Could Cheese and Butter Supply be Larger than Reported?

Published on: 22:30PM Mar 16, 2015

This may provide an unusual twist to the market, making price prediction very difficult.

Both cash and futures in dairy remain somewhat in limbo. Trading activity has been light as traders do not know which way the market will move. Limited volatility generally limits trading activity.

There is much speculation by analysts -- as there always is -- as to market strength as the year progresses. Some are anticipating as fairly benign market for much of the year, with current futures prices providing a good representation as to potential prices. Others anticipated substantial upside potential due to the possibility of supply tightening from lower milk prices and the increased culling that generally results. Stronger world prices seen on the Global Dairy Trade auction also provides support for a more positive outlook. The bottom line is that it is difficult to predict supply and demand and the effects of outside factors.

A very important influence on prices this year will be exports. Exports have been lagging significantly since mid last year as high prices drove business away from the U.S. once contracts were filled. Buyers did not want to renew contracts at such high prices. Since then there has not been much change even though cheese and butter prices are lower.

The U.S. Dollar is substantially higher than it was when cheese and butter price were high. In essence, these items were flip-flopped, generally canceling any benefit that resulted from lower dairy prices. If there is any noticeable interest or increase in exports, it may take until mid-year or later due to exports contracts having been made late last year to cover expected needs for the first half or longer of this year. International buyers do not wait until the last minute to purchase supply. Purchases and contracts are done months in advance.

December cheese exports were down 11.5% from the previous year. Butter was down 62.1%, Nonfat dry milk was down 22.8%, and whey was up 0.9%. Cheese showed lower exports from the previous year since October. Butter showed declines since May, Nonfat exports were lower since August. Whey exports were mixed during much of last year. I anticipate this pattern to continue for the foreseeable future given current fundamentals.

There is another aspect of the market that is surfacing that may provide an unusual twist to the market making price prediction very difficult. Cheese and butter production has been strong with sufficient milk and cream supplies available. Plants have been running on full schedules due to good returns and good demand. Manufacturers have been confident to keep production strong with limited fear of downside risk.

Buyers have been aggressively purchasing supply to rebuild inventory and are interested in purchasing more than usual and holding it longer than usual. Record high prices of last year are still fresh on their minds and there is a little bit of hoarding taking place. Inventory is increasing, but does not yet seem to have reached a comfortable level.

There is another interesting aspect that is taking place as some customers are building their own cheese inventories to hedge against possible higher prices. These inventories may not be counted on the monthly cold storage reports, resulting in greater inventory than reported as the year progresses.

It is unclear how widespread this is or how much impact it could have. This will be seen later this year when demand increases and fresh production and inventory are used to meet that demand. If this is indeed the case, we could see a flat market through the second half of the year.

Upcoming reports:

  • February Livestock Slaughter report on March 19
  • February Milk Production report on March 19
  • February Cold Storage report on March 23
  • February Agricultural Prices on March 30


Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at

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