highlights)

Dry whey: Dry whey prices moved higher at all points, except for the top of the range, which held steady at $.43. Spot trading activity was notably busy again this week. Price points are shifting into the high $.30s more regularly than last week. Some brand preferred trades are moving in the low $.40s. Some contacts relay reports of Southeast Asian customers reentering the market. On a more bearish note, there continue to be increases in dry whey production as high protein markets continue to trend bearishly. All said, markets are uncertain. Animal feed whey prices are unchanged following last week’s increase.  (USDA Dry Whey updates)

Cheese production for 2022 was up from 2021 and as we get our first numbers from 2023 I do not expect that trend to change.  Unfortunately the demand is not increasing at the same rate.  This has weighed down the class 3 price as we have moved into 2023.  There have been several reports that cows are moving toward the auction block and some of those will end up as beef.  At some point milk production will tighten up enough that cheese production will slow.  When this happens prices should go back up.  Timing is always the Million dollar question.  Recommendation, buy puts or put spreads on the front months of 2023 to keep the price from sliding lower. Further out look to calls or call spreads so there is something to sell into.