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Stocks Build with Cold Storage Inventories
June 23, 2015

May 31 butter stocks stored in all warehouse totaled 264.3 million lbs., up 14% from April 30, and 26% more than May a year ago, according to USDA’s Cold Storage report, released June 22.

Total natural cheese stocks, at 1.11 billion lbs., were up 2% from April, and up 4% from May 2014. American cheese stored in all warehouses, at 664.5 million lbs., was up 3% from the previous month, and up 1% from the previous year.

Private market analysts offered their interpretations of the report’s numbers:

HighGround’s Eric Meyer called the report bearish vs. expectations for butter, and neutral for cheese.

Jerry Dryer, chief market analyst with Rice Dairy, said May growth of butter and American cheese stocks were much larger than usual.

“Overall, this report is bearish,” Dryer said. “The butter build suggests that production in the Midwest and East was able to offset a likely decline in the West.”

Despite the bearish butter stocks, the day’s futures prices in nearby months were limit up, according to FCStone’s Dave Kurzawski.

“Certainly we corrected sharply to the downside over the past few weeks so some short covering shouldn’t be a complete surprise, but for futures to continue to hold their strong gains following this large number is a surprise,” he said. “Stocks are now in line with 2012, levels which saw trading in the mid $1.40s (per pound) before rallying seasonally into the upper $1.80s. But for us to be at these levels ahead of typical seasonal demand doesn’t seem to line up with the big stock increases we’ve seen over the past two months. We’ll be very curious to see how the market reacts overnight and into tomorrow, but some deferred futures have come off their highs while the nearby months hold.”

While butter was bearish, the big swing in the stock levels between cheese types was the highlight of the report, Kurzawski said. Total cheese stocks were only slightly above FCStone’s pre-report expectation, but it is how those total stocks were built that created interest. Other cheese stocks were estimated at 445.1 million lbs., well below FCStone expectations of 454.5 million lbs. However, American cheese stocks saw a build to 664.5 million lbs. (vs. expectations of 647.4 million lbs.).

“While the total cheese stock expectation is in line with pre-report estimates, seeing such a significant shift to American cheese production is an ominous sign for spot markets, and likely is part of the reason we’ve seen trade activity pick up there over the past month. We’d look for weakness overnight and into tomorrow,” he said.

 

Source – The Dairy Herd



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