Demand for butter is strong, according to the USDA Dairy Market News. Sources indicate the upticks in butter pricing have increased demand as some buyers want to settle contracts in anticipation of prices going even higher. Production is mixed throughout the country. Some manufacturers in the Midwest are not able to find available cream, while others have no difficulties. Processors in the West are running at full production, while plants in the East are finding it hard to locate enough cream.
Butter production is expected to increase nationally as the holiday season nears. Inventory levels are mixed as manufacturers in the East are using stocks for current demand, processors in the West are building inventory levels and the Midwest has mixed stocks, depending on production rates and cream availability.
As a result, the spot butter market surged Sept. 25 to $3.135 per pound, surpassing the all-time high set in September last year. In one week's time, butter climbed an astounding 41.75 cents per pound. Supplies are dwindling. Between July and August stocks declined more than 45 million pounds or 17.7%, compared to a five-year average drawdown of 26.7 million pounds. But while demand is high, supply is quite tight. Butter inventories on Aug.31 totaled 209.3 million pounds, up 21.1% from the short volumes of a year ago.
Some are wondering about the butter market's cliff dive last October and questioning if history will repeat itself. October and November butter futures are calling for a decline, but one that is much less steep than last year's collapse.
The cheese markets wandered. Spot Cheddar blocks finished 10.25 cents lower Sept. 25 than the previous week, a five-month low. Barrels regained 75 cents and closed at $1.55. Domestic cheese demand remains robust. Dairy Market News reports that pizza makers are enthusiastically consuming mozzarella, and "Most near-term production is fully committed to near-term customers' needs."
But with milk still flooding the Midwest and imports growing, commodity cheese is abundant. On Aug. 31, inventories of all cheese varieties totaled 1.17 billion pounds, and American cheese stocks reached 708.9 million pounds, up 9.3% from a year ago. Cheese supplies typically peak in June or July and ebb throughout the fall months.
This year, for the first time since 1986, American cheese stocks grew in August, rising 10.8 million pounds or 1.5%. American cheese stocks have not been this high in the month of August in nearly 30 years.
Cheese makers who don't also own butter and milk powder facilities will simply embrace lower Class III prices and continue to fill their vats. Competing cream products, geography and capacity have further limited a shift in the product mix.
According to Dairy Market News, "Some Northeastern cheese manufacturers say they would make more cheese if they could get more milk." Furthermore, "The availability of cream is thwarting butter production as other cream-based products are also in high demand right now."
The milk powder market climbed higher. Spot nonfat dry milk closed Sept. 25 at 94 cents, up 3 cents from the previous week. Most Class IV futures contracts posted double digit gains Sept. 25. The November contract jumped 88 cents.
Whey prices have dropped precipitously for months, but buyers are finally stepping in and the market bounced higher on Sept. 25.
The chasm between the domestic and overseas butter markets grows ever wider. It's early in the season, but there are signs that milk production is slowing in New Zealand. Beef prices are high and dairy producers have culled at much higher rates than last year. After eight months, beef and dairy cattle slaughter is 21% ahead of last year's pace.
China's appetite for milk powder remains suppressed .China imported 76.9 million pounds of milk powder in August, which was 12.7% less than July and 20.7% lower than prior-year volumes. Shipments of milk powder to China are beginning to improve. In August they were up 11.2% from a year ago. Hot weather in August and September has been affecting milk production but output is still in line with year ago levels.
USDA's milk production forecast for 2015 is raised on a larger expected cow herd and slightly more rapid growth in milk per cow. However, the forecast for 2016 is unchanged.
Domestic demand for butter is expected to support relatively high prices in the United States. As a result, the butter price forecast is increased for both 2015 and 2016. Cheese prices are raised for 2015, but increased production in 2016 may pressure prices despite growing domestic demand.