Despite a small pop upward during the holidays, the dairy markets have been gloomy for months. This week, the market gained strength after a long period of steadily grinding lower. Futures contracts and spot butter prices were the front runners, according to Robin Schmahl, a hedge and marketing specialist with AgDairy.
“It’s actually surprisingly strong as far as futures and butter prices are concerned,” Schmahl says. “This week, a fire got lit under the market to some extent.”
Schmahl says Class III futures contracts for February gained around $0.80/CWT this week.
“From its lows, Class III futures are about a $1 higher today,” he says. “That’s the highest it has been since December 10.”
Listen to this week’s Dairy Market Wrap Up below:
According to Schmahl, strong butter prices caused a lot of short covering in the market this week. He says the cheese price didn’t move much and didn’t provide support for the market. The butter price carried the ball.
“I think the movement up and distancing itself [butter] from the $2 mark got traders’ blood going and really improved the outlook for February and March,” he says.
Recently, USDA reduced the 2016 milk production outlook by 600 million lbs., which he says could have helped. “It could have sparked a little bit of the change in psychology in the dairy futures this week,” Schmahl says.
Notable market movements:
- Cash price for butter was 12.5 cents higher.
- Blocks up 3.5 cents.
- Barrels down 1.52 cents.
- Nonfat dry milk powder down 75 cents.