The KDM Dairy Report 2/25/2024



Production report gave a bullish spin this week as futures rallied.  Cow numbers are where most of the focus is and why the production report was running bullish.  Down 21,000 head from last month and 49,000 head from last year.  With limited supply of replacements and strong beef prices, the dairy herd size is not likely to grow.

Weekly Spot Prices
Weekly Future Prices

Cheese: Eastern cheese plant managers share seasonally steady production schedules. Retail demand is noted to be seasonally strong.  Foodservice demand is steady to lighter. Inventories are comfortable. Buying interest for cheese remains quiet in the Central region.  Some contacts share orders outside of contracts have been sparse in recent weeks. Cheddar inventories have been growing slowly.  Barrel producers say their orders are steady to stronger. Spot barrel loads are selling above market prices. Spot milk prices are being reported from $0.50-under to $0.50-over Class III prices. Western contacts share Class III spot milk load availability varies from area to area. Cheese production schedules are noted to be steady. Contacts relay steady demand from international buyers.  Spot cheese inventories are said to be tight.  (USDA Cheese Highlights)

Butter: Retail and food service demands are seasonally steady to stronger. Cream for butter makers is plentiful throughout most of the country.  Slower ice cream production, in some parts of the country, remains a factor in abundant cream availability for butter makers.  Manufacturers are running busy at-or-near capacity production schedules. Unsalted butter loads for spot buyers are somewhat tight.  Some contacts say overall butter supplies are tighter compared to the last couple years. Bulk butter overages range from 4 to 15 cents  above market, across all regions.  (USDA Butter Highlights)

Dry Whey: Prices moved higher across all facets of the range. For both nonpreferred and preferred brand loads, domestic demand is steady to strong. Export demand is moderate. Some stakeholders say the current whey market is tight.  Plenty of liquid whey is available from cheese production. Dry whey production is steady. That said, a strong whey protein concentrate market continues to incentivize some manufacturers to focus production schedules there, contributing to tightness for dry sweet whey. A few manufacturers indicate near-term availability for spot buyers will remain tight through the remainder of Q1. (USDA Dry Whey)

The red dots above represents one of the most bullish milk production reports we have had in recent years.  Why has futures not sky rocketed?  Two things, milk production has not dropped as much as cow numbers and demand is not tightening up cheese yet.  The current cash prices do not work for cash flowing dairies and we are going to continue to see the herd shrink until it does.  So the question is not is the cheese price going to go up but when.  Recommendations this week is to buy puts up front and buy calls second half.  Options have become pretty expensive for this recommendation so looking at spreads is a good way to cut down on costs.  Give us a call if you would like to get a more specific recommendation.