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Cheese Stocks Move into Foodservice

As restaurants across the country began restocking in anticipation of reopening, they pulled natural cheese stocks out of warehouses in May. According to USDA’s Cold Storage report released this afternoon, cheese stocks at the end of May declined 1.6% from the prior month to 1.45 billion pounds. The month-to-month decrease bucked the typical seasonal trend; normally inventories rise by an average of 19.8 million pounds between April and May. Of course, this year has been anything but typical, and the 24-million-pound drawdown of natural cheese was the largest on record for May. Despite the decline, natural cheese stocks were 5% greater than they were in May 2019.

In contrast to cheese stocks, butter inventories expanded again in May, rising 7.6 million pounds or 2% to 380.2 million pounds. The butter market has been fickle and although stakeholders report that retail sales have continued to be strong, prices have been too high to make U.S. butter competitive in international markets, which has led to reduced export sales.

Food companies are reconsidering their business models in the wake of the coronavirus pandemic. To avoid potential shortages in the future, particularly in the event of a second wave of the virus, firms across the industry are expected to begin carrying larger product inventories. This marks a significant departure from the trend seen in recent years whereby companies increasingly sought efficiency by moving toward just-in-time inventory management. Though this decision could leave companies less vulnerable to scarcity, it will also require them to have significant amounts of cash tied up in inventory. This will reduce working capital and some stakeholders predict that it will discourage cash-heavy endeavors, such as new product innovations.

After setting records last week, CME block cheddar prices moved up another 5.25¢ in today’s spot session, setting a new all-time high of $2.7025/lb. Barrels also gained ground while butter and whey prices retreated slightly.

Daily Dairy Report Vol. 9, No. 57 / June 22, 2020


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