Dairy Stocks Remain Up from '19
Published: Friday, October 2, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Dairy product stocks remain above year-ago levels. The Agriculture Department's latest Cold Storage report shows Aug. 31 butter stocks at 371.7 million pounds, up 253,000 pounds from July but a hefty 67.4 million pounds, or 22.1 percent, above August 2019, the 14th consecutive month they were above a year ago.
American-type cheese totaled 790.1 million pounds, up 4.5 million pounds, or .6 percent, from July, and 22.7 million, or 3 percent, above a year ago.
The "other" cheese inventory fell to 567.8 million pounds, down 17.8 million pounds, or 3 percent, from July, and 2.4 million pounds, or .4 percent, below a year ago.
The total cheese inventory stood at 1.378 billion pounds, down 13.3 million pounds, or 1 percent, from July, but 13.5 million pounds, or 1 percent, above August 2019, the fifth consecutive month total cheese stocks topped prior-year levels.
StoneX Dairy says the main headline was butter. "Seasonally we expect to begin drawing down stocks of butter in August. This year, however, butter stocks were basically flat from July and up a whopping 22 percent from a year ago. We expected butter to come in a hair lower than last month, so we take this report as a big surprise."
On another bright note, the Daily Dairy Report stated: "Since the April 30 peak, cheese inventories have decreased an impressive 100 million pounds."
There was more good news in the USDA's Economic Research Service's latest data which showed a 60-year record high for U.S. per-capita consumption of dairy products on a milk-fat milk-equivalent basis.
Unfortunately, fluid milk consumption is not contributing much to the increase but we talked about it in the Sept. 28 "Dairy Radio Now" broadcast with Hoards Dairyman Managing Editor Corey Geiger.
Hoard's "DairyLivestream" addressed the topic, Geiger said, and when asked if the dairy checkoff was still profiting farmers, he replied, "Yes, but we're riding a cheese horse," according to the University of Wisconsin's Mark Stevenson.
Stevenson said U.S. cheese consumption is at 38 pounds per person, up 17 percent since 2010 alone. He added that there is still a lot of upside potential, when you consider per capital consumption in countries like France, Germany and Greece; some as high as 50 pounds per capita.
Geiger admitted that in the 1960s, when Lyndon Johnson was President, the champion in per-capita dairy consumption was fluid milk. That has fallen over the years, he said, but butter has made a big rebound and, "Without the checkoff, the rebound for butter and the cheese growth wouldn't have taken place."
When asked if the industry should give up on fluid milk in its promotion effort, Geiger replied, "I don't think we can, especially when it comes to children." It's an important way to deliver calcium and vitamin D, he explained, and because of that we need to keep pushing forward in getting the Dietary Guidelines to reflect the latest findings exonerating dairy fat.
StoneX Dairy points out that this consumption data is on a milk-fat milk-equivalent basis "so butter, cream and ice cream help to push this up. 2020 will be an interesting year to see what total consumption looks like, as restaurants' use of cream and butter have slowed due to the impacts of COVID-19."
Speaking of fluid milk, the Agriculture Department announced the October Federal order Class I base milk price at $15.20 per hundredweight, down $3.24 from September, $2.64 below October 2019, and the lowest October Class I since 2009. It equates to $1.31 per gallon, down from $1.53 a year ago. The 10-month average stands at $16.50, down from $16.64 a year ago and compares to $14.75 in 2018.
Dairy cow culling fell in August. The USDA's latest Livestock Slaughter Report shows an estimated 225,300 head were sent to slaughter under federal inspection, down 8,400 head, or 3.6 percent, from July, and 41,300, or 15.5 percent, below August 2019. A total of 2.05 million head have been culled in the first eight months of 2020, down 109,800 head, or 5.1 percent, from 2019.
In the week ending Sept. 12, 54,700 dairy cows were sent to slaughter, down 500 from the week before and 9,100 head, or 14.3 percent, below a year ago.
Cash dairy prices seemed confused the first week of autumn. Block Cheddar shot up to $2.6475 per pound on Monday, highest CME price since July 21, but reversed direction last Tuesday, and fell to $2.54 Wednesday. It regained 1.5 cents last Friday to close at $2.555, still down 7.25 cents on the week, after pole vaulting 46.25 cents higher the previous week, but is 60 cents above a year ago.
The Cheddar barrels closed last Friday at $1.66, up 2.5 cents on the week and a half-cent above a year ago.
The spread widened to an unbelievable record high $1.0125 last Monday but stood at 89.5 cents on Friday. There were five cars of block that traded hands on the week at the CME and only one of barrel.
With the exception of plants undergoing scheduled maintenance, cheese was running at full schedule in the Midwest, according to Dairy Market News. Pizza cheesemakers say retail orders, at least from particular customers, were increasing week by week as COVID-19 restrictions have done little to impede retail and, in some cases, restaurant pizza sales. Milk is plentiful, although mid-week spot milk prices were closer to class than the previous week.
Barrel supplies have been a little more available in recent weeks, says DMN, "However, the few loads here and there do not equate to what many contacts are perplexed by: a $1 chasm between CME block and barrel prices. Historically, a large price gap does not reflect positively on near term bullishness and the $1, or thereabouts, gap is not expected to maintain for long."
Western cheese plants are running at full capacity and, while a few contacts suggest manufacturers may not be fortifying as heavily, others say they could sell more cheese if they had it. Inventories are mixed; tight for American blocks and loose for barrel cheese. Mozzarella stocks are moving well but contacts say cheese demand has been hard to predict.
"In general, retail demand is strong, and food service demand is weak," said DMN. "However, contacts report each market segment will have waves of increased activity as end users try to find the right inventory balance. In addition, government purchases, cleaning out some stocks of cheese, have added some supply challenges. Market participants have a wide range of comfort in working with the government contracts. While most in the industry like to see the increased demand, the eventual end of the purchases creates some need for caution. Cheese futures prices are below cash market prices, and end users and manufacturers do not want to be holding large supplies of cheese if program purchases come to an abrupt conclusion."
StoneX echoed that caution in its Sept. 25 "Early Morning Update" stating, "Unprecedented demand driven by government purchases has been burning through the market shoving cheese prices up in buyers faces; but as we draw nearer to the end of the food box program the market has started to question future demand."
Cash butter, after gaining almost 12 cents the previous week, climbed to $1.62 per pound last Tuesday, highest since July 28, but the afternoon's August Cold Storage report didn't have good news and traders took the butter down 10 cents the next day. It closed the week at $1.5025, 9.5 cents lower on the week and 64.5 cents below a year ago. Sales totaled 14 loads for the week.
StoneX said, "Cheese and butter markets are not driven by supply these days. It's all about demand. Butter doesn't necessarily have the demand story block cheese has seen, but there is good underpinning support for this market as buyers have loaded up around $1.50 over the past month."
Butter was showing signs of strength until last Wednesday's price plunge, triggered by the Cold Storage data but DMN warned, "The 22-percent increase in stocks from last August could present some hurdles for butter actors in the region."
Retail butter demand has increased week over week ahead of the busy fall season and food service has continued its slog higher, but still lacks compared to previous years, says DMN. Cream is available and butter output remains steady.
Western butter production remains active as processors prepare to cover demands for the baking season and year-end festivities. Cream availability increased but some contacts report being able to sell it and not churn butter.
Butter stocks are heavy but industry players are not too concerned, says DMN. A few processors say that their stocks have been dropping in recent days. Butter demand is stable for retail and food service. "However, the COVID-19 pandemic, social unrest and wildfires in some parts of the West are all creating more market uncertainties, as well as affecting consumers' buying habits."
Grade A nonfat dry milk did the best of all, closing at $1.10 per pound, highest since March 6, up 3 cents on the week and the seventh consecutive week of gain, but was still a penny below a year ago. Fifteen cars traded hands on the week.
StoneX credited developing global demand for the strength in powder.
CME dry whey climbed to 38.5 cents per pound last Wednesday, highest since May 15, but finished Friday at 37.75 cents per pound, up 2.25 cents on the week and 3 cents above a year ago, with seven sales reported for the week at the CME.
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