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Watch the Barrel

Published on Tuesday, February 5, 2019

Watch the Barrel                                               February 5, 2019

Five products are traded at the CME spot trade.  Among them: Block Cheddar, Barrel Cheddar, Dried Whey, Nonfat Dried Milk, and Butter.  With GDT prices escalating in recent weeks, many have gained a hint of optimism about their price hopes/forecasts.  In fact, as barrel cheese prices climbed in the last weeks of January, many thought that the slump was over.  Prior to that, barrel cheddar fell to the lowest level witnessed since 2009 when prices set the lowest prices for the 21st century.

As this was happening, block cheddar was moving higher as well.  It continued the trend that ultimately began in December.  Butter moved in tandem, returning to the top end of its range in recent months.  Nonfat Dried Milk has been stabilizing at prices around $1/lb while Dried Whey fell precipitously.  In a 2 1/2 week period, prices dropped 16 cents to return to levels not witnessed since May 2018.

In an environment of growing barrel inventories, we wonder when barrels will take its turn.  A quick look at the spot barrel chart may reveal the answer.  See Spot Barrel Cheese chart above.  As we have come through each of the last seven months, price rallies have commonly begun in the middle of the month.  Those same rallies have often died at the end of the month.  In fact, in the last seven months, that is exactly when they ended.  So as we begin a new month, we must ask, is it likely to happen again?

Take the opportunity afforded in this recent price rebound to evaluate your coverage out through the balance of 2019 whether that be with futures, options, or Dairy Revenue Protection (DRP).  Contact us to sort through strategies that are appropriate for your operation.