Dairy Processing - December 2021 - 67

running plants well below capacity, so these cheese plants are
pulling in a significant amount of milk and putting the fat into
cheese. That reduces the amount of fat that is left for butter.
The situation was reversed a year ago. Weak foodservice
sales were limiting cheese demand, which consequently lead
to weaker cheese production and the fat was pushed into
butter. Retail butter demand was strong as consumers did
that pandemic baking thing, but weak butter movement into
foodservice constrained total butter demand and the strong
production pushed inventories to their highest levels since
1993. That kept US butter prices relatively weak in the second
Dairy farmers have reacted to
higher feed costs by reducing the
size of the dairy herd by almost 1%
between May and September.
United States Department of Agriculture (USDA)
half of 2020 and the first half of 2021. But as milk production
growth has slowed and cheese production has stayed strong,
butter production has dropped below last year and inventories
stood 4% below year ago levels in September. Butter stocks
are likely to be 20-30% below year ago levels in late 2021 and
through the first half of 2022. That should support higher
butter prices next year.
The bearish risk is that cheese production is running ahead
of cheese demand. While butter stocks are being drawn down,
cheese stocks are on the heavy side, up 7.7% from last year in
September. It's possible cheese plants could decide running
below capacity makes more sense than producing extra cheese
that they may have to sell at a loss. If the cheese makers cut
production, the milk will end up in butter. But overall, the risks
are weighted toward the upside for butter prices in 2022.
Nate Donnay is the director of Dairy Market Insight
at StoneX and has been applying his interest in large
complicated systems and statistical analysis to the
international and US dairy markets since 2005.
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DAIRYPROCESSING.COM | DEC 2021 67

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Dairy Processing - December 2021

Table of Contents for the Digital Edition of Dairy Processing - December 2021

Dairy Processing - December 2021 - Intro
Dairy Processing - December 2021 - 1
Dairy Processing - December 2021 - 2
Dairy Processing - December 2021 - 3
Dairy Processing - December 2021 - 4
Dairy Processing - December 2021 - 5
Dairy Processing - December 2021 - 6
Dairy Processing - December 2021 - 7
Dairy Processing - December 2021 - 8
Dairy Processing - December 2021 - 9
Dairy Processing - December 2021 - 10
Dairy Processing - December 2021 - 11
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Dairy Processing - December 2021 - 14
Dairy Processing - December 2021 - 15
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Dairy Processing - December 2021 - 17
Dairy Processing - December 2021 - 18
Dairy Processing - December 2021 - 19
Dairy Processing - December 2021 - 20
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