The KDM Dairy Report 2/26/2023


Milk production and cold storage were out this week.  Milk Production was up 1.5 which was middle of the road for most expectations.  The surprise on the Milk Production report was the cow numbers.  It went up 9000 from the previous month.  After the drop in cow numbers in December most market participants were looking for that trend to continue. This put a bearish lean to the report.  On cold storage cheese in warehouses was down slightly which is supportive for class 3, but butter stocks jumped 21 percent from last month which will be concerning for the class 4 price if that continues.  Overall the reports this week were neutral to a little bit bearish. 

Weekly Spot Prices
Weekly Future Prices

Cheese: In the Northeast and West, milk is available for cheesemakers to operate steady production schedules. Contacts in the Midwest say they are running busy schedules, but some in the upper parts of the region anticipate down time this week due to winter storms. Milk is being sold in the region for as much as $10 under Class III as volumes remain ample. In the Northeast, demand for Italian-type cheeses is strong, while retail and food service demands are steady. Contacts in the West relay sales to retail and food service markets are steady to lighter, while export demand is mixed. Retail cheese makers say they are busy in the Midwest, but barrel makers report orders are down compared to last year. Midwest cheesemakers say orders of Italian style cheeses are unchanged. Cheese block inventories are available, though lighter than previous weeks, in the Northeast. On the CME, the gap between blocks and barrels looms, but contacts in the Midwest view current price points as healthy.  (USDA Cheese Highlights)

Butter: Cream is plentiful in all regions, though contacts in the Central and West regions report steady to lighter demand this week. Butter makers in parts of the upper Midwest report winter storms this week may have an impact on production and require some cream handlers to look for different destinations for loads. In the Northeast, butter makers are running active schedules, and some manufacturers are churning butter on a seven-day schedule. Butter makers are producing strong amounts of butter, despite persistent regional labor shortages. Central region contacts say butter inventories are in sufficient shape for the spring. Butter inventories are tighter in certain parts of the East. Meanwhile in the West, spot inventories of unsalted butter are tighter than salted. Demand for butter is light to weak from both domestic and international customers in the West. Retail and food service butter demand is unchanged in the East, though some stakeholders say retail demand is trending higher than this time last year.  (USDA Butter Highlights)

Dry whey: Price range contracted on both ends this week. Plenty of dry whey is available for domestic purchasing. Market prices for dry whey on the CME increased 2.50 cents since last Wednesday. Some stakeholders suggest the more consistent prices over the last two weeks indicate stability in dry whey markets. Plenty of liquid whey is available for drying operations as cheesemakers continue busy production schedules. Strong dry whey production continues, and spot purchasers say loads continue to be available. Spot market activity is steady to light, despite slightly more activity.  (USDA Dry Whey updates)

Cow numbers are going to be an increasing part of the narrative as we go forward this year.  The jump in the January cow numbers I do not anticipate to continue as we move further into 2023.  If would expect cow numbers to start dropping with reports of more dairy cows going to slaughter and a limited amount of heifers in the pipe line. Recommendation buy puts up front.  With milk production and cheese production on the high side the market could slip lower for a few months.  At some point the cull rate will get high enough to tighten milk up and if demand holds in or increases at all the price of cheese will move back into the 20+ range.  Second half buy calls to offset any sold milk or to sell into on a rally.