Holiday season ‘bounce’ unlikely as stocks weigh on dairy market

posted Oct. 31, 2016 9:12 a.m. (CDT)
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by / Lee Mielke

Butter stocks stood at a record high for September, at 269.2 million pounds, according to USDA’s latest Cold Storage report issued Oct. 21, down 49.6 million pounds, or 16 percent, from August but 81.6 million pounds, or 44 percent, above September 2015. American type cheese, at 744 million pounds, was up 1.5 million pounds or 0.2 percent, from August and 45.1 million, or 6 percent, above a year ago. The total cheese inventory stood at 1.2 billion pounds, down 3.1 million pounds from August, or 0.3 percent, but 85.6 million pounds, or 7 percent, above a year ago. Revisions lowered the August butter count by 3.4 million pounds.

Adding some perspective, FC Stone’s Dave Kurzawski points out that American and total cheese inventories grew from August to September for the first time in six years.

The Oct. 21 Dairy and Food Market Analyst says we “experienced a wave of export orders over the last month, multiple Western cheese companies have sold nearly all or all of their available production volume through the end of the year. As a result, the Western block market is tight and will probably stay that way for a while.”

It goes on to report that the Midwest Cheddar market is “more balanced at the moment. Cheese is available. Fresh Cheddar is a bit tighter (not a lot) than aged. But that’s only part of the story. We heard multiple rumors about cheese production issues. In fact, there is an unusually high amount of under-grade cheese available to the market. Enough to be a factor right now.”

“In our opinion,” the DFMA states, “it was these manufacturing issues that caused prices to surge. If true, these gains are probably temporary. However, improved exports will also continue to exert upward pressure on prices. Cheese prices are not about to collapse any time soon.”

The DFMA adds that “other indicators show domestic cheese demand is holding firm. Retail cheese sales are still increasing around 1.5 percent year-over-year, according to sources with knowledge of the latest IRI data. This growth rate has been steady over the last three months or so.”

FC Stone’s Ryan Cox warned in his Oct. 26 Early Morning Update that “as we move further into the holiday buying season, it looks like we may not see the bounce that we are accustomed to seeing for a variety of reasons. Elevated stock levels and reports of forward buying ahead of typical holiday demand seem to be the most discussed reasons for the lack of any seasonal bounce.”

Cox says while he expects the market to be supported, “we know that cheese production seems to be keeping pace with demand and heavy stocks seem to be weighing on the market.”

Short term, Cox expects this “tug-o-war to continue with any sharp move higher likely short-lived as we move through the end of the year. The longer-term outlook is less certain should weather problems in New Zealand persist. Though the numbers didn’t show up in the data for September milk production, it seems likely that a more sizable decline in milk production is on tap for the month of October.”

Midwest cheesemakers say milk is in good balance with production needs, according to the USDA’s Dairy Market News. “With steady milk production and increasing components, cheese yields are improving. Spot loads of milk are available, but many cheesemakers are content to use the milk available to them and only buy the milk if they have room and if the price is right.

“A few manufacturers are noting that warehouses seem full as processors ramp up production for the holidays. Contacts think this will resolve itself once seasonal demand overtakes supply. Cheese inventories are a little heavy for barrels but in better balance for blocks. Retail domestic consumer demand is solid but seasonally slowing for process cheese,” DMN says.

DMN’s weekly milk production update reported that farm milk output is up in Florida, California, Arizona and the Central region but steady in the Northeast and Mid-Atlantic. Production is down in New Mexico, the Pacific Northwest and the mountain states of Colorado, Utah and Idaho.

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