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Inventory Build Persists

March 22, 2021

Dairy products continued to accumulate through February, according to USDA’s Cold Storage report released this afternoon. Even with February’s weather disruptions, churns across the country have been running heavily to process available cream supplies. However, as exports have perked up and retail and foodservice demand has improved, the inventory build between January and February was somewhat lower than is seasonally typical. At the end of February, butter stocks totaled 352.7 million pounds, 20.8 million pounds more than in January but less than half of the average five-year build of 43.5 million pounds between those two months.

Nevertheless, butter stocks remain high historically and will likely continue to overhang the market, dampening the potential for meaningful price increases. Commentary in Dairy Market News last week indicated that sellers were offering butter as old as a year.

Total cheese stocks rose to 1.436 billion pounds at the end of February, an increase of 27.8 million pounds compared to the end of January. Although the change in cheese stocks between January and February is less predictable than that of butter, the build is well in excess of the five-year average of 16.7-million-pound increase between January and February. The 3.4% increase in other cheese stocks vs. the prior month vastly outpaces the 0.9% increase of American cheese stocks, indicating that demand for products such as Mozzarella cheese could still be floundering.

As vaccination campaigns progress and an increasing number of states roll back pandemic-related dining restrictions, foodservice demand is lifting, which could help to work down some of today’s burdensome stocks. However, with spring flush just around the corner, milk supplies are expected to be plentiful in coming months. If demand does not ramp up quickly enough, further inventory build will likely put downward pressure on prices.

The spot Cheddar markets started the week on a softer note with both blocks and barrels losing ground in today’s session.



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