The latest USDA Cold Storage report showed that butter stocks declined 13 percent from the previous month to the end August at 289 million pounds. Although up 4 percent from August 2022, it is the second lowest August figure in the past five years, below the historical five-year average. The market perceived the butter stocks as a sign of bullishness, and prices have recovered, trading near $3.00 per lb for spot CME delivery as the heavy baking season begins. Stocks normally decline this time of year, the fall, and should trend lower for the next three months until stabilizing in November. The market is not in backwardation, a clear sign of tightening physical stock levels. Deferred positions have also firmed, but not as much as nearby futures for Q4 2023. 

Although stocks rose in the first half of the year, they peaked unusually early in May and have been falling since spring. Meanwhile, cheese inventories saw little change as the previous month’s reported stocks were revised higher, with August carryout at 1.489 billion lbs of natural cheese. As a result, Class III futures have failed to experience the lift seen in Class IV futures, which are principally driven by both butter and NFDM prices. 

The full version of this commentary appeared on our IQ platform Sep. 26, 2023. Further information, statistics, and pricing for the dairy market are available to IQ subscribers. Learn more about becoming a subscriber.