Milk futures have climbed steadily for the past two months thanks to strong demand for dairy products. Class III November 2020 milk futures made a new contract high this week trading up to $24.09. The December 2020 contract made a recent high of $21.16. Strong cheese demand and export demand keeps milk futures well supported with no sign of a top.
The government cheese buying program has been a major factor in the milk price rally. The Farm-to-families program was extended until year end, the main reason for strong November and December Class III milk futures. Cash cheese prices have been strong for over a month, which translates into strong Class III futures prices for nearby contracts.
Strong export demand
Dairy export demand has been fantastic. Dairy exports from January 2020-August 2020 were up 12.27% from that same time period in 2019. Total exports for the month of August were up 17% from August of 2019, and were just shy of an all-time record from August of 2018.
Can it continue? Much of that depends on the value of the U.S. Dollar. Essentially the dollar has been trading near a two year low, between 92.00 and 95.00 points for four months. Presidential election results along with fourth quarter U.S. economic results will likely dictate dollar direction.
Milk Production is HUGE
Thanks to better prices, dairy farmers are pumping out the milk. The September milk production report showed that total U.S. milk production came in at 18 billion pounds, which was up 2.3%! If you are new to milk production reports, usually a 1% increase in production is considered a “big deal” and is traditionally bearish to the market price. A large, 2.3% increase in overall milk production is a reminder that once the cheese buying program stops, milk prices may suffer.
Some feel this notion may already be partially priced into the markets already based on how the deferred Class III milk futures have been trading at a substantial price discount with most 2021 futures contracts trading in the mid-$16.00 price level.
While there is no “technical” sign of a top for milk futures, be watching this market daily. The fundamentals are shifting.