Class IV, Butter, and NFDM will have expanded limits today.
The headline yesterday was the butter market as buyers sent futures limit up (+7.5 cents) between February and July after the bullish Cold Storage report. Sentiment has shifted quickly in this butter market and this risk of $3.00 butter this year is back once again. Futures volume fell to just 193 contracts as sellers back off for the most part. Interestingly enough, options trading has been lively this monthly with open interest rising aggressively. The stronger butter market supported stronger Class IV prices and volume with over 300 contracts trading with nearly all of it being new open interest as it increased by 241 contracts.
Although spot cheese prices were mixed, Class III decided to push higher in sympathy. Block prices were up 2.25 cents on 4 trades while barrels were down 1.75 cents with 2 trades. Futures volume fell from the 3,300 trading day on Wednesday with volume posting 2,500 contracts with most of that seen in Feb and Mar contracts as we continue to see participants roll positions. Cheese futures trading was actually stronger with over 1,100 contracts trading. Futures prices may shrug this off if spot prices remain steady short term. As we mentioned yesterday, component production remains stronger and has been enough to meet current demand but a long term view could shift that perspective.
Spot milk basis in the Upper-Midwest leapt higher this week to an average price of even with Class III. Class I demand has re-entered the market as schools are back from the holiday season which is putting some upward pressure on spot milk prices. Cheese processing returned to a bit more consistent schedule this last week. Milk and cream availability have diverged according to the USDA with there being ample cream supply but a tightening milk supply. The USDA is now bringing up the question of milk availability in the second half of 2024 given the processing needs. The last time we experienced a non-negative average spot load price in the 4th week of the year was back in 2019 (+0.25 over Class III).
Dairy cows slaughtered in the U.S. increased from the first week of the year as processing plants were running a full week. Total volume being harvested are still much lower than they were last year though, down 19.95% YoY. Given that heifer prices are in the mid $2,000 range depending on location, there just don’t seem to be cows for farmers to cull if they want to have a dairy running in a year or two. Reports from farmers is they know replacements will be an issue given the amount of culling and beef-cross breeding that was done and they are now working on correcting the situation, which takes time.
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