While butter prices have increased, nonfat dry milk prices have weakened. Nonfat dry milk averaged above $2/lb. through May, but is now at $1.70/lb. But, the higher butter price will hold the August Class IV price near $23.25/cwt., compared to $23.78/cwt. in July.
With higher milk production and anticipation of some softening in dairy exports, the higher butter and cheese prices were a little surprising. Butter exports, which were running well above a year ago, were 21% lower in June than a year ago, but still 57% higher year-to-date. Cheese exports, however, were still 33% high than a year ago, and 34% higher year-to-date.
Domestic butter and cheese sales have been running above a year ago.
Production and stocks
June butter production was slightly below a year ago, while American cheese production was up 3.2%, and total cheese production 3.3% higher.
But, the higher butter and cheese prices have been driven by stock levels lower than what butter and cheese makers, as well as some buyers, would like to meet the strong holiday sales period later this year. They also realize that increasing butter and cheese production is more limited, with milk production and milk composition seasonally lower during the summer. Schools will also be opening the end of this month and early September, moving more milk into beverage use.
Butter stocks (based on June 30 estimates) were 42% lower than a year ago. American cheese stocks were 7% lower, and total cheese stocks were 8% lower. With good domestic sales and strong exports, the need for higher stock level exists. Compared to the previous five-year average, June butter stocks were actually 32% higher and total cheese stocks 3% higher.
Exports, global prices
Dairy exports have been a big factor for higher U.S. dairy product and milk prices. World dairy product prices had been higher than U.S. prices, giving U.S. a competitive edge in exports. But, world milk production has improved significantly, particularly in the major exporters of New Zealand and the European Union.
China has been very active in importing dairy products, moving past Canada as U.S. second-largest customer. But China has accumulated stocks to the point where their import activity has decreased. The result has been a significant fall in world prices, below U.S. prices.
While cheese exports were still higher than a year ago for June reports are that new orders by international buyers have softened. As noted June butter exports have already fallen below a year ago as have nonfat dry milk exports down 25%. To maintain export levels, U.S. prices will need to come down closer to world prices. Yet, export volume will likely hold at levels that will end the year above the record level of 2013.