The KDM Dairy Report 9/30/2023


More weakness in the spot market as loads traded 50 cents less than NDPSR.  October which is typically a strong month for Class 3, but this year that is getting turned on its head. With a good rally coming at the end of the summer an October slump is starting to rear its ugly head.  A few more farms are heading to the action block this week and I expect the cull rate to edge higher again.  The one bright spot in dairy is butter as a tight supply has sent prices sky high. 

Weekly Spot Prices
Weekly Future Prices

Cheese: Unseasonably warm weather has negatively impacted milk production in some Northeast states, while milk volumes in the region are being drawn upon by school bottling purchasers. In the Midwest, some cheese makers say tight milk volumes are causing them to run reduced production schedules. Regional milk volumes are tight, and contacts report regional spot loads at prices $1 over Class and higher. Spot milk volumes are somewhat limited in the West, amid strong Class III demand. Some cheese makers in the region say this is contributing to lighter cheese production. In the West, retail demand for cheese is strong to steady and food service sales are steady. Contacts in the Northeast say cheese demand is lighter compared to the summer months. Cheese demand is steady from retail and food service purchasers in the Midwest. A few contacts in the Midwest say recent bearishness on the CME daily cash call has some customers stepping back, but cheesemakers in the region are still relaying mostly similar notes to previous weeks regarding demand. Cheese barrel makers say inventories are not currently a concern, despite increased bearishness for cheese barrels compared to blocks.. (USDA Cheese Highlights)

Butter: Cream volumes are tight throughout all three regions, and contacts in the Central region note that cream is having a significant impact on butter production. Central region butter makers say daily production has remained somewhat similar in recent weeks, despite increasing prices received for butter on the CME. In the West, butter production is mixed. Contracted cream volumes are keeping butter churns active in the East. Butter inventories are tight in the East. Contacts in the Central region say loads are available if purchasers are willing to pay higher prices for butter, but inventories are not abundant. In the West, bulk butter inventories are tightening amid strong demand. Contacts in the West report strong to steady demand for butter in retail and food service markets, while export demand is moderate to light. In the East, food service sales are steady, though retail demand is softening. Demand for butter is steady in the Central region, but some contacts are concerned that butter priced above $3/lb will cause purchasers to reduce orders to only loads which meet their immediate needs.  (USDA Butter Highlights)

Dry Whey: Dry whey prices moved slightly higher across all facets of the range and mostly price series. Trading of non-preferred brand loads is more active. Domestic demand is steady to moderate. A few manufacturers report tight bleached whey inventories. That said, loads are available to meet current spot market and contractual bleached and unbleached dry whey demand. Export demand is moderate. Steady cheese manufacturing schedules are making enough liquid whey available for dry whey production to run steadily. However, some processors with the ability to produce both whey protein concentrate and dry whey, are focusing on whey protein concentrates given the comparatively stronger whey protein concentrates markets. Market tones are somewhat uncertain as a large industry conference is taking place this week. (USDA Dry Whey)

With butter on the tight side, running into the holiday season, prices are jumping.  I expect this will push more milk toward class 4 production.  This will lend some support for class 3, but demand is a concern as exports have slowed and there is some concern of the US economy slowing as well.  Recommendation: put spreads for Jan – April of 2024, buy 1800 put sell 1650 put for 40 cents.