With year-over-year milk production strong in the Upper Midwest in July, cheese production has likely remained above previous year levels last month. Stocks remain elevated as a result of that productivity and perhaps a bit of resistance to prices near $1.80 in late-July. Revisions issued by USDA cite more natural American-style cheese and less “other” cheese (mostly Mozzarella) produced in June, but this does little to upset the trends in this category. We view this report as neutral to the current CME spot and futures markets.
While we have been surprised at the CME spot cheese weakness over the past week, we do not believe the Cold Storage report provides any answers. A mild August and perhaps a bit of weakness in cheddar demand over the past few weeks has pushed product to the exchange. But as prices roll back heading into the strongest demand months of the year and the gap between the international cheese market widens, we believe the weakness in the $1.60s is short lived and a seasonal move higher will occur in September.