Domestic Cheese Consumption Weakens Despite Government Buys
The USDA Economic Research Service released domestic dairy consumption data for November. According to the report, total domestic consumption of cheese was weaker compared to the prior year. But butter continues to push higher.
Consumption of American cheese increased 11.9 million pounds, and other-than-American cheese consumption decreased 15.7 million pounds.
Butter consumption increased 189,526 pounds compared to November 2019. Combined, nonfat dry milk (NFDM) and skim milk powder (SMP) consumption increased 17.3 million pounds, and domestic consumption of dry whey in November declined 13.8 million pounds.
Are Government Purchases Fueling Consumption?
USDA issued a surprise last week when they announced more dairy purchases.
“On Thursday the USDA announced they will be issuing $40 million in new Cheddar/processed
cheese solicitations and another $40 million in new butter solicitations,” says Nate Donnay of StoneX Group. We don’t know the timing of the delivery yet.”
If the purchases get jammed in on top of food box, the impact could be significant, Donnay says. However, if it is spread out over 2021, then it will not have a big impact, he says.
“$40 million [of milk] only gets you 16 mil. lbs. of cheese, and if it is spread over something like 6 months, then the impact is pretty small at just 2.6 mil. lbs./month,” he explains.
Still, the news pushed futures higher.
With the cheese purchase announcement, USDA also announced they will issue solicitations for $40 million worth of retail (print) butter as well. This is on top of the $50 million they have previously announced.
“It will be interesting to see where the bids come in and whether this is going to stress print capacity,” Donnay says. “The government seems to be making an effort to boost butter prices to help narrow the Class III-Class IV spread, but their plan would be more effective if they stopped announcing new cheese purchases.”
Round 5 food box contracts are expected to be announced next Tuesday, January 19.
