U.S. Butter Stocks Sees Largest March-to-April Growth Since 2020
Published: Friday, June 7, 2024
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. butter stocks jumped in April. The USDA's latest Cold Storage report shows the April 30 inventory at 361.3 million pounds, up 44.1 million pounds, or 13.9%, from the March count, which was revised up 624,000 pounds, and was 29.8 million pounds, or 9%, above April 2023.
Churns have been running well ahead of a year ago the past four months and April likely followed that. Cheese vats weren't quite as busy. HighGround Dairy points out that the March to April butter climb was "The most significant build for the month since 2020, which was an outlier due to the start of the COVID-19 pandemic. Eliminating that year results in the largest March to April increase since 2016." HGD adds that the cheese data was "neutral."
American-type cheese stocks climbed to 839.2 million pounds, up 10.6 million, or 1.3%, from the March level which was revised up 3.1 million pounds, but was down 2.7 million pounds, or .3%, from a year ago.
The "other" cheese category holdings slipped to 598.4 million pounds, down 5.3 million, or .9%, from March's count, which was revised 7.2 million pounds lower. Stocks were down 6.7 million pounds, or 1.1%, from a year ago.
The total April 30 cheese inventory stood at 1.46 billion pounds, up 5.6 million pounds, or .4%, from the March count, which was revised 5.1 million pounds lower, and was 8.8 million pounds, or .6%, below a year ago.
CME butter headed south the first day of trading following the Memorial Day holiday as a result of the Cold Storage data, plunging 12 cents, first time below $3 per pound since May 14. But, the butter wasn't down for the count. It rallied last Thursday, regaining 5.50 cents, and added 6 cents last Friday to close at $3.09, still 3.25 cents lower on the week but 64.50 cents above a year ago. There were nine loads that traded hands on the shortened week.
Speaking in the June 3 "Dairy Radio Now" broadcast, StoneX broker Dave Kurzawski said the message on butter from the Cold Storage report is that "We may not have a supply problem on butter so much as we have a problem on the supply of available futures contracts."
This rally really began at the end of January, he said, and has been driven primarily by the futures market. "Understandably end users want coverage, south of $3 per pound would be ideal," he said, "but the spot market has been the follower."
"When we have a legitimate bull market on a product," he explained, "typically the spot market will lead the rally. The market is saying we have a supply-demand imbalance. We can argue about what that imbalance is. It exists. We're going to put the spot price, the actual product price, the highest price on the board and the futures will be at a discount to dis-incentivize anybody who makes that product from putting it away. Make the product today, then bring it to the market today, that's the absolute best price you can get. That didn't happen the past three months."
Kurzawski expects more downside on butter but sees the report as relatively neutral on cheese. As to nonfat dry milk, "the old habit of looking at world prices and global demand and saying it's been bearish the past 8-12 months and will continue that way, those old habits die hard."
"The market's been pretty sideways," he said. "Globally, it's been sideways to a little bit firmer as we're starting to see that on prices in the GDT, but the reality is you will have more buyers, unfortunately, at $1.25 in the U.S., or $1.28, than you do at $1.18 because there's a fear of missing out like we saw in cheese in April."
Dairy Market News reports that butter plants were running normally despite the holiday weekend. Cream was and is available. Multiples were steadily moving in the mid-to upper-1.10s, which mirrored previous months. Butter makers and cream handlers do not expect cream availability, and therefore churning, to last much further into the waning spring weeks. Components have started to tighten at the farm milk level. Butter makers are not overly concerned about the falling price, says DMN, and are comfortable with their stocks and current demand.
Butter production is strong in the West as manufacturers work to build stocks to cover planned downtime for churn maintenance during the next month. Cream demand is strengthening and cream volumes are generally available throughout the region. Retail and food service butter demand is strong domestically while demand from international buyers is moderate, says DMN.
Block Cheddar lost 6 cents on the week, third week of decline, closing last Friday at $1.81 per pound, lowest since May 3, but still 38 cents above a year ago.
The barrels finished at $1.94, down 4 cents on the week, 42.75 cents above a year ago, and 13 cents above the blocks. There were 14 sales of block on the week and eight of barrel.
Recent production hurdles have been reported by a number of cheesemakers, according to DMN. Multiple plants were on both holiday and unexpected downtime the week before Memorial Day and over the weekend. Some took an extra half-day off, while others were down for multiple days. Demand tones were consistent with the past few weeks to the past month and are "healthy."
Retail and food service Cheddar/Italian cheesemakers say demand from regional and Eastern customers is hearty. Milk remains ample and spot prices mid-week were holding in a similar range to the previous week. Market tones have turned bearish, says DMN, but longer-term outlooks are "steadier to even bullish."
Most cheese manufacturers in the West note strong production. Some parts of the region are seeing stronger milk components compared to a year ago and that is helping keep production strong and balancing milk supplies. Milk output is weakening in some parts but upcoming summer school breaks are expected to ease bottling demand and increase milk availability for Class III manufacturers. Domestic cheese demand is steady while exports are steady to weaker.
CME nonfat dry milk fell to a Friday finish at $1.1675 per pound, 75 cents lower on the week and a quarter-cent below a year ago, on nine sales.
Whey slipped to 39.50 cents per pound last Wednesday but closed last Friday at 41.50 cents, up 1.50 cents on the week and 15.75 cents above a year ago, on 11 sales.
Dairy cow slaughter for the week ending May 18 totaled 47,000 head, down 1,000 from the previous week and 7,900, or 14.4%, below a year ago. Year to date, 1,112,700 have been culled, down 169,300, or 13.2%, from 2023.
HighGround Dairy noted that "A weekly total of under 50,000 head is notable as it typically only occurs during holiday weeks. Further, this was the lowest value for the week in over 15 years; 2008 was the last time this figure was smaller. Milk prices have dramatically improved in second quarter, which has likely caused farmers to change their culling practices," said HGD.
The latest Crop Progress report shows 83% of U.S. corn was in the ground as of the week ending May 26, up from 70% the previous week, 3% ahead of a year ago, and 1% ahead of the five-year average. Fifty-eight percent was emerged, 8% behind a year ago. Sixty-eight percent of the soybeans were planted, 10% behind a year ago, but 5% ahead of the five-year average. Thirty-nine percent were emerged, 11% behind a year ago.
StoneX reported in its May 29 "Early Morning Update," "The harsh storms and severe weather patterns we've seen this year is brought on by the changing seasons combined with a stronger-than-normal jet stream above the northern hemisphere, bringing not only tornados and severe thunderstorms, but also significant rainfall in the Corn Belt. As El Niño begins to fade, the question of if (and if so, when) La Niña will develop becomes the focus."
The Global Dairy Trade Pulse auction last Tuesday saw 3.6 million pounds of product sold, down from 3.75 million on May 14. The total offered 94.4% was sold. There was 888,454 pound less Instant WMP and 771,610 pounds more Regular WMP sold versus the last Pulse. And 8,818 pounds more SMP on offer was sold.
Much of global trade is influenced by China, whose dairy purchases continue to lag. Part of the explanation may be in an article by the Daily Dairy Report's Sarina Sharp in the May 24 Milk Producers Council newsletter.
Sharp wrote, "USDA's on-the-ground analysts in Beijing raised their estimates of Chinese milk output. They now show roughly 7% growth in Chinese milk production every year from 2020 through 2023 and project Chinese milk output to grow another 1.3% in 2024."
The May 28 Daily Dairy Report adds, "China's dairy herd has grown faster than anticipated, up 3% year over year in 2023," as producers keep low-producing cows in the herd and large herds expand. According to a recent USDA Global Agricultural Information Network report, "Growth in raw milk production continues to outpace consumption, creating an oversupply in the Chinese market." The DDR adds that "China's increased milk production this year will be pulled into manufacturing and that will weigh on dairy product imports."
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