Butter Up - Cheese Down

Butter and butterfat prices are at record levels approaching $3.00 per pound.  Cheese prices are high but are not a record and have started to decline.  Many of the prior posts to this blog have covered various aspects that influence the current high prices and how long they will last. The prior posts that can provide additional detail are listed below.

• The May 7, 2022 post covered butter production and inventories
• The May 15, 2022 post covered cheese production and inventories
• The June 12, 2022 post showed exports of cheese and butter are increasing.

PRICES

Butter prices have continued to reach record highs.  Production of butter is down and domestic consumption and exports, are up.  The price of butter has now reached $2.92 per pound.  The price of cheese is down four percent from the prior month and will probably fall further.  Cheese is currently at $2.33 per pound. Charts I and II show the changes in the prices for butter and cheese since the beginning of 2017.

When the price of butter goes up, the price of butterfat goes up and the price of milk protein goes down.  When the cheese prices go up, the price of milk protein goes up.

Chart I - The AMS Price of Butter

Chart II - The AMS Price of Cheese

INVENTORIES

The driving force behind these prices is the wholesale inventories of butter (Chart III) and cheese (Chart IV and V).

Butter inventories continue to decline compared to the two prior years.  Butter inventories have a strong seasonal swing.  However, as of May 2022 they are currently even with the months of May between 2017 and 2019 as shown by the red line on Chart III.  During the 2017 to 2019 period butter was valued at about $2.25 per pound.  Currently, wholesale butter prices are about 50 cents per pound higher than in 2017 to 2919 (Chart I above).

When butter inventories were higher (2020 and 2021), butter prices were lower.  Now inventory levels are back to the 2017 to 2019 levels, but the price is much higher.  Is this temporary or is there additional need with higher inventories to support higher exports and domestic consumption?

Chart III - Butter Inventories

Total cheese inventories continue to climb providing an overall inventory level consistent with consumption and exports.  in May 2022 cheese inventories increased four percent compared to the prior year.  These inventories represent a normal inventory of total cheese.  There is no shortage that would cause cheese price increases.

Chart IV - Total Cheese Inventory

The Agricultural Marketing Service (AWS) bases the price of "cheese" on the price of young cheddar cheese.  Inventories of cheddar are not publicly available, but 70 percent of American cheese is cheddar, so the inventory of American cheese (Chart V below) is a good indicator of the inventory of cheddar cheese.  (See Chart V in the May 15 post to this blog.)

The inventory of American cheese is at a level which matches the long-term growth of exports and domestic consumption.

Chart V - Inventory of American Cheese

PRODUCTION

Production of butter continues to decline (Chart VI).  The decline is often blamed on a lack of milk, but as shown in Chart III, the current level of butter inventory is at the levels of 2017 to 2019 when butter prices were high but not this high.  Is some or all of the decline in butter production really just adjusting to meet an adequate level of inventory?  Are the higher retail prices, caused by the high wholesale prices, dampening consumer demand?

Chart VI - Production of Butter

Production of all cheese continues a consistent pattern through May 2022 (Chart VII).  Compared to the prior year, cheese production is growing at about three percent annually.

Chart VII - Production of All Cheeses

Production of American cheese has flattened (Chart VIII).  This represents a 70/30 percent mix of cheddar and other American cheeses.

Chart VIII - Production of American Cheese

Production of cheddar cheese has declined while the production all other American cheeses have hit record production levels in April and May.  In March through May 2022 cheddar production dropped below the normal trends. In April, production of cheddar did not decrease.  This may be the start of a turnaround to bring cheddar production back to normal levels allowing recovery of inventory levels.  That is consistent with the drop in price of the AMS price of cheese in June (Chart II).  Data for production is not yet available for June. 

Chart IX - Production of Cheddar Cheese

SUMMARY

Cheese does not seem to have a production or inventory problem.  The mix of cheese production has favored cheeses other than cheddar.  This creates a very temporary increase in cheese pricing. It is likely that balance will soon be restored to cheddar versus other cheeses and prices will decline.  They have already started to decline.

Butter is a little more confusing.  Exports have doubled, production is down, and inventories have returned to levels prior to COVID.  There may also be a drop in domestic consumptions as retail prices have nearly doubled.  The most likely scenario is that butter and butterfat will remain at high prices in the near term.

Wholesale butter and cheese are commodities.  Commodities prices tend to find normal levels over time.  Butter will likely take longer to drop in price than cheese.  

In the short term, butterfat prices will likely remain high and protein prices will migrate lower.  This will lower the Class III milk price (See the May 22, 2022 post to this blog).