Cheese Inventory Remains Heavy
Published: Friday, August 4, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
June Dairy Month butter demand appears to have been good. The Agriculture Department's latest Cold Storage report shows the June 30 inventory at 347.5 million pounds, a drawdown of 20.4 million pounds, or 5.5%, from the May level, which was revised up 1.2 million pounds. But, stocks were still 16.7 million pounds, or 5%, above June 2022.
American cheese stocks slipped to 853.3 million pounds, down 3.8 million pounds, or .4%, from the May level which was revised up 4.6 million pounds. Stocks were up 6.5 million pounds, or .8%, from a year ago.
The "other" cheese category grew to 634.4 million pounds, up 18 million pounds, or 2.9%, from the May level which was revised up 2 million pounds, but was down 531,000 pounds, or .1%, from a year ago.
The total cheese inventory, at 1.51 billion pounds, was up 12.6 million pounds, or .8%, from the May total, which was revised up 7.4 million pounds. It was also up 4.1 million, or .3%, from June 2022, ending four consecutive months hovering below the previous year's level.
StoneX Dairy Group says the cheese inventory was heavier than expected but may be the result of slower exports, weaker domestic demand, and perhaps stronger production. Butter stocks were lower than expected and possibly due to continued good domestic demand and or lower production.
The Federal Reserve approved another interest rate hike last week to a target 5.25-5.5%, highest level in over 22 years. Dairy product prices continued to rise as well as July comes to an end.
The Cheddar blocks closed the last Friday of the month at $1.9075 per pound, up 12.50 cents on the week, gaining 57.25 cents in four weeks and hitting the highest CME price since March 30, and 2.75 cents above a year ago.
The barrels jumped 17.50 cents last Monday hitting $1.83, highest since March 30, then gave back a nickel last Wednesday, and finished last Friday at $1.7625, 10.75 cents higher on the week, but 12.50 cents below a year ago, and 14.50 cents below the blocks. There were eight cars of each sold on the week at the market of last resort.
Milk availability is tightening and following seasonal trends in the Midwest, according to Dairy Market News. Southern reaches of the region were importing milk from the upper Midwest. Cheesemakers note that milk is tightening but plant downtime also contributed to regional availability. Spot prices ranged $5 to $3 under Class III. Outside of any downtime, cheesemakers are operating strong production, according to DMN. Demand is strong in the region and moving quickly.
Cheese demand in the west is strengthening. Sources note a combination of smaller supply and increased demand have aided the bullish price movement. Summer temperatures are prompting seasonal week to week decreases in milk output and component strength. However, cheese makers say enough milk is available to accommodate strong to steady output. Steadier demand from Mexican purchasers is reported but hesitation from Asian purchasers. Cheddar cheese is indicated to have more export demand than other varieties, says DMN.
Cash butter reached $2.6925 per pound last Thursday, highest since Dec. 19, 2022, but closed last Friday at $2.68, up 9.75 cents on the week and 31 cents shy of a year ago. Twenty-five cars were sold on the week, down from 57 the week before.
Butter production has slowed in the Central region, according to DMN. Cream supplies have tightened and concern is rising over how the heat will further affect cow comfort and milk components in the Upper Midwest. Spot loads of cream are scarce and some plants report they have not been offered any in nearly three weeks. Churns are running off of contracted loads of cream. Butter inventories are trending lower, as demand from both retail and foodservice is strong. Ice cream production has tapered off seasonally which bodes well for churns if spot loads of cream become available.
Cream is more available in the West compared to the other regions, says DMN, however hotter temperatures in the northern parts of the West are impacting milk components and decreasing surplus cream. Butter manufacturers report light production schedules, with a few blaming staffing shortages. Others report strong to steady churning, especially for cream allocated to retail butter production. Cream prices are keeping churning economical, says DMN, and many plants are working to increase stock ahead of the later year baking season. Domestic retail demand is steady, while food service is stronger. Export demand is light, with the exception of some upticks in interest from Canadian purchasers.
Grade A nonfat dry milk closed last Friday at $1.16 per pound, up 4 cents on the week, highest since June 20, but 48 cents below a year ago, with 14 loads finding new homes.
CME dry whey got to 26.25 cents per pound last Wednesday but closed last Friday at 25 cents, down a quarter-cent and 19.50 cents below a year ago, on 19 sales.
The week ending July 15 saw 59,600 dairy cows go to slaughter, up 9,000 head from the previous week, and 4,100, or 7.4%, more than a year ago. Year-to-date, 1,730,900 cows have been culled, up 93,500 head, or 5.7%, from a year ago.
Meanwhile, U.S. dairy heifer numbers continued to shrink over the past year, according to the July 24 Daily Dairy Report. "There were 3.65 million dairy heifers in the U.S. on July 1, according to USDA's biannual Cattle report," the DDR stated. "That was 100,000 fewer than the year before, a 3% decline. USDA's estimate of dairy heifer supplies on Jan. 1, a more precise measure, showed the dairy heifer head count has dropped for seven consecutive years."
The MW detailed the June Milk Production report, pointing out that it showed the first year-over-year decline since August 2022 and blamed "extremely negative spot margins for accelerating cow culling."
"A recent trend of a weaker U.S. dollar is making dairy products more competitive on the world market," the MW stated, "although increased milk production this spring has raised dairy product output. May nonfat dry milk production totaled 202.6 million pounds which was the second highest monthly production ever next to January 2021 and 7% higher than last year. May butter production at 194.4 million pounds was up 8.1% from last year while total cheese production was virtually unchanged from 2022, although Cheddar production was up 4.5% from 2022 while Italian varieties declined by 2.2%. Total cheese exports of 73.1 million pounds during May were down 17.9% from last year," the MW concluded.
Last Tuesday's GDT Pulse saw just under 2.1 million pounds of Fonterra whole milk powder sold at $3,000 per metric ton, unchanged from the last Pulse but down $35 from the July 18 GDT.
HighGround Dairy warned, "Scarce global demand remains the primary challenge for dairy commodity markets. With macroeconomic uncertainties and intense heat impacting nearly every region across the Northern Hemisphere it is unlikely that demand will come back strong in the near-term."
Fluid Milk Sales Falling
In other news, June New Zealand milk equivalent exports were up 26.8% from last year, according to StoneX, "which was stronger than their 19.4% forecast. Shipments to China were a little weaker than expected, only up 42%. Our estimate for Chinese imports during July is currently plus 8%, lapping over a negative 24% in July last year. So the data is pointing toward very mild demand from China, but strong demand in the rest of the world as buyers stock up at cheap prices. The strong exports have pulled estimated inventories below year ago levels for the first time in 18 months," according to StoneX.
The Agricultural Marketing Service public hearing will be held Aug. 23 in Carmel, Ind. to consider and gather evidence on proposed amendments to pricing formulas in Federal Milk Market Orders. Forty proposals have been submitted. Of those, 21 directly impact the uniform pricing formulas and will be considered at the hearing.
The proposals seek to amend milk composition factors, commodity product prices, Class III and Class IV formula factors, base Class I skim milk, and Class I and Class II differentials. Interested parties, including trade organizations and producers, are invited to testify and present evidence, says USDA.
Speaking of Class I, while fluid milk sales are and have been falling, do not believe that it's due to plant-based drinks. The National Milk Producers Federation points out, "Milk isn't just beating plant-based on nutrition, price, overall sales, and consumption volume, it's increasing its market share too."
"Milk's growing relative strength isn't because people are drinking more of it," admits NMPF. "Even though fluid milk continues to outpace fake milk sales by nearly nine to one, consumption is down this year, like it has most every year since baby boomers left elementary school and all types of beverages, not just plant-based alternatives, multiplied in number and further segmented the beverage market. Through July 9, just over halfway through 2023, fluid milk retail sales volume (overwhelmingly cow's milk, with just a pinch of goat milk for an animal-based alternative) was 1.62 billion gallons, down 3.4% from the year-earlier period, according to research firm Circana Group, which reports sales figures via bar codes and is the retail industry standard for grocery-sales data."
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