Year End Inventories and Exports

When the prior post was released, inventory and updated export data for November was not available.   This post will review the current information now available.  In summary, inventories are at reasonable to low levels and exports are strong.  This has provided a strong basis for 2014 milk pricing.  Class III futures are in excess of $20/cwt. for January and February 2014.

INVENTORIES

Beginning with the largest and most important product, cheese, the two charts below show the current level of natural and American cheese stocks.  Cheese prices are the primary element in the Class III milk pricing formula.  High inventories can result in reduced prices, which were a concern in early 2013.  By November,  the inventories have fallen to reasonable levels, just above the levels for 2011/12 for this time of the year.  The November NASS price for wholesale cheese was $1.88/lb.  This was not even near to the price level spikes of 2004, 2008, and 2011, so the price does not indicate any type of disruptive bubble.

In the prior post, the December jump in price for butter and butterfat was discussed.  In early 2013, there was concern that the high inventories would cause butter prices to fall.  There is no such concern presently.  The NASS price for butter in December was $1.63/lb.   That is a good price, but not near the past highs.  There is no indication of a bubble in the price of butter.  The futures market prices indicate that slightly higher butter pricing is expected.

The other two items important to Federal Order Pricing are dry whey and nonfat dry milk.  Dry whey pricing is used to calculate the price of "Other Solids" and nonfat dry milk is used to calculate the Class IV milk price.

Whey inventories are significantly above 2011/12 levels and the current pricing for dry whey and "Other Solids" reflects this.  In December of 2012, "Other Solids" were worth $.48/lb.  In December 2013, "Other Solids" were worth $$.38/lb.  "Other Solids" have been contributing nicely to the Class III price and the inventory levels and pricing are a concern.

As mentioned above, nonfat dry milk pricing is the basis for the Class IV milk price.  The Class IV milk price has been extremely good as was reviewed in the prior post to this blog.  The majority of nonfat dry milk is exported so pricing is dependent on international prices.

EXPORTS

Exports through November remain excellent.  Cheese exports reached an all time high in November.   Domestic consumption makes up 94% of cheese disappearance and export volume is only 6.  This presents an opportunity for growth through increased exports.

Surprisingly, butter exports fell.  Butter production was lower which helped keep the inventories low.  Even though the exports fell, they still represent a record high for the month of November.

EXCHANGE RATES

Exchange rates remain positive for U.S. exports.  The two charts below show the USD exchange rates against the two other major dairy export currencies, the Euro and the New Zealand Dollar.  The USD/Euro chart shows that the USD has weakened in 2013 making U.S. dairy products less expensive in the global markets.

The New Zealand Dollar is currently near the average exchange rate for 2013.  And compared to four years ago, the USD is significantly weaker.

Going into 2014, the state of the U.S. dairy industry looks pretty good.  Stocks of dairy products are in line, exports are strong, and future pricing is positive.  All of these factors will continue to be followed in this blog in the upcoming months.