Dairy Skim – September 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, Eric Meyer discusses the September 2023 US Cold Storage Report. Customers can view the snapshot report here. Subscribe so that you never miss an episode!

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[00:04] 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 Dairy and USDA just dropped the September 2023 Cold Storage report in our laps, and I wanted to share a few tidbits of data we felt were important to the markets.

Let’s start with cheese because there’s not a whole lot going on here and we can push through that to get to the highly anticipated butter figures.

[00:37] After a quick review, the cheese-ending stock figures appear neutral versus our expectations. The five-year average August to September net movement on Natural American cheese was up 5 million pounds, with a range of 17 million out to 17 million in. This September, the monthly move was 2.4 million pounds drawn out of storage, but with a 3.5 million pound upward revision in August, that drawdown was basically a wash. Natural American Cheese stocks totaled over 850 million pounds to conclude September.

[01:12] The surprise in cheese did come in the Other Than American category, which typically sees drawdowns from Aug to Sep but typically that’s fairly limited. With a 21 million pound drawdown, it was the largest August to September pull since 2013. Of note, August’s CME block monthly average price was $1.9752 per pound—a real surprise to the industry being that high—which likely prompted those that could draw out of storage like those that use hard Italians and other non-fresh cheeses to push out fresh production until later in the year. We don’t think there will be any material reaction to the cheese stock data in the September report. Adding up American and Other cheese stocks, total cheese in September came in at 1.472 billion pounds, just 0.2% above last year.

[02:06] Now on to butter. Prices continue lingering well above $3.00 per pound at the CME Spto market and had set a record high at $3.5025 per pound on October 6th, the exact same date the all-time high was set in 2022, and the expectation was that butter stocks in September would have seen a major drawdown. With the 5-year average August to September net outmovement at nearly 20 million pounds, we felt that this year’s draw would best those expectations given the recent bullishness in the market. But that’s not what materialized, with only 16.3 million pounds reported being removed from the prior month, and alongside a 2.65 million pound upward revision in August. This set the September butter inventory figure at just over 275 million pounds, which remained 3% above the prior year. While the trajectory of the year-over-year inventory has been tracking down all year, the fact that it stayed above prior year in September, along with a below-expected drawdown from August helps to make the case as the calendar turns to November that perhaps the US market may be over-valued. It will be interesting to see if there are players who have uncommitted inventory at this point or if the market will remain tight until more fresh bulk butter finds its way to the market. Futures remain heavily inverted at this point so expectations remain very clear for a rapid decline at some point in November.

[03:40] Those are the highlights and today’s report provides another layer of uncertainty in what has been a volatile butter market since mid-September. Be on the lookout for our deeper analysis with all of HighGround’s insights and opinions on the Cold Storage report which will be released by tomorrow morning. You’ll hear from the HighGround team again on Friday afternoon with our weekly Let’s Chat Markets podcast to recap the key highlights from the week. I look forward to hearing from Alyssa, Betty, Cara and Alex from their trip to Madison this week, attending the National Workshop of Dairy Economists and Policy Analysts and we look forward to seeing many of our industry colleagues in Chicago next week at the CME/ADPI Purchasing and Risk Management Conference. Talk soon!

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