By: Bob Meyer
Even though cash cheese prices have been declining on the Chicago Mercantile Exchange this week, Class III futures had strong gains on Tuesday. The increase was in response to the March Milk Production report on Monday which Eric Meyer of HighGround Trading described as “underwhelming”. Meyer says given the strong income-over-feed numbers we’ve seen over the past four-five months, there should have been more herd growth and with it, more milk production. “Being up 1 percent during Q-1 in an environment that’s just screaming for milk with record-high milk prices just doesn’t cut it.” He notes the increases we are seeing in the Western United States are being offset by the declines in the Midwest.
Meyer says the cash cheese market is being pressured by some market loss due to the record-high prices. Add to that the fact the weather in the Central and Eastern U.S. will warm up eventually so we will see a spring flush plus international cheese prices are now below the U.S. Expectations are the cheese market is due for further correction and we could see cash cheese decline another 20 to 30 cents.
However, the monthly Cold Storage Report on Tuesday shows continued strong demand as total cheese stocks at the end of March were 105 million pounds below a year ago and butter stocks are down 77 million pounds. The numbers were up slightly from the end of February but Meyer says not enough to meet demand when milk production slips in the third-quarter. “We need a heck of a lot more milk to keep this market down to these levels.”
Meyer strongly suggests producers to look at put-options to protect the bottom while keeping the opportunity to take advantage of any increases.
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