Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Not since 2004 have we seen American cheese inventories drop in the month of March when storage fell by 2.2 percent — and we all remember what happened that year. But before we look at this rare occurrence of moving cheese out of warehouses in the month of March as predicting another 2004, the USDA also showed a decline of 1.5 percent in American cheese inventories in March of 2003. In other words, this report may be a sheep in wolf’s clothing for market bulls.

Why the somewhat surprising decline? Hand-to-mouth buying. We entered the month of March with spot blocks above $2.00 — a lofty price that discourages loading the warehouse. In fact, we suspect that even during the decline of near 40 cents in March brought with it a lackluster interest in building inventories and that has come to somewhat validate today’s Cold Storage numbers for cheese. And when we put our calculators down, we still have north of 1 billion pounds of total cheese in storage. We expect the Class III market to open steady to $0.10 higher off of this report, though a lot can happen over a long holiday weekend.

Butter was more in line with our pre-report expectations, increasing by 4.2 percent vs. February 2011. Inventories continued to build at a good clip in March, even with a $2.00 to $2.12 spot butter price range. Stocks rose by 1.8 million pounds in March, and days of available supply rose from 31 to 32 from February’s report. All told, we’re still 26.3 percent below 2010 levels and that is evident in the fact that those who want butter were caught on the short-side during March. The most intriguing part of the report is likely the behavioral patterns of buyers and sellers between a commodity market that has product and one that doesn’t. We look for the butter market to be mixed off of this report.


                                  Million pounds

                                  Actual                   Expected

Butter                       144.44                    146.28   


Other cheese           419.14                    418.00


American cheese    614.10                    622.74


Total cheese          1,033.24                   1,040.74

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Source:  FCStone/Downes-O'Neill