While trade tensions between U.S. and China are not yet settled and NAFTA’s replacement, USMCA, has not been ratified, exports of dairy products that would normally be shipping to these two key destinations have been lagging. Following U.S. steel and aluminum tariffs, China and Mexico responded with their own targeted import duties, including import tariffs of up 20 to 25 percent on many U.S. dairy items such as cheese and skim milk powder.
Obviously, with exports and tariffs still in flux, product that would normally be sold is now accumulating in inventories of dairy products across the U.S. Butter inventories rose by 15 percent from the prior month and stand at 242.5 million lbs. Given that stocks were below last year’s levels, brokers and market participants were expecting a higher number and thus construed this data as supportive. However, this figure is still the third highest over the past six seasons. In order to be fundamentally constructive, the inventory number would need to be closer to 150 million lbs, as it was back in 2014 or 2015.
Likewise, cheese inventories continue to climb and, as of the last cold storage report, were up 4 percent YOY, a new record. The rise since February in CME cheese futures does not seem to match these high inventory levels. This may be signaling a false rally, especially as we enter the spring flush, when daily milk output and production will be rising.
Total U.S. month-ending butter stocks
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