U.S. Dairy Cold Storage Update – Sep ’15
Butter – Stocks Decline Sharply but Remain Significantly Higher on YOY Basis According to USDA, Aug ’15 U.S. butter stocks of 209.3 million pounds remained significantly higher on a YOY basis, finishing up 21.1%. Butter stocks declined by 45.1 million pounds, or 17.7%, from the previous month, however, which was significantly more than the three year average July – August seasonal decline of 24.4 million pounds, or 9.8%. The larger than average seasonal decline resulted in current butter stocks declining below three year average levels for the first time in four months. U.S. butter stocks typically reach their seasonal peak in May, followed by seasonal drawdowns until lows are reached during the winter months. The most recent seasonal drawdown in butter stocks of 104.7 million pounds was less than half of the prior year’s seasonal drawdown due to a significant reduction in export demand. Throughout the period, YOY U.S. butterfat exports declined by 89.1 million pounds, or 55.9%, as domestic butter prices traded at a significant premium to international butter prices. Domestic butterfat exports remained weak through the early months of 2015, despite U.S. butter prices converging downwards towards international prices. More recently, the domestic butter price premium has once again increased, reaching a ten month high in Aug ’15. U.S. butterfat exports have declined YOY for 15 consecutive months through Jul ’15. Cheese – Stocks Remain Significantly Higher YOY, Reach New 31 Year High Aug ’15 U.S. cheese stocks of 1.17 billion pounds finished up 0.5% MOM and 12.1% YOY. The monthly YOY increase in cheese stocks was the tenth experienced in a row and the largest in the past 27 months on a percentage basis. On an absolute basis, total cheese stocks reached a new 31 year high, finishing at a level not experienced since 1984. Cheese stocks have remained higher YOY in recent months as milk production has strengthened in Midwestern cheese producing states while weakness in cheese export markets has continued. The Aug ’15 MOM build of 5.5 million pounds, or 0.5%, was a contraseasonal move when compared to the three year average July – August decline in cheese stocks of 33.8 million pounds, or 3.1%. Strong cheese production has been partially offset by continued strong domestic demand, however cheese exports remained lower YOY for the tenth consecutive month in Jul ’15. U.S. cheese stocks typically exhibit a smaller degree of MOM and YOY variation than U.S. butter stocks. Cheese stocks do not have as large of a seasonal build as butter stocks, with the five year average Nov – Jul seasonal build in cheese stocks representing a 12.7% increase in stocks vs. a 121.1% increase in butter stocks. The reduced seasonality exhibited in U.S. cheese stocks has led to less volatile YOY variation, with cheese stocks having a five year average absolute YOY change of 5.3% compared to 26.3% for U.S. butter stocks.