Dairy Skim – July 2023 US Cold Storage Report

Dairy Skim is a bite-size episode series where HighGround’s top analysts break down the latest dairy data release. Today, Betty Berning discusses the July 2023 US Cold Storage Report. You can view the snapshot report here. Subscribe so that you never miss an episode!

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[00:05] Eric: Hello, everyone, and welcome back to the Dairy Skim, HighGround Dairy’s bite-sized podcast intended to give the dairy industry some flavor into recent reports or events that can impact global commodity pricing. This is Eric Meyer, President of HighGround and today is Wednesday, August 23rd. The US Cold Storage report is out, and helps justify some of the bullishness we have seen in the markets of late, with stronger-than-average drawdowns in both Natural American-style cheese, which is mostly all Cheddar, as well as in butter. June Revisions were a moot point as they were immaterial, so we won’t be covering those in the report, but be sure to check the table in our written analysis if you want to see how small those were.

[00:49] So first, let’s start with butter, as HighGround believes that the inventory movement has much more of an impact for this commodity than it does cheese. At nearly 332 million pounds, butter stocks held at just over 5% above the previous year (July 2022), but also declined from this past June by 5.2%, or just over 18 million pounds. That matches a month-over-month decline from June to July back in 2018 and at the low end of the range over the last 10 years. That said, 5 of the past 10 years (2023 not included) saw June to July drawdowns in the 16 to 18 million pound range. But when looking at May to July, the two-month butter inventory net out-movement, this was the sharpest drawdown, 36.2 million pounds, going all the way back to 1993. Is that a bullish point, or does it explain why we are above what we thought would be the high end of the range this time of year at the CME?

[01:54] Moving on to cheese, there are a couple of key points within the inventory data that do help justify why we may have seen such a steep upward move at the CME spot market over the past month. First, Natural American cheese stocks fell by 15 million pounds from June to July, which was the largest drawdown between those two months since 1987! While somewhat bullish on the surface, given Cheddar production was sharply higher during much of the first half of the year, buyers of Hard Italian cheese or other higher-margin cheeses likely took advantage of very cheap prices throughout much of July to ramp up production for long hold products. Processors saw cheap opportunistic milk dry up throughout July in the Upper Midwest and had little incentive to make Cheddar when other cheeses commanded a premium. July would also be a good time—albeit a little bit early—for low-moisture part-skim (LMPS) Mozzarella processors to begin working on fulfilling orders for back-to-school as well as college football season. That said, all three cheese categories in cheese, Natural American, other than American and Total Cheese stocks all fell below prior year, which can sometimes provide a lift to market sentiment. Overall, we feel like the numbers appear bullish on the surface but provide more insight as to what happened to make supplies of 4-to-30-old Cheddar tighten up. In the end, demand is going to be a larger driver to this market than the lack of supply, as more Natural American-style cheese capacity comes online later this year and we appear to be out of luck to be able to drive incremental exports for cheese.

[03:37] There is more in this report to dissect, and Betty Berning, HighGround’s Contributing Dairy Economist will have all the details in her written report available later today. Be on the lookout for that report with all of HighGround’s insights and opinions on the July US Cold Storage report. You’ll hear from the HighGround team again this Friday afternoon with our weekly Let’s Chat Markets podcast to recap the key highlights from the week. Talk soon!

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