There was hope that seasonal buying was under way and prices would trend higher. Seasonal buying is taking place, but buyers have no need to be aggressive. Sellers are not holding back and continue to offer supply to the spot market. The recent weakness of cheese prices eliminated three weeks of gain in Class III futures. This makes traders less willing to purchase when underlying cash prices show gains and quick to sell when there is weakness. Over the period of three days, October Class III futures fell $1.17 and have yet to rebound, finding no support from cheese prices.
Butter prices have been more stable, which has allowed Class IV futures to hold better support keeping futures above Class III prices. There have been two times during the past year in which Class III futures moved above Class IV futures, but both of those times have been short-lived. There has been greater consistent support in butter versus cheese. This has been a bit surprising as the butter inventory has been above the previous year so far this year and exports have been dismal with July exports down 54.7%. This is the lowest July exports since 2020. Exports have been running below the previous year since February. One of the reasons butter exports are significantly lower is reduced demand from China. Other than the month of June, exports to China have been down substantially (see chart). Active churning has kept sufficient supply available with buyers unconcerned over supply. Sellers have been offering a substantial amount of butter on the spot market allowing buyers to increase ownership for immediate demand as well as later demand without having to be aggressive buyers. This may limit upside price potential for butter through the end of the year.
By ROBIN SCHMAHL
September 20, 2023
dairyherd.com
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