The story for the last couple of months has been too much milk. There are still large discounts in the Midwest and most of that milk it going into producing cheese. Demand has been strong but until it can start to tighten up the cheese supply the price of class 3 is going to continue to sink. The spot price has found some support but at this level the class 3 spot price is at 1588. That number is not working for any producers. Therefore, look for some volatility in the coming months. The longer the market stays down the higher it will go when it goes up.
Weekly Spot Prices
Weekly Future Prices
Cheese: Milk volumes are plentiful throughout the country, and cheesemakers in the Northeast and West are running strong production schedules to utilize available supplies. In the Midwest, some cheesemakers are reporting scheduled downtime this week, and milk volumes are available for spot purchasing at prices ranging from $4 to $10 under Class III. Contacts in the Midwest report some varieties of cheese are moving well, including retail and cut/wrap options. Meanwhile, inflation is said to be affecting some pizza/Italian restaurants who have cut back on their cheese purchasing. Retail demand is strong in the Northeast, though food service sales have cooled in recent weeks. Contacts in the West report strong food service sales, while retail demand is holding steady. Spot cheese inventories are available to meet purchasers’ needs in the West, while inventories vary somewhat in the Northeast region. (USDA Cheese Highlights)
Butter: Cream is available in the East, though some in the Mid-Atlantic states relay cream is going towards Class II manufacturing, rather than to churning. In the Central region, cream is available, but an uptick in Class II and III production schedules is contributing to a steady decline in cream stores. Cream is plentiful in the West, and butter makers are operating strong production schedules to work through available volumes. Butter makers in the Central region are operating strong production schedules, and some plant managers report they are churning and micro-fixing. Butter makers in the East say they are churning seven days a week in areas where cream is available. In the East, retail demand is steady, though contacts report softening food service butter sales. Bulk butter availability is limited in the Central region as butter makers are focusing on fulfilling contracts and on the upcoming early fall demand. In the West, loads of butter are available for purchasing. (USDA Butter Highlights)
Dry whey: Dry whey prices slipped lower in all facets this week. More trading is taking place in the $.30s than in previous weeks. As processing moves away from higher protein complexes, such as WPC 80%, and into more whey powder, market tones are expected to run into further bearish pressure. There is plenty of milk available for Class III processing, but some plant managers say they have downtime scheduled at multiple plants this week and next. Demand is mixed, and broker contacts continue to say brand preferred loads are still getting traction in the low- to mid-$.40s. Animal feed whey prices were lower this week, on steadily slow trading activity. (USDA Dry Whey updates)
Cheddar cheese production is up from the last 5 years. As discounted milk has been available this year cheese producers have been making extra loads and those are typically cheddar cheese. This cheese has been dumped on the CME spot market driving down the spot prices, and intern driving down the class 3 price. Domestic demand has stayed strong, but the extra loads that Europe was taking last year, is now going to the CME spot market. Europe milk production has increased and they no long need extra loads from the US. This is not saying there is not good exports it is just the one or two percent extra that was heading out of the country last year is now heading to the spot market forcing down the price. With the current prices below cost of production nation wide, the price at some point will have to come back up. Recommendation, cover all sold futures with calls or call spreads. For new coverage look at puts or put spreads; Aug-Dec 23 buy 1900 put sell 1800 put for 35 cents.