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Butter stocks tumbled in October but remain well above year ago levels. The Agriculture Department’s latest Cold Storage report has the October 31 butter inventory at 300.9 million pounds, down 43.7 million pounds or 12.7% from September, but a still burdensome 65.8 million pounds or 28.0% above October 2019, 16th consecutive month they topped the year ago level.

American type cheese fell to 753.9 million pounds, down 18.4 million pounds or 2.4% from September, but were 10.3 million pounds or 1.4% above a year ago.

The “other” cheese inventory crept to 564.4 million pounds, up 1.7 million pounds or 0.3% from September, but 7.6 million pounds or 1.3% below a year ago.

The total cheese inventory fell to 1.34 billion pounds, down 17.3 million pounds or 1.3% from September, and 3.2 million pounds or 0.2% below October 2019. 

As pointed out last week, U.S. milk production is growing profusely and most of the extra milk will likely end up in the churn and the dryer. StoneX Dairy warned in its November 23 ‘Early Morning Update’ that the added butter will join the high amount already in storage; “much greater than any of the previous three years and with a fresh wave of COVID-related lockdowns, foodservice demand for butter and cream is going to be volatile at best and non-existent at worst.”

“There should be a decent bump in retail demand coming from grocery store stock-ups and holiday baking,” says StoneX, but “it isn't expected to be good enough to off-set the drop in foodservice demand. Nonfat dry milk looks to also have additional downside risk, as evidenced by the rumored weakness in export orders for U.S. product, as well as weaker prices in world export markets.”

Cheese is very confusing, according to StoneX. “Block cheese saw record pricing in October but stocks were only down 3 million pounds compared to last year. Historically that has block cheese about 83 cents above where we would expect given October storage numbers. In 2019, cheese saw a more dramatic drop in October of 33 million pounds, compared to 2018, and prices around $2.07.”

With Thanksgiving in the rear view mirror and Christmas and New Years ahead, the dairy industry wonders what is down the road for product prices and the resulting milk prices.

One of dairy’s biggest customers is the restaurant industry and foodservice, both of which were hit hard by the COVID pandemic. 

There has been encouraging improvements in that sector since then, however another storm is brewing as COVID cases mount and government restrictions and lockdowns are returning. 

The November 20 Dairy and Food Market Analyst (DFMA) reported that Census Bureau data showed restaurant sales were down just 12% in October, which was better than the 14% decrease in September and 17% decline in August. Sales at limited-service establishments were also improving. 

Speaking in the November 30 ‘Dairy Radio Now’ broadcast, DFMA editor and analyst Matt Gould said the pandemic put dairy demand on a roller-coaster. He reported that, prior to COVID, more than half of total cheese and butter consumption was attributed to restaurants so shuttering them or limiting them has a disproportionate impact on dairy demand.

Blackbox Intelligence reports that comparable sales for the week-ending November 8 were the second worst experienced by the industry since late August, according to the DFMA, with fine dining and upscale casual restaurants experiencing the biggest sales drops. The company says “Thirty-four states saw their restaurant year–over–year comp sales worsen during the last 2 weeks.” 

Interestingly, the hardest-hit states were Illinois, Maine, Michigan, Vermont, Colorado, Washington, Alaska, Wyoming, Massachusetts, Connecticut and New Hampshire.

When asked if increased retail sales might offset foodservice drops, Gould admitted that retail sales have improved but are not enough to offset the slowing in foodservice sales. Pizza outlets, quick-service, and drive-thrus have done really well in this situation, he said, but the commodity that is most hurt by the pandemic is butter. Cheese is the least hurt, according to Gould.

The DFMA reported that the latest data shows retail butter sales are up 17% and cheese, up 13%, but that won’t be enough. Plus, fluid milk sales are hurting, and were before COVID-19. School closures or virtual classroom settings have made things worse.

New York City’s public schools, the country’s largest school district, is closing its schools due to Coronavirus, says the DFMA, and Education Week, which tracks U.S. schools, reports that the number of districts with full or partial closures has increased 43% in the last month.

While vaccines will soon be available, the questionable demand resulting from rising COVID cases, the smaller holiday gatherings, and rising milk production spell challenge ahead. The export potential has clouds moving in as well. The Daily Dairy Report’s Sarina Sharp reported in the November 20 Milk Producers Council newsletter that foreign milk production is also climbing. 

 “Collections in Europe and the United Kingdom topped the prior year by a respectable 1.4% in September,” she said. “New Zealand reported a 1.7% increase in September, while Aussie output jumped 2%. Argentine milk output climbed 3.6% in September. In October, milk production in Mexico, our top export market, advanced 1.6%,” according to Sharp.

Sharp says “The weak dollar and relatively low dairy product prices should help, but the industry continues to cede ground on the policy front as 15 Asia-Pacific nations have signed the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade agreement.” Signatories include dairy exporters Australia and New Zealand, according to Sharp, as well as key importers like China, South Korea, the Philippines and Vietnam.

China remains the “importing elephant in the room.” Customs statistics show October import volumes were the strongest for the month on record, according to HighGround Dairy (HGD), and the strongest gains were shown from the U.S. and Germany. 

“On trend with nearly all of 2020, U.S. gains were in the form of whey powder,” says HGD, which totaled 121.8 million pounds, of which 51.8 million pounds was from the U.S., up 22.8 million pounds from a year ago. China's demand for German dairy product continues to be for fluid milk and cream, says HGD.

Combined fat imports were the strongest for October on record, says HGD. Butter imports totaled 9.9 million pounds, up 46.8% from a year ago, most of which was from New Zealand. Anhydrous milkfat was up 94.3%.

Cheese imports totaled 18.5 million pounds, down 0.7%. Whole milk powder imports totaled 80.3 million pounds, up 23.9% and were the strongest for October in seven years, according to HGD, and again while New Zealand is the prominent supplier, the largest jump over 2019 levels was from Uruguay. Skim milk powder imports totaled 56.1 million pounds, up 28.6%.

Cooperatives Working Together (CWT) member cooperatives accepted 18 offers of export assistance Thanksgiving Week from CWT to capture sales contracts for 2.8 million pounds of Cheddar and Gouda cheese, 564,383 pounds of butter, 749,572 pounds of anhydrous milkfat, and 680,047 pounds of whole milk powder. 

The product will go to customers in Asia, the Middle East, North Africa, Oceania, and Central America through May 2021 and raised CWT’s 2020 exports to 103 million pounds, consisting of 32.5 million pounds of American-type cheeses, 12.5 million pounds of butter (82% milkfat), 2.8 million pounds of anhydrous milkfat, 6.6 million pounds of cream cheese, and 48.6 million pounds of whole milk powder. The product is going to 29 countries and are the equivalent of 1.1 billion pounds of milk on a milkfat basis, according to the CWT.

Back home, the cash dairy markets were mixed in the shortened Thanksgiving Week. The 40-pound Cheddar blocks closed Wednesday at $1.68 per pound, up 3.50 cents on the week but 28.25 cents below a year ago. 

The 500-pound Cheddar barrels finished at $1.4225, unchanged on the week but 82.50 cents below a year ago when they were priced 28.5 cents above the blocks. This year they are 25.75 cents below the blocks. There were only 2 sales of block on the week at the CME and 22 of barrel.

Midwest cheese producers continue to report COVID-19 related quarantines affecting staff, from production to the office, according to Dairy Market News. 

But, cheese output continues as well, with spot milk at “notably declining prices during the holiday week.” Cheese plant managers said they were receiving call after call from milk suppliers looking to find homes for the milk during the holiday weekend. 

Retail demand has picked up a little for some cheese producers, says DMN, but they say it’s more of necessity based purchasing, whereas most customers remain on the sidelines waiting to see how low prices go before returning. “Cheese market tones continue to struggle to find their footing,” says DMN.

Western cheese markets also had a tone of uncertainty this holiday week, according to DMN, as “Block and barrel cash market prices have fallen to levels comparable to the other 2020 low watermarks in August and March. While some contacts suggest this may prompt more buys, others are wary and want to let the dust settle first. Demand within retail and pizza channels has remained solid, but food service demand is weak. Some market participants suggest buyers have their pipelines filled and are not looking to add to their inventories. Cheese supplies are available to meet most needs and cheese output is active with plenty of holiday milk to contend with, says DMN.

Butter continued its meltdown, no thanks to the Cold Storage data, falling to $1.31 per pound Tuesday, lowest since May 8, but rallied Wednesday, regaining a nickel, and closed at $1.36, up 1.50 cents on the week, but 63.75 cents below a year ago. A lot of butter found its way to Chicago in the three days, 73 loads to be exact, 44 on Wednesday alone.

DMN says some butter plants were allotting a day off for the Thanksgiving holiday while others were down Thursday through the weekend. Churning has been busy with plenty of cream at decreasing multiples. Retail butter demand has been very busy, says DMN, while food service demand “continues to struggle in these questionable times for restaurants, schools and the like.”

Western contacts expected lots of cream over the Thanksgiving weekend due to manufacturing facilities closing. DMN says “As butter makers shift production to end of year holiday orders, the underlying focus is to manage surplus levels. Requests for holiday print butter remain active but inventories appear to be quite adequate.”

Spot Grade A nonfat dry milk finished at $1.0950 per pound, up a penny on the week, but 14.25 cents below a year ago, with 23 loads making their way to the CME, looking for a home. 

Dry whey finished at 43 cents per pound, down 0.75 cents on the week, but 7.75 cents above a year ago, with only 1 sale on the week.

The U.S. cotton harvest is 77% complete, as of the week ending November 22, up 2% from the same week a year ago, and 6% ahead of the five year average. 

One last reminder to dairy producers. The deadline to enroll in Dairy Margin Coverage for the 2021 program year is December 11. Contact your local Farm Service Agency county office for complete details.

Finally, a wish to you and yours for a blessed, happy, and healthy Thanksgiving, whichever way you experience it. Though this year has dealt us some of the greatest trial and testing we may have ever seen in our lifetimes, we still have much to be grateful for and must put our faith and our trust in He Who made us!

Lee Mielke is a graduate of Brown Institute in Minneapolis, MN. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at lkmielke@juno.com.

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