Strong Butter Demand Driven by Retailers' Decision to Restock
Published: Friday, October 6, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
There's plenty in the cooler, but August butter demand appeared to be especially good. The Agriculture Department's latest Cold Storage report shows butter holdings on Aug. 31 at 289.1 million pounds, down 40.3 million pounds, or 12.2%, from the July inventory, which was revised down 2.3 million pounds. But stocks were up 10.8 million pounds, or 3.9%, from August 2022. The data lent reason to why prices did what they did and set a new record high last week.
American-type cheese stocks climbed to 849.4 million pounds, up 7.5 million pounds, or .9%, from July's level, which was revised up 3.6 million pounds, and were up 7.8 million pounds, or .9%, from a year ago.
The "other" cheese category dropped to 617.7 million pounds, down 10.6 million pounds, or 1.7%, from July, and were 1.2 million, or .2%, below a year ago.
The total cheese inventory stood at 1.49 billion pounds, down 3.5 million pounds, or .2%, from the July total, which was revised 4.2 million pounds lower, but was up 7.9 million pounds, or .5%, from a year ago.
The latest Supply and Utilization report showed July butter use was up 2.5% from a year ago, due to domestic use being up 7.6%, while exports were down 61.2%. Demand likely remained strong in August and year-to-date was up 9%, according to StoneX broker Dave Kurzawski in the Oct. 2 "Dairy Radio Now" broadcast.
"People don't change their dietary habits that quickly," Kurzawski stated, considering last year butter demand was down about 6.5%. "Are we eating more butter and more fat this year?" he asked. "Maybe. Certainly in ingredients and more cream perhaps, but I don't think we're eating that much more butter."
Kurzawski suspects this is a "restocking year." The price made an all-time high last year, but it was a high-priced year for all dairy products, he explained. The Cold Storage numbers are from public warehouses and manufacturers, not distribution coolers or restaurant coolers, etc. so he believes the pipeline was pretty full last year and those folks didn't want to pay $3 per pound so they used some of that inventory and are restocking this year. Add to that, flat milk production and, while butter demand is good, it's probably not as good as it would appear. "But we're into a seasonal demand push," he said.
When asked why cheese prices aren't climbing with Christmas just down the road, he said nonfat dry milk and dry whey have shown some strength. "The cheese market can ignore butter for a while. It doesn't have to move in lockstep. We lost some cheese exports and we're making more of it, so the cheese price is probably doing what it aught to be doing for the moment. However, if nonfat dry milk catches a bid and we have $3 butter on the board, it's going to be very hard to keep the price of cheese down as we head into October," he concluded.
The Sept. 25 Daily Dairy Report said, "Cheese stocks have typically declined roughly 25 million pounds in August as the seasonal setback in production cuts into supplies. But this year cheese stocks dropped just 3.5 million pounds from July to August and hinted at much slower demand."
U.S. cheese exports through July were down 6% from a year ago, according to the DDR. "Sales to South Korea and Japan, the No. 2 and 3 U.S. customers, are lower year to date, dragging the total down. August could tell a different story," the DDR said. "It seems unlikely the direction will change much."
And as the U.S. faced a government shutdown on Oct. 1, CME butter, fueled by the August Cold Storage data, rocketed to a record high $3.3350 per pound last Thursday but closed Friday at $3.30, up 30 cents on the week, after jumping 28.25 cents the previous week, 64 cents higher than on Sept. 1, and 15.50 cents above a year ago. The previous record was $3.2675 on Oct. 6, 2022. The week saw seven sales and 124 for the month of September down from 249 in August.
StoneX said, "Cream is seasonally tight with strong multiples reported around the country. Seasonally we would expect to see this rally fade in October, but with tightening milk supplies in the West there is a risk to continued strength counter seasonally into the end of the year."
Midwest butter producers tell Dairy Market News that day-to-day operations are somewhat in line with where they have been in previous weeks, despite marked price gains on the CME. Demand has yet to change, but some were concerned that $3 plus will slow buyers into a "necessity-purchasing mode." Inventories are not abundant regionally either, says DMN. Loads are available here and there, if customers are willing to pay the increasing price. "Cream is a significant factor of late as supplies remain tight and at higher multiples," said DMN.
Spot cream was "slightly looser" in parts of the West but overall is tight. Much of it is committed to contract obligations and near-term tightness is expected. Some butter makers are limiting cream purchases due to comfortable plant volumes given current prices. Others anticipate resuming butter production schedules by late October. Among those with active churns, some note steady production, while others report stronger output. Unsalted bulk butter demand is strong, retail and food service demand is strong to steady, and export demand is moderate to light, according to DMN.
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