Dairy Product Demand Starts Year on Improved Note

U.S. butter and cheese use during the first quarter of 2018 was increasing at a pace exceeding the gains in milk production. That represents an improvement situation from 2017, except for American-type cheese, which did post a 2.5% increase in usage during 2017 (following a 2.8% gain in 2016). The first quarter of 2018 saw American-type cheese usage increase by a rather dramatic 8.6% compared to 2017’s. Meanwhile, non-American-type cheese (mostly Italian varieties) usage was up 3.6% year-over-year for the just completed quarter, compared to 2016 usage was unchanged. Butter domestic usage for the first quarter was up 5.1% from a year earlier. In 2017, butter usage topped prior years by a fraction of one percent.

Export markets in recent months have provided some additional support to butter and cheese markets, as well as for the milk powder. American-type cheese exports were up 44% in the first quarter compared to a year earlier. That might be sensational if not for the fact that exports only account for 3% of American-type cheese production. Still, the increase was a factor limiting the gains in American-type cheese cold storage holdings during recent months. Non-fat dry milk exports during the first quarter were up 23% from a year earlier. Milk powder production during the first quarter increased 3%. The year-over-year rise in exports more than offset production resulting in a decline in non-fat dry milk availability in the domestic market for the quarter.

Cheddar cheese prices have climbed steadily since mid-February, an important trend. The large inventories in cold storage would generally be expected to exert some downward pressure on price or at least hold prices nearly steady. The Class III milk price increased $0.25 per cwt. in April. The rising trend in cheese prices through mid-May would suggest a slightly higher milk price in May. That situation is a positive surprise compared to expectations that were in place in the middle of the winter quarter. Swinging expectations are an essential factor driving short-term price behavior and the dairy product usage, but the rate of improvement recorded during the first quarter may not be sustainable during the balance of this year. In coming months, unless there are some new developments with regards to reducing milk supplies or new sources of demand for dairy products, dairy product and milk prices may stabilize or retrace some of their recent gains.