Butter – Stocks Continue to Decline, but at Reduced Pace From Recent Months According to USDA, Aug ’14 U.S. butter stocks continue to lag previous years, with stocks of 165.1 million pounds coming in 37.4% below last year’s levels and 21.0% below the five year average August butter stocks. Butter stocks were down 5.1 million pounds, or 3.0%, vs. Jul ’14 stocks as they continue to seasonally decline throughout the second half of the year. Butter stocks typically reach their seasonal peaks in May before declining from June to November as holiday demand increases. The Jul ’14 – Aug ’14 decline in butter stocks was less than a fifth of the five year average July – August monthly decline, however stocks remain at a four year low for the month of August. Most of the YTD declines in butter stocks can be attributed to an increase in exports, which accounted for 76% of last year’s seasonal drawdown. U.S. butter exports have begun to show weakness as U.S. prices have traded at significant recent premiums to international prices. U.S. butter exports have declined 24.4% YOY from May ’14 – Jul ’14, with Jul ’14 butter shipments down 38.5% YOY. Domestic butter exports were 128.1% greater than the previous year for the 12 month period leading up to May ’14. Cheese – Stocks Remain Flat MOM Aug ’14 U.S. cheese stocks of 1.05 billion pounds were flat vs. the previous month but continue to remain lower on a YOY basis, down 4.2% YOY. Cheese stocks have remained essentially flat from Jun ’14 to Aug ’14, down 0.1% vs. a five year average June – August decline of 1.1%. The Aug ’14 YOY decline of 4.2% was the smallest YOY decline in seven months. YOY U.S. cheese stock declines have accelerated throughout the past several months leading up to Aug ’14 as milk production in key cheese producing states declined and U.S. cheese exports increased. Milk production has begun to stabilize in Midwestern cheese producing states and Jul ’14 U.S. cheese exports declined 5.1% from the Mar ’14 – Jun ’14 average shipments, reducing recently experienced YOY stock declines. U.S. cheese stocks typically exhibit a smaller degree of MOM and YOY variation than U.S. butter stocks. Cheese stocks do not have as large of a seasonal build as butter stocks, with the five year average Nov – Jul seasonal build in cheese stocks representing a 12.7% increase in stocks vs. a 121.1% increase in butter stocks. The reduced seasonality exhibited in U.S. cheese stocks has led to less volatile YOY variation, with cheese stocks having a five year average absolute YOY change of 5.3% compared to 26.2% for U.S. butter stocks.