Butter stocks remain burdensome

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The fact that more butter didn’t exit U.S. warehouses in August means the industry likely will be facing bear market pressure on prices after the holidays, says Eric Meyer, president, dairy division, HighGround Dairy, Chicago.

USDA’s August 2013 Cold Storage report showed that U.S. butter prices hit a counter-seasonal low, with the spread widening between the U.S. and global world market. Industry insiders have suggested that manufacturers had shifted more production to an 82 percent unsalted spec in order to service the global market.

“Given robust butter stocks, manufacturers could draw from their inventories for domestic customers and let fresh butter move overseas,” Meyer notes. “July 2013 export figures supported that argument with an increase of 176 percent, or 11.6 million pounds, over July 2012. It is widely expected that August butter exports will show even stronger growth.”

But the August report suggests either that butter demand is not as robust as originally thought or that domestic demand has weakened. 

“Given the extremely competitive price of butter throughout August (lowest monthly average since May 2012 and lowest August since 2006), we were surprised more butter did not exit the warehouses,” he adds. “Instead, the July-to-August reduction was only 27.2 million pounds, very close to the 10-year average. Therefore, butter stocks remain burdensome and we believe will have a bearish impact on prices once seasonal and holiday demand subsides.”

On the other hand, cheese stocks posted monthly drawdowns that were a bit larger than normal for this time of year, Meyer notes. American cheese stocks decreased 31.5 million pounds between July and August — nearly 10 million more pounds than in 2012 and more than double the 10-year average. This represents the strongest percentage decline since 2004.

“A similar theory can be made for cheese as we made for butter given the robust exports in July,” Meyer says. “And while August milk production came in much stronger than expected, we noted in our milk production report analysis last week that in cheese-producing states, milk collections were below last year in Idaho and New Mexico and growth was below trend in Wisconsin and Minnesota.

“We believe that current stocks will lend a bit of support to the cheese market in the near term,” he concludes.



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