Dairy Skim is a new bite-size episode series where HighGround’s Eric Meyer and Cara Murphy break down the latest USDA Dairy data release.
Transcript:
00:00 ERIC: Hello and welcome to the Dairy Skim, HighGround’s new, abbreviated podcast providing market participants quick takes on reports or events like the November 2022 US Cold Storage report that USDA released this afternoon, providing us with month-end stock data for cheese and butter. With me today is Cara Murphy, HighGround’s market intelligence manager to break down the report. Cara, I know you were planning on heading back home to Iowa tomorrow for Christmas but this wild winter storm, or Bomb Cyclone as they are calling it, may delay your departure.
Since this is your first Dairy Skim with our listeners, why don’t you tell everyone about yourself?
00:36 CARA: Yeah, for sure! Well I grew up raising beef cattle outside of Des Moines, Iowa. I then studied animal science at Iowa State University. After that, I worked for Vermeer Corporation in Pella, Iowa, doing some of their agriculture market and economic analysis for them. Now, I’m very happy to be at HighGround Dairy and I’ve been really enjoying learning more about the dairy markets.
00:58 ERIC: Thanks so much Cara. Let me get started and I’ll dig into the ending stocks for cheese. We typically see a drawdown from October into November as demand picks up for the holidays and that’s exactly what we got, a 1.3% (or 18.3 million pound) drawdown in total cheese and 1.9% (or 15.6 million pound) decline in Natural American Cheese. Total cheese declines were very much in line with 5 year averages but Natural American was slightly lower than expectations, with the five year average showing only a 5 million pound drawdown vs. nearly 16 million pounds in this report. That may help explain why CME Block cheese prices have failed to break below $2.00 in late December. Still, there’s a whole lot of cheese in US warehouses as Natural American is up 7%, or 54 million pounds above two year ago levels and Total Cheese is up more than 6% (or 82 million pounds). Stocks are definitely not burdensome but there is room for a seasonal price downswing in the coming weeks given where the state of global cheese prices are at and the slowdown in the economy. This data doesn’t change much in the cheese market and we expect blocks to soften and perhaps barrels to hold these levels heading into the New Year.
02:16 As for butter, CME spot prices hung up at extremely high levels for much longer than most in the industry had anticipated given the calendar tends to soften the market earlier in December. We’re finally seeing some cracks on butter here over the past few days, and the data in today’s Cold Storage report tends to back up this large correction downward. Cara, what did you see in today’s numbers?
02:38 CARA: Yeah, with prices being so high throughout much of the year and with October’s less than stellar drawdowns, we expected November’s ending stocks to be at or even further below the 5 yr average of 61 million pounds from the prior month. Instead, USDA only posted a 40 million pound drawdown. While that did push ending stocks slightly below the 200 million pound mark, it was the smallest October to November monthly net out-movement since 2014! In the end, butter stocks were down just 5.1% below year ago levels after being well below 2021 storage levels all year. While there’s a chance that December stocks fall as well, that’s more the anomaly than the norm. It happened in December last year but in every year 2017 to 2020, inventories increased from Nov to Dec. Based on these numbers, it helps justify why prices are coming down and may result in an overcorrection, where nearby CME spot prices fall further than the $2.30 to $2.50 range HighGround has been forecasting for first half 2023.
03:41 ERIC: Cara, thanks so much for that update. Well, everyone, things seem to be slowing down, it’s snowing here in Chicago and the holidays are upon us. On behalf of everyone at HighGround, we wish you Happy Holidays, a very Merry Christmas, a Happy New Year, and we look forward to connecting with all of you again in 2023!
