You may remember the images on social media back in early April. Heart wrenching photos of dairy farmers being asked to dump milk as the ripple effects of COVID-19 crept into the dairy parlors across Wisconsin and other states. Milk futures prices tanked in response.
Thankfully, milk prices have drastically turned around since that dramatic sell off. Since the low of $10.68 per cwt on April 22nd we have seen June milk push over $9 higher to trade at $20 on June 3. This is one of the fastest rallies in the history of the milk market, and it is being driven by a higher trading spot cheese market.
The current rally by the spot cheese market is no less phenomenal. Earlier this week the block/barrel average soared up to $2.35875 per pound. This is an astounding $1.3550/pound off of the recent low. Because of Americans hunkering down at home during COVID-19 stay at home orders, demand for frozen pizza has been high. Therefore demand for cheese is high. In addition, many restaurants are re-opening across the nation, and kitchens are re-stocking supplies. Demand is strong and cheese buyers remain adamant to obtain supply.
While the nearby June milk contract is racing higher after forming a classic “V bottom” on daily charts, deferred futures contracts are a touch slower to follow, trading in the mid-$16.00’s to low $17.00’s. How high they can rally will depend on longer term demand and export news for all dairy products in the coming weeks.
Watch upcoming reports
In addition, trade will be eager to monitor U.S. milk production levels on upcoming reports. Will production levels show a drop off, as many dairy farmers were asked to cut production by 10 to 20% in efforts to help the supply chain re-align after COVID-19? How long will the production cut last now that milk prices have climbed higher?
The recent rally is welcome news for dairy farmers. Producers should start to think about ways to lock in this price rally, if we start to see technical topping signals on charts.
It is also a reminder to the rest of the agricultural industry; when things seem at their bleakest moment, push through. Often times the sun is about to come out.
Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and [email protected]