Cheese Inventories Decline in April; Butter Market Looks Bullish
Published: Friday, June 4, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The fridge is far from empty, but the Agriculture Department's latest Cold Storage report shows inventories are not getting out of hand, at least on cheese.
American-type stocks fell to 830.8 million pounds, down 3.6 million pounds, or .4 percent, from March, which was revised up 2.6 million pounds, and they were 3.5 million pounds, or .4 percent, below those a year ago.
The "other" cheese category saw stocks dip to 601.2 million pounds, down 10.7 million pounds or 1.7 percent from March and 17.5 million or 2.8 percent below a year ago.
The total cheese inventory stood at 1.45 billion pounds on April 30, down 15.9 million pounds, or 1.1 percent, from March and 25.5 million pounds, or 1.7 percent, below a year ago, ending five consecutive months that total cheese stocks grew.
The decline in cheese is a rare occurrence during the spring flush, first April decline since 1993, according to HighGround Dairy's Lucas Fuess in the May 31 Dairy Radio Now broadcast. Fuess said the expanded cheese production capacity that came online in recent months, leads us to believe production was strong, however, this report would indicate that "demand is almost off the charts" and driven by retail and foodservice channels as the economy quickly reopened."
Butter stocks climbed to 385.3 million pounds, up a hefty 27.9 million pounds, or 7.8 percent, above the March inventory, which was revised up 2.8 million pounds. They were 12.7 million pounds, or 3.4 percent, above April 2020, making April the 22nd consecutive month that butter stocks topped those of a year ago.
Fuess says the butter data was "pretty normal," but the heavy inventory will weigh on prices. HGD warns that butter stocks will only climb further in second quarter before reaching the yearly peak.
Keep in mind, a year ago, COVID lockdowns had restaurants closing their doors, thus butter stocks grew quickly. It will be interesting to see what April butter output looked like in the next Dairy Products report issued June 4.
The StoneX Dairy Group, however, says that overall, they are still bullish on butter and expect stocks to fall below year ago levels by August, as competitive U.S. butter prices increase exports.
Speaking of exports, the U.S. Dairy Export Council reports that Southeast Asia surpassed Mexico to become the U.S. No. 1 dairy export market for volume in 2020, absorbing the equivalent of more than one day of total U.S. milk production per month. USDEC says, "The region ranked No. 2 for sales, buying $1.26 billion in U.S. dairy products and ingredients, a 36 percent increase over the previous year, despite the challenges presented by a global pandemic."
USDEC also opened its Center for Dairy Excellence in Singapore, stating, "The investment signals a long-term commitment to a region that encompasses Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, plus Brunei Darussalam, Burma, Cambodia and Laos." The combined population of those countries is more than 670 million, more than double the U.S. population.
Checking prices at home, the Cold Storage data put the brakes on cheese prices falling, for a day at least. After plunging 15.50 cents the previous week, the Cheddar blocks closed the last Friday of May at $1.53 per pound, down 4 cents on the week, 27 cents below where it was on May 3, and 70 cents below a year ago when they pole vaulted 29.25 cents to $2.23 per pound.
The barrels entered the Memorial Day Weekend at $1.57 per pound, down 3.75 cents on the week, down 24.25 cents on the month, 45.25 cents below a year ago when they jumped 13.25 cents, but at an inverted 4 cents above the blocks.
There were 36 cars of block traded on the week, 123 for the month, up from 85 in April. Barrel sales totaled 33 for the week, 110 for the month, up from 81 in April.
Some Midwestern cheese producers told Dairy Market News they were planning on running through Saturday and continuing on the Monday holiday. Others were down for updates and maintenance. Spot milk loads were being reported more regularly and cheesemakers were finding heavily discounted loads.
Cheese demand remains mixed. Some retail Cheddar producers say buyer interest is and has been quite busy while other varietal cheesemakers were less busy. Barrel prices topping the blocks is viewed with a skeptical eye, says DMN.
Cheese demand in the West has slowed in both retail and food service. Cheese production has remained strong, causing supplies to outpace demand. The weaker CME prices have some believing that is favorable for exports and could lead to an increase in demand. Cheese intended for export, however, continues to face delays due to congestion at ports and delays reportedly vary week to week.
Cash butter wasn't helped by the Cold Storage data and fell to $1.7850 last Wednesday but finished last Friday at $1.81, still down 6 cents on the week, up 5.75 cents on the month, and 15 cents above a year ago. There were 20 sales reported on the week, 56 for the month of May, down from 101 in April.
Food service butter demand shot up to pre-pandemic levels with the reopening of restaurants and public events earlier in the spring, says DMN, but once pipelines were closer to being refilled demand waned. There were some positive notes last week in food service demand from butter producers in the Central region. Cream was widely available ahead of the holiday weekend. Some plants were running normal schedules, while others were down for Memorial Day. Cream is available. Early in the week, contacts continued to report paying the extra costs for cream from the West, but by midweek some plants found loads in the region at multiples in the low 1.20s. Butter demand is better than some contacts expected for this time of the year, says DMN, but market tones are uncertain.
Western cream is in steady supply and is expected to briefly bump up as some dairy manufacturing paused over the long weekend. Ice cream continues to absorb much of the cream supply, but there's still plenty for butter makers. Bulk butter inventories are stable, with some Southwestern butter makers working to grow inventories for later this year. Retail orders are lower but steady. Food service sales are picking up, but some contacts report hesitation from buyers. Demand is not crystal clear, and it is difficult to accurately forecast needs.
Grade A nonfat dry milk climbed to $1.3025 per pound last Tuesday but slid back to a $1.2925 per pound close last Friday, .50 cents lower on the week, 2.75 cents lower on the month, but 26.25 cents above that week a year ago. Sales totaled 23 for the week, 76 on the month, up from 58 in April.
CME dry whey saw its biggest single day drop since April 23 last Thursday, down 3 cents, and closed last Friday at 62.25 cents per pound, down 2.25 cents on the week, down 3.75 cents from May 3, but 31.75 cents above a year ago. There were three sales on the week, 12 for the month, down from 17 in April.
There was talk of growing whey inventories in the U.S. last week and weaker Chinese and domestic demand, according to StoneX, plus port congestion and shipping constraints causing delays may have contributed to the weakness.
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