Guest Columns

Dairy Markets

Volatility in uncertain times

Andy Faulman

Andy Faulman is a risk management advisor at Rice Dairy*, a brokerage firm in Chicago that specializes in dairy and markets at dairy’s periphery. He is a guest columnist for Cheese Market News®.

Volatility has become the name of the game here as uncertainty surrounding coronavirus has sent not only dairy markets, but all markets into a frenzy. It is tough to say what is going to happen over the next 30-60 days; however, I do feel confident in saying that we will continue to see volatile markets for the foreseeable future.

Dairy has been no exception to the recent drag on markets. To start, the nonfat dry milk market has been trending lower, with futures following suit. At the start of this week, the spot market opened lower and is now hovering just under $1.00. Futures alongside the spot market have seen consistent selling, with the second half of the year trading sub-$1.10. Butter has been a product as well that has been moving lower despite the start of the new crop season two weeks ago.

How has the cheese market fared? Despite the sharp decline in both commodity and equity markets, the CME block cheddar market has managed to hold, and in fact rally, the past few weeks. Knocking on the door of $1.90, the CME block has been the market that has been maintaining in dairy. One thing that comes to mind is the recent run on product at the store levels. If you have been to the grocery store lately, you have probably noticed some barren shelves in some aisles. Reports of retail cheese sales climbing as a result of busy grocery stores seem to be lending support to the block market. The question becomes, how long does this last for?

For cheese, another thing comes to mind. What will be the impact of the disruption in our import/export market? This could be something that has the potential to drag on the cheese market in both directions. Not being able to export is bearish to the cheese market; that said, our inability to import specialty type cheese products could also increase demand domestically, effectively taking capacity away from commodity-grade cheddar.

Something else that has started to gain traction that can impact the cheese market is the nationwide closure of restaurants. Even with the ability to order out for deliveries, restaurant business has been coming to a significant slowdown both with closures as well as social isolation practices being observed. Again, impossible to say how long this can last for; however, the decline in restaurant sales should in theory negatively impact not only cheese demand but dairy as a whole.

Alongside that is the closing of schools around the country. Even with schools closing for 2-3 weeks for the foreseeable future, that also can negatively impact dairy across all dairy categories.

There are a number of scenarios that can play out over the next 30-60 days. Assuming we see further demand destruction like mandatory closing of restaurants for example, then it is likely we can see more weakness in price. For now, look for the roller coaster in prices to continue as the country and world work through this pandemic.


The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

*The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made. The information contained herein is strictly the opinion of its author and not necessarily of Rice Dairy and is intended to be a solicitation. Past performance is not indicative of future results.

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