Either July butter consumption reversed June’s 3.5 percent drop or butter output took a dip because July 31 butter stocks were down from the previous month, first time since November 2020, though they remained well above a year ago. That’s according to the USDA’s latest Cold Storage report, which showed the butter inventory at 397.4 million pounds, down 17.2 million pounds or 4.2 percent from June, but still a hefty 25.9 million pounds or 7 percent above July 2020. 

One month does not a trend make but it is a positive. You’ll recall that June butter output was up 7.8 percent from a year ago. We’ll get a look at July output in the Sept. 3 Dairy Products report, which will give us another piece to the puzzle.

American type cheese stocks climbed to 818.2 million pounds, up 8.6 million or 1.1 percent from June, after dropping 18.3 million pounds last month. American stocks were up 32.7 million pounds or 4.2 percent from a year ago.

The “other” cheese stocks climbed to 608.5 million pounds, up 5.6 million pounds or 0.9 percent from June, but a generous 22.9 million or 3.9 percent above a year ago.

The total cheese inventory hit 1.449 billion pounds, up 14.3 million pounds or 1.0 percent from June, and 57.7 million pounds or 4.1 percent above a year ago.

Looking internationally, China remains the elephant in the room when it comes to world dairy trade as imports in every major category continued to break records in July. Whole milk powder imports totaled 162.3 million pounds, up 98.4 percent from July 2020, and up 34.9 percent year to date.

HighGround Dairy (HGD) points out that New Zealand continues to claim the vast majority of this volume, with imports up 86 percent from a year ago. China did turn to other nations for product as well, such as the EU and Uruguay.

Skim milk powder imports hit 101.7 million pounds, up 33.4 percent from a year ago, and up 44.8 percent YTD. SMP imports jumped to the highest monthly volume noted since January, according to HGD, and were the strongest imports of any July on record. The EU claimed the biggest market share at 33 percent, followed by New Zealand with the steepest year over year volume increase of any country. The U.S. got a piece of the action, at just over 15 million pounds, up 98% percent from 2020.

Cheese imports totaled 34.6 million pounds, down 2.6 percent, but YTD were up 44.6 percent. Butter imports amounted to 20.5 million pounds, up 43.7 percent from a year ago and up 23.8 percent YTD.

China continues to bring in whey for its recovering hog herd. Imports totaled 143.5 million pounds, up 2.5 percent, with YTD up 36.8 percent. Most came from the United States, up 40 percent from a year ago, according to HGD.

HGD said the EU remains the favored region to fulfill China’s fluid milk and cream needs, at a 69 percent market share in July. Volume was up 21 percent YoY.

While we’re in China, the Aug. 20 Dairy and Food Market Analyst reported that “Outside of Shanghai and Ningbo Chinese ports, congestion has risen to record levels following the shuttering of a key terminal there. In response, freight rates from Shanghai to Los Angeles increased by an additional 6 percent this week. Rates are up 242 percent compared to a year earlier. It’s a matter of time before the backlog begins to inundate West Coast ports. We are having an increasing number of conversations about the anticipated severity of shipping issues by dairy exporters in fourth quarter 2021,” warned the DFMA.

Editor Matt Gould talked about it in the Aug. 30 ‘Dairy Radio Now’ broadcast, reporting that “freight issues” include trucking, warehousing and ship capacity, and said that as we get closer to the holidays and demand for transportation increases, we will see record levels of congestion like we’ve never seen before.

He reported that there’s a near record number of container ships waiting to be unloaded at west coast ports and a typhoon, among other issues in China at the end of May-early June, caused a backlog. Now the Delta variant is causing a backlog at the third most important port in the world. That will make it harder to get our dairy products onto ships for export, according to Gould, as costs escalate and become price negative for U.S. dairy.

Meanwhile, New Zealand saw a vibrant export picture in July with large gains in most products. Cheese exports totaled 80 million pounds, up 36.2 percent from July 2020, with year-to-date exports up 22.5 percent. Cheese shipments recorded the largest gain over prior year, HGD said, “with China’s expanding palate for the delicious, protein-filled snack.” Japan and Chili followed.

Butter totaled 40.2 million pounds, up 24.3%, and YTD up 9.2 percent. Whole milk powder totaled 257.9 million pounds, up 10.1 percent, with YTD down 11.08 percent. Most went to China, according to HGD, followed by Bangladesh.

More good news for New Zealand as StoneX Dairy reports, “Milk production is starting strong in its new season. While still early this is a good start toward our projections of volume being up 1.5-2.5 percent over last season’s strong numbers (assuming weather stays normal). Total production two months into the season is up 4.5 percent while milk solids production is up 4.7 percent over last season at this time.”

U.S. dairy product prices the last full week of August were mixed. The Cheddar blocks climbed to a Friday close at $1.75 per pound, up 5.75 cents on the week but 7.75 cents below a year ago when they jumped almost 18 cents.

The barrels made it to $1.4875 Wednesday, then retreated and closed Friday at $1.4025, down 7.50 cents on the week, lowest since Aug. 9, 2.75 cents below a year ago, and an expanded 34.75 cents below the barrels. Five cars of block traded hands on the week at the CME and 9 of barrel.

StoneX ‘Early Morning Update’ suggested, “With football season nearly upon us there is some thought that perhaps the combination of falling milk supply along with heavier pull from schools and pizza season might give us some upside risk over the coming weeks.”

Midwestern cheesemakers told DMN that spot milk availability continued to tighten and the spot milk discounts of early August were no more. Cheesemakers are selling milk back into bottling, according to a number of contacts. Cheese sales are mixed in the region. Retail Cheddar producers, along with pizza restaurant cheesemakers, are turning down orders. Staffing shortages continue to be a prominent issue, according to multiple contacts, and the price gap between blocks and barrels remains an inhibitor to bullishness on markets.

Reacting to July Cold Storage data, CME butter shot up to $1.7150 per pound Tuesday, highest since July 21, but saw a Friday finish at $1.7075, 4.50 cents higher on the week and 26 cents above a year ago. 19 sales were reported.

Butter producers say food service demand has picked up despite Delta variation concerns and restaurant business is reportedly surging. Butter plants report there was a little more cream available from the West this week but the Labor Day holiday may be playing a part in that. Butter inventories are in good shape for fall demand.