August 27, 2019

Is There Enough Butter To Fill Holiday Demand?

 |  By: Fran Howard

For the past three years, butter stocks have exceeded 300 million pounds in July, according to USDA’s monthly Cold Storage reports. In all three years—2016, 2017, and 2018—it appears that 300 million pounds of butter was adequate to accommodate increased demand for the late fall and early winter holiday season, says Sara Dorland, analyst with the Daily Dairy Report and managing partner for Ceres Risk Management.

“This year’s Cold Storage report for July (released in late August) indicated that U.S. butter stocks have not yet peaked. That realization has unnerved markets and spurred butter owners to reduce holdings,” Dorland says. In the first two trading days after the report was released, CME spot butter prices fell 9.25 cents to just under $2.20/lb., one of the lowest prices so far this year, Dorland says. After adjusting for currency rates, U.S. butter in late August was still carrying more than a 20-cent per pound premium over EU and Global Dairy Trade (GDT) butter, which was still high enough to attract butter imports.  

For the first six months of this year, Dorland notes that U.S. butter imports were more than 42% higher than the comparable period a year earlier, with the bulk of those imports coming from Ireland. Product from Ireland accounted for about half of all U.S. butter imports through June, Dorland notes. Mexico and Australia were also large exporters of butter to the United States. Compared to the first six months of 2017, this year’s year-to-date butter imports were a whopping 85% greater through June.

“In recent years, it has been common for the CME butter market to fall ahead of Labor Day weekend,” Dorland notes. Last year, she says the butter market dropped in the final week of August, and the weekly average CME butter price for most weeks through the end of the year remained in the $2.20s. Likewise, in 2017, CME butter prices began to decelerate in the first week of September. And in the final week of August 2016, the weekly average butter price dropped. “The common thread seems to be the release of the July Cold Storage report,” she notes.

The cheese situation is very different than the supply and demand picture for butter. Cheese stocks have supported CME cheese prices. USDA’s Economic Research Service (ERS) reported that year-to-date commercial disappearance of cheese through June was 1.8% greater than the first six months of 2018. “That means the domestic and export markets consumed a combined 114.5 million pounds more U.S. cheese this year through June, compared to the previous year,” Dorland notes. “At the same time, U.S. cheese makers only produced 49.5 million pounds more cheese over the same period. For now, cheese stocks have buffered the difference between supply and demand, but as higher CME spot prices indicate, cheese inventories—unlike butter stocks—might not be large enough to fill cheese demand as the holiday season approaches.” 

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