(June 21, 2012) It’s been a roller coaster ride for CME block cheese the past couple of weeks. The blocks were trading at $1.70 last week but then dropped to $1.6250, a quarter-cent below the barrels as of June 21.

“Maybe it’s buy the rumor, sell the facts scenario,” FC Stone dairy broker Dave Kurzawski told DairyLine. “The rumor being…there’s been a real worry for some milk supply to slow up here as we go forward.”

He cited good first half reports of export demand that could have attributed to the rise in prices. “The first part of the year, demand wasn’t expected to be quite as strong as it has turned out to be for cheese.”

The $1.70 mark appears to be the threshold for block cheese. “I think that’s where people start saying this is going to shut off exports that we do have,” he said. “This is going to slow things down because we do have cheese available, there is some fresh product out there and so we saw that start to come to market last week.”

Butter and cheese performed stronger than expected recently, but Kurzawski believes we are probably running out of steam on both. Although the latest milk production report will help.

“We’re not in a situation of dire straits with milk supply yet, the questions are what kind of July, August and September type weather are we going to have, and what is that going to do to milk supply.”

It is already pretty hot in certain areas of the country, we have had some reprieve but so far we are on track for what looks like a hot, dry summer. Kurzawski said for the dairy complex over the past month as been like, “Let’s shoot first and ask questions later. Let’s make sure we are prepared, we have the product bought and put away and we’re not guessing about moving forward.”

The markets breathed a collective sigh of relief after the much-awaited Greek elections Sunday saw the new democracy party winning by a thin margin.

“It does speak towards a unification there for Greece. At least a staving off of what could have been a currency debacle…away from the Euro Zone…that would have been a very deflationary event for commodities globally as well as U-S commodity markets.”

Moving forward, perhaps kicking the can down the road a little longer here with the problems in Greece. Now the focus is more on Spain

(May 8, 2012) When will dawn arrive for dairy producers? FC Stone dairy economist Dave Kurzawski reported on Tuesday’s DairyLine that we might have seen the low for cheese this year. 

The spot cheese market saw blocks starting the week unchanged but barrels ended lower Monday. “The barrels were kind of forced to the downside,” Kurzawski said. “We went all the way down to $1.45 then finished a quarter-cent lower.” 

There is buying interest out there and Kurzawski believes we might have hit the low as long as we can maintain the $1.45 to $1.55 price through May. He admits that it is a big request this early on as the butter and powder markets remain weak. 

“There is still room to go to the downside for cheese and Class III,” he said. “I’m not saying that is not going to happen.” Dairy producers may have to make some drastic farm level decisions sooner rather than later as the profit margin on the farm is akin to the second quarter of 2009. 

“There are good times to put hedges on and not so good times, right now we are in that no so good time to be putting a hedge on,” he said.  Even with $14-$15 prices out there, “The market has just taken a severe decline over the past three to four weeks and markets don’t typically go straight down.” 

If you are looking to put some hedges in place, monitor the grain and feed costs, which also could show some weakness moving forward.  

“The market is making it real easy for you,” Kurzawski stated. “As a producer it’s real difficult to put any hedges of any worth on at this point and time.” He advised dairy producers to sit back and be concerned with other aspects of the business rather than hedging. Hopefully a Class III rally in May will change the tune and producers can start to look at places to mitigate some risk.

(Novmeber 30, 2011) CME Cheese prices slipped the week of November 29^th. Block cheese lost 4-3/4 cents, closing Friday at $1.74. Barrel cheese lost 12-3/4 cents on the week and closed Friday at $1.7125.

“Relative to the world price, both cheese and butter are a little lofty,” FC Stone Sr. dairy broker Dave Kurzawski said to DairyLine after the markets closed Tuesday. He noted that there’s a resurgence in buying not only in the dairy complex but also in other commodity markets, including the stock market. Domestic demand for cheese has really been the driver for the past two months and that continues to be the case., according to Kurzawski. 

“Longer term the $1.80 (cheese) probably looks a bit too high, but for right now I think we have some solid footing on this cheese price.”

There was “a bubbling up of price” last week in the CME milk futures. “We still maintain a somewhat discounted price,” he said. “Really the Class III market has been a beneficiary of the stronger dry whey futures prices, up a quarter to 1 ½-cents higher all the way through the third quarter of 2012.”

Dry whey prices continue be strong and that helps the Class III market, but Kurzawski said “when you look at a cheese equivalent price… Class III is really sitting somewhere in the mid-to-high $1.50 price range.”

Looking at Class III milk futures, he says the biggest gainers will be the second and third quarters of 2012, adding it’s a good opportunity to lock in a forward price or doing some milk marketing.

”I do think producers will be on the winning end of a cheaper feed and better milk price scenario going into 2012,” he concluded.

After seeing declines in the CME spot markets last week, prices are heading in the opposite direction this week. While we still have a two-dollar cheese market, futures are not buying into that according to Dave Kurzawski, FC Stone dairy and commodity analyst.

He said Monday was a consolidation trade after last weeks wild swings in the Class III market. “But we carry a pretty significant discount still for spot cheese…with the onus being on the market bulls, or at least the buyers of cheese here to kind of hold the market up,” he said.

CME spot butter continues to climb back up after last week’s declines. “The futures are going to foreshadow the market sentiment going forward,” Kurzawski said. “We have a very steep discount right now on the cash settled butter futures market and it really foreshadows that we could be less than a two-dollar market here within the next couple of weeks.”

He said cash settled butter futures are weak and probably will get weaker. “I don’t know how long this spot support will hold out here but again very defensive trade here in the butter market.”

Class III futures have been experiencing some swings. Last Thursday, the September Class III price dropped 75 cents.

The markets are typically quiet in August but that hasn’t been the case this year. “August has been extremely busy, extremely volatile and again we’re just trying to find the best possible price as we can,” he said.

“As the weather cools off here, in the Midwest particularly, we have this bearish bias on these dairy prices going forward. Not to mention the weakness in the international prices that we’ve seen over the past few weeks. We’re going to get more data this week that should show us more of the same. More weakening on the international front and that is expected as we start to see demand cool as we get into the fall months,” he concluded.

Cheese price reversed gears from Monday’s surprise uptick. Downes-O’Neill dairy broker Dave Kurzawski summed it up in Wednesday’s DairyLine; “We got a lot of volatility here in the marketplace. The market is trying to find a happy place and that happy place is somewhere here between $1.60 and $1.70 at this point in time.” He also warned that more cheese is like to come to the market and that could pull the price below $1.50.

Kurzawski said there’s fresh product available, based on Monday’s trading, “that buying that pushed us up 7 cents, that buying was I don’t want to miss the boat type buying, that was the psychology behind that.” He pointed to the a quarter-cent higher bid in Friday’s block market and the buyers said “I better get in here before we get back up to $1.90, the fundamentals don’t yet support that,” he said.

The price got to $1.70 as a line in the sand, according to Kurzawski, and the sellers came back out and do have the product. That could change in 30 or 45 days, he said, “But today and this week they do have cheese available.”

Switching to the butter side, the price strengthened three consecutive sessions but lost a penny and a half Tuesday on an offer. “The buyers stepped away here quietly Tuesday,” Kurzawski explained. They have been a big part of the reason the price has been above $2 for a few weeks but they will eventually step aside for more than just a day, he warned. They’re not gone yet, he said, but over the next couple weeks, he looks for butter to fall below $2 for a short period.

The stocks to use ratios on butter, nonfat dry milk, on dry whey are all very tight, he concluded, “We don’t have a lot of wiggle room but right now we have enough to meet the current demand.”

The National Dairy Producers Conference is May 15th through the 17th in Omaha,Nebraska. Formerly known as the National Dairy Leaders Conference, this event, organized by National Milk, will provide in-depth coverage of the issues facing the dairy industry with educational discussions on many of the challenges looming in 2011. Chris Galen will preview the conference on tomorrow’s DairyLine and Select Sires has its “Reproductive Moment” in our second half.

The powder and dry whey markets are tight and that’s been the case for a few months, according to Downes-O’Neill dairy broker Dave Kurzawski in Wednesday’s DairyLine. Things really got tight relative to demand in the past few weeks as demand picked up in the opening weeks of 2011.  

“We knew about the tight stocks but now we have fresh demand coming in trying to pick those stocks away,” Kurzawski said. Prices are firm as dry whey is in the mid 40-cent range and “this is really the leader of the dairy complex right now.”  

Butter had a run up to $2.10 a couple weeks ago, he said, however it’s relatively quiet right now, but skim milk powder and whole milk power on the world market is seeing sizable demand and that’s impacting the markets in Chicago.  

This has created quite a price disparity between the Class III and Class IV and is one of the reasons Class III futures have been up so solidly the last few weeks, Kurzawski said, “in part due to sympathy with the Class IV market which is trading in the high $17s to over $18.”  

“As to the Class IIIs, as much we may want to stay in a mid $14 cheese equivalent price, given where cheese settled today, the futures definitely have to comply a little bit with what they see as a firming Class IV situation, and what has been a firming Class IV situation,” Kurzawski said. That, he said, has “pulled the Class III futures into this bull market that we’re currently in right now.”  

When asked for dairy producer hedging advice, Kurzawski said he believes the markets are “a little over cooked” right now on both Class IV and Class III although the spot market is starting to respond.  

“You have to look at profit margins,” he said, “and if you have some profit margin right now, go ahead and lock some of that up, otherwise you look at put options as a worst case scenario floor price insurance program.” For more information, call Dave at 1800-231-3089.

The hemorrhaging continues in the cash cheese market where the blocks dropped to $1.3350 on Tuesday and yet the CME’s Daily Dairy Report says U.S. cheese exports are topping imports this year for the first time in USDA records dating back to 1970.

Downes-O’Neill dairy broker Dave Kurzawski is bullish on cheese and admitted in Wednesday’s broadcast that cheese is under a lot of pressure but the Oceania Cheddar price is at $1.90 and that “gapping hole” plus the weak dollar is attracting U.S. cheese and it may be cheaper to produce some of the cheese that is normally imported here in this country.

The market will work it out in 2011, according to Kurzawski, and ultimately the U.S. price of cheese will be headed back up but the calendar will probably roll into the New Year before that happens.

Reports and concerns over drought in part of New Zealand is also a factor but that’s probably not been priced in yet, according to Kurzawski, and the possible passage of a free agreement with South Korea is another factor.

Kurzawski said the cheese coming to the Exchange in Chicago right now is more inventory management as the end of 2010 approaches. He believes the cheese price is within pennies of the bottom and that buyers will respond at this level.

Downes-O’Neill dairy broker Dave Kurzawski echoed some of Mary Ledman’s remarks regarding barrel cheese in Wednesday’s broadcast. Kurzawski viewed the actual trading Tuesday at the Chicago Mercantile Exchange where the blocks inched a half-cent higher, to $1.4175 per pound, while the barrels rolled down hill another three quarters, to $1.35.

The wide spread is not the biggest we’ve ever seen, he said, but “a little unusual” and a “Tale of Two Cities.” There seems to be good demand on the block side of things, he said, but the barrels seem to be languishing as there seems to be plenty of barrel product available in the country right now.”

Holiday buying is a part of what’s going on, according to Kurzawski, but the interesting part is that “Buyers, by and large, have taken a step back from the market the past month, which historically is a very good demand time of year.” The prices have come down substantially, he said, so “We’re starting to see some stability in the marketplace. I suspect you’ll see those buyers step back in.”

As to risk management strategy for dairy producers; Kurzawski recommends a “wait and see attitude” and consider buying put options. “The margins really, truly are not very good,” he admitted, “Even with the weakness that we have seen recently in corn. The best bet here is to look at being a put option buyer going forward.”

The Agriculture Department releases its preliminary October milk production estimate Thursday afternoon. We will post complete details here as soon as possible.

Friday morning, USDA announces the December Federal order Class I base milk price. Market analyst, Alan Levitt, predicts it will come in around $16.98 per hundredweight.That would be a 26-cent drop from November but would be $2.99 above December 2009.

Downes-O’Neill dairy broker Dave Kurzawski, speaking in the next day’s DairyLine, said “There’s a lot of pessimism in the market place right now, certainly in the futures market, and the trade is waiting for more price weakness.” 

He adds that the futures have already priced in a substantial discount, citing the November Class III contract as an example, running about a dime below the current spot cheese price. He added, “If we don’t get down to a low $1.60 price very shortly, that November futures contract is going to have to come back up.” 

He believes there’s been a lot of emotion in the marketplace and he reported that some “under grade cheese” has been floating around in the country and that’s surprised some. 

Cheese demand has slipped a little, according to Kurzawski, but we don’t know how much and “right now there’s a little more pessimism in the market than optimism in the futures.” 

Concern over rising feed prices is another factor and, when asked what this means for a dairy producer’s risk management strategy, Kurzawski replied, “If they can’t lock in a profit and bring that profit home to the dairy, then they can’t do much.” 

He recommends letting the emotions play out in the market right now and “See what happens in the spot cheese market over the coming days and if we don’t see any more pressure on the spot market, or at least a 10 to 15 cent decline in the spot market in the short term, you will have a recovery bounce on Class III futures and when that happens, there may be some better margins out there.”  

Corn prices, as of Tuesday, were slipping a little, he said, “but there’s still a lot of ground to cover,” so he recommends producers “play it very cautiously and if you can’t lock in a profit margin then you can’t really do anything at all.”