As the festive season winds down and the last of the holiday baking is complete, U.S. dairy markets find themselves at a critical juncture, pondering their next move.
While demand for butter, cream, and cheese typically surges in the weeks leading up to the holidays, leaving retail scrambling for spot loads, the post-holiday landscape is shrouded in uncertainty. This comes after a year where dairy markets struggled to find positive momentum, intensified by a recent data vacuum from the USDA, which left industry players eagerly awaiting the next cold storage report to shed light on true inventory levels and potential price direction.
The difficult thing about the timing of answering that question is that the USDA has been slow to release data since the government shutdown. We can see the trend with milk production; we can see the spot loads trading, but recently all we had for information regarding stocks is a cold storage report that was several months old. Fortunately, USDA released its latest cold storage report Dec. 23, the first since September’s release of data from August.
In August, cheese inventories were down slightly from the previous report but higher than the previous year. Butter, on the other hand, was 8% lower in both the previous month as well as 6% lower than the previous year. August was a long time ago, and a long time for the market to question what its inventory truly was.
Due to the tighter inventory, butter spent the week after September’s cold storage report rallying but it was short-lived. The market had continued the steady path of decline from the highs set back in July. Cheese had a similar fate with highs peaking in June and falling on a bumpy path to the lows set earlier this month. While the last couple weeks have been more friendly, the markets still have a long way to go to reach the highs we saw this summer.
Plants are currently running at full capacity with the abundance of cream available, however now that the holidays are nearly past us, it is anticipated that production will be reduced and we will begin building stock. Cream supplies have been plentiful with the most recent demand based in the retail market. However, what we are gaining for demand in retail has been offset by the struggling food service demand. Traders are mixed on their opinions about what inventory is on hand.
What information we have received is that milk production numbers are up year over year. The November milk production report, released Dec. 22, had milk production at 18,790 million pounds, up 4.5% from the previous year.
What is not being talked about is the sharp decline in milk production from last month’s report to this month. The USDA pegs the November milk production 665 million pounds less than October. That is 3.4% lower milk production in just one month’s time, the lowest production we have seen since February.
While it is seasonally on trend for winter production to decline, the pace at which production has dropped off begs the question of whether this trend will continue into late winter.
If milk production falls dramatically in the coming months, the importance of the data released with the latest cold storage report is increased. Should we find stocks low on top of the trailing production, it could be the catalyst to finally help prices. While this is grasping at bullish straws, it is still important to remember that while milk production has fallen from the spring and summer highs, we are still well above production from 2024 and have been for most of the year.
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