Cold Storage Report: Butter Gets a Beating; Cheese Stocks Drop 10%
Published: Friday, August 30, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
There was bearish news for butter prices last week as U.S. stocks grew atypically in July and topped those of a year ago, according to the USDA's latest Cold Storage report. The data showed 329.8 million pounds in storage, up 3.5 million pounds, or 1.1 percent, from June and 11.4 million, or 3.6 percent, above July 2018.
FC stone points out that only once in the past 10 years have butter stocks increased in July and that despite the fact that production is down 1.9 percent for the first six months of the year while commercial disappearance is up 1.2 percent.
American cheese stocks totaled 775.9 million pounds, down 10 million pounds, or 1.3 percent, from June, and 47.5 million, or 5.8 percent, below a year ago.
Stocks in the "other" category slipped to 560.9 million pounds, down 8.1 million pounds, or 1.4 percent, from June but were up 3.5 million, or .6 percent, from a year ago.
The total cheese inventory fell to 1.36 billion pounds, down 18.3 million pounds, or 1.3 percent, from June and 49 million pounds, or 3.5 percent, below that of July 2018.
FC Stone said, "We have less cheese in storage than normal and we don't think it's because buyers are necessarily ahead of the game this year. We've seen less protein in the milk components, and we started out the year making less cheese courtesy of the Class III/IV inversion while demand, specifically domestic demand, is good this year. Those dynamics are all coming out in the wash now."
HighGround Dairy points out that this is the first time on record from the USDA that both May and June experienced a drawdown in cheese stocks and that the total cheese stocks showed the sharpest June to July decline on record.
Cheese traders took the Cheddar blocks to $1.91 per pound last Tuesday, highest level since November 2016, but they closed last Friday at $1.88, unchanged on the week but 21 cents above a year ago. The barrels plunged to $1.6650 last Thursday and stayed there last Friday, a dime lower on the week and the lowest since June 18, but still 6½ cents above a year ago and a headache producing 21½ cents below the blocks. Eleven cars of block traded hands on the week and 32 of barrel.
Market tones were termed "somewhat unstable," according to Dairy Market News, though Midwestern cheese producers reported another positive week for sales. Curd producers suggest state and local fair season has added a boost. Others had similar reports, with some planning ahead for holiday gift boxes and promotions. Still others report they are near the point of falling behind on orders. Cheese production remains steady week over week in the region.
Cheese export sales were good and unchanged from the prior week, according to Western contacts, but there is an increase in global competition. Domestic cheese consumption is contributing to the balancing of supplies.
Butter saw a Friday close at $2.2275 per pound, 11¼ cents lower on the week and the lowest since Jan. 24, and 3¼ cents below a year ago, on 35 sales.
Central butter makers report that sales are "bettering expectations during this time of year." Food service demand may have affected this uptick, with schools purchasing for the upcoming semester.
Most schools are back in session in the West, so butter sales are expected to increase in the coming weeks. Retail sales were better than last week but the milkfat content is lower and reducing cream availability. Cream inventories are enough for butter manufacturing while prices and demand remain firm. Butter output is steady to a bit lower in the West, according to DMN.
Grade A nonfat dry milk closed last Friday at $1.0375 per pound, up three-quarters on the week and 16¾ cents above a year ago, on 29 cars exchanging hands.
FC Stone's Aug. 19 Early Morning Update says, "U.S. nonfat dry milk has been weaker than expected: lower exports to Mexico is at least partly responsible. The U.S. is still the most expensive powder. Indonesia will place tariffs on EU dairy products, potentially giving U.S. products an advantage there."
Dry whey closed the week at 39½ cents per pound, 3 cents higher but 8½ cents below a year ago, with only one sale reported for the week.
The Agriculture Department's latest Livestock, Dairy and Poultry Outlook, issued Aug. 16, mirrored milk price and production projections in the Aug. 12 World Agricultural Supply and Demand Estimates report but also reported that the number of replacement heifers on July 1 was lower than in July 2018.
Replacement heifers were estimated at 4.1 million as of July 1, a drop of 601,500 from Jan. 1, the largest January to July decline since the July 1 series began in 1973. The ratio of heifers to milk cows fell to 44.1 percent, the lowest since 2009.
The decline in milk cows in the second half of 2019 is expected to continue into early 2020, before the inventory begins to increase; therefore, the estimate for the size of the milking herd in 2020 was lowered 5,000 head to 9.35 million. Similarly, the forecast for milk per cow was lowered 35 pounds to 23,675.
The Agriculture Department announced the September Federal order Class I base milk price at $17.85 per hundredweight, down 4 cents from August but $3 above September 2018 and the highest September Class I since 2014. It equates to $1.53 per gallon, up from $1.28 a year ago. The nine-month average stands at $16.51, up from $14.58 a year ago and $16.41 in 2017.
You'll recall last week I reported that June fluid milk sales were down 4.1 percent from a year ago. Part of the downfall is due to the rising popularity of plant-based beverages, but the Aug. 16 Dairy and Food Market Analyst (DFMA) reported that plant-based milk product sales have slowed some, though they are still rising.
"Year-to-date, sales of alternative milks have only increased by 4.4 percent after rising by 9.5 percent in 2018," the DFMA stated. "Notably, almond milk sales have increased by just 7 percent so far this year; half the 14 percent increase experienced in 2018."
The DFMA also reported that "Dairy Farmers of America has launched a new beverage that combines 50 percent milk with 50 percent of either oat milk or almond milk. The product is launched under the brand name Live Real Farms. Dairy and plant-based mixes are an emerging trend. A month ago, Chobani launched a line of dairy-based yogurts with nut-butters," according to the DFMA.
Lastly, with one month left until the 2019 signup for the Dairy Margin Coverage program closes, National Milk urged dairy farmers to enroll in the program, which guarantees a payout for cash-strapped producers in 2019.
"The DMC is guaranteed to pay producers enrolled at the maximum $9.50 per hundredweight coverage level for every month of production through June, with another payment predicted for July, according to USDA data and forecasts. Enrollment numbers indicate that 63 percent of dairy operations with an established DMC production history have enrolled so far for this year and represents nearly 17,000 producers nationally," according to NMPF.
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