HighGround Dairy August 2013 Dairy Products Report Analysis – Monday October 21, 2013

Though 18 days delayed due to the government shutdown, the August Dairy Products report released on Monday did not disappoint. Production of manufactured products across nearly all dairy commodities are much higher than expected and both dry whey and NDM stocks are at very high levels for this time of year. However, August’s mild weather did have an impact on ice cream and frozen product demand leaving more milk and cream available for cheese and butter production. With the exception of whey protein concentrate and lactose, we view this report as BEARISH versus expectations. Cheese BIG VOLUMES OF CHEESE WERE PRODUCED IN AUGUST. That is the one glaring statistic in this report – no matter how you slice the data: CHEDDAR: For the first time since USDA kept records in 1950, Cheddar cheese production was HIGHER in August than July. Also, year-over-year (YOY) production growth was at its strongest since 2008. OTHER AMERICAN TYPES: All-time high July to August production growth. TOTAL: 3.9% August YOY production growth was the highest since 2006 While it is rare for the American-style cheese category to show monthly gains in August, it is not that uncommon for the total cheese category as this will be the third straight year (and 8 of last 10) of positive growth. At 16.9 million pounds, it is the largest monthly increase in since 2006.  When looking back at the August Cold Storage report, the cheese production data above seems a bit robust given that both American and total cheese stocks were drawn down slightly more than our expectations last month. August exports will likely be red