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Mixed fundamental signals for the dairy complex

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Will the Farm-to-Family program continue into 2021?

Price volatility continues in the dairy complex.  During the latter half of 2020, Class III milk futures were supported due to the government cheese buying program. This cheese demand allowed Class III futures to rally to the $24.00 price point this summer, and again come close to it during October, in spite of near record milk production. With the cheese buying program coming to an end, front month Class III milk futures have slipped back down to the mid $15.00 price point.

With the pandemic still raging, restaurants and schools still closed, and some Americans still needing financial assistance due to losing their jobs because of the pandemic, the biggest question mark for the Class III market is if the government will continue the Farm to Family food box program into 2021?

Waiting patiently

While the 2020 contracts had a roller coaster of trade volatility during third and fourth quarter of 2020, the deferred 2021 contracts sat quietly. They appeared to understand that milk production was near record large amounts, and that if the government cheese buying program did not continue into 2021, that the 2021 contracts would have little reason to rally.

While we still have not learned if the Farm to Families program will continue into 2021, something interesting is happening in the deferred Class III milk contracts. Both the January and February 2021 Class III milk futures posted bullish reversals on daily charts on December 3, 2020. Technically speaking, it appears that milk futures are digging in their heels and finding firm price footing near the mid $15.00 price point, with the February 2021 Class III futures contract already trading up to $17.00!

Cheese demand

Thanks to the cheese buying program, demand for cheese was potentially stronger than normal. This demand was favorable to both freshly made cheese, but interestingly enough, also cheese that had been in cold storage. According to recent data, there has been a continued downtrend of cheese in cold storage. The total cheese inventory fell to 1.34 billion pounds, down 17.3 million pounds or 1.3% from September, and 3.2 million pounds or 0.2% below October 2019. The way the market has used up those inventories is remarkable.

Strong exports

Thanks to the lower value of the U.S. Dollar, we have seen incredibly strong exports out of dairy products throughout 2020. The month of October set a record export number for the month as total dairy products exported came in 13% ahead of last year. The most impressive dairy product was whey, coming in at 66% higher vs. last October’s exports.

Hurry up and wait seems to continue to be a theme for Class III milk futures. The industry is aware of the large milk production values, and now all eyes continue to monitor any signs that the Farm to Family program will continue along with monitoring export demand.  

Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm   and [email protected]
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The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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