The U.S. gross domestic product fell 0.9 percent in the second quarter, following a 1.6 percent decline in the first quarter. The Federal Reserve announced a second 0.75 percentage point interest rate hike this week in an attempt to control rising inflation as debate centers on whether we’re in a recession or not. Meanwhile lawmakers in Washington keep spending money the country doesn’t have.

Debate in the dairy industry centers on whether supply or demand is in control of the markets. StoneX dairy broker Dave Kurzawski, speaking in the Aug. 1 Dairy Radio Now broadcast, said demand is clearly in control right now.

The fresh milk supply is a “bullish narrative,” he said, “and is underpinning global dairy markets, but that’s being discounted these days.” Seasonally in the U.S., June and July demand tends to dip across the board, he said, ice cream being the exception, and the only time we see price hikes this time of year is due to weather but that hasn’t been a factor thus far.

Recessionary impacts may or may not make their way to the dairy aisle, he said, but one of the main drivers of demand globally the last several months has been China’s lack of buying. Down the road we will focus on supply again, he warned, though currently schools reopening will draw on milk supplies and forecasts of severe heat in the Midwest the first half of August will have an impact. Milk output in the Southwest has already been affected, according to Kurzawski, “but we’ve been able to ignore that for the moment. As we go through August, U.S. buyers will start making holiday purchases so a number of factors will change in the dairy market between now and the end of August,” he concluded.

U.S. butter stocks continue to climb but remained well below a year ago, according to the USDA’s latest Cold Storage report. The June 30 inventory climbed to 331.8 million pounds, up 10.2 million pounds or 3.2 percent from May, but was down 82.9 million pounds or 20.0 percent below a year ago, the ninth consecutive month stocks were below the previous year.

American type cheese stocks fell to 847.7 million pounds, down 10.2 million pounds or 1.2 percent from May, but were 37.9 million or 4.7 percent above those a year ago.

The “other” cheese category climbed to 633.8 million pounds, up 4.6 million or 0.7 percent from May, and 31.1 million pounds or 5.2 percent above a year ago.

The total cheese inventory came in at 1.51 billion pounds, down 6.8 million pounds or 0.5 percent from May, but 71 million or 4.9 percent above a year ago. The report is viewed as bearish on butter and neutral on cheese.

Dairy prices ended July lower, with cheese down for the fourth week in a row. The Cheddar blocks fell to $1.85 per pound Thursday, lowest since Jan. 31, but regained 3 cents Friday to close at $1.88, down 3 cents on the week, 29.25 cents below their July 1 perch, and 24.50 cents above a year ago.

The barrels fell to $1.8450 Thursday, lowest since Feb. 2, but finished the week and the month at $1.8875, 3.25 cents lower on the week, 31.75 cents lower than July 1, 49.75 cents above a year ago, and 0.75 cents above the blocks.

Sales totaled 12 cars of block on the week and 23 for the month of July, up from 22 in June. Barrel sales totaled 10 for the week and 29 for the month, down from 57 in June.

Barrel cheese producers tell Dairy Market News there is still a good amount of buyer inquiries, and sales for curds and other easily consumed cheese products are strong. Midwest cheese demand is steady though cheesemakers note a little variability in buyer interest with the ebb and flow of prices. Cheesemakers had plenty of milk but weather may change that. A few discounted loads were available, says DMN, but there’s not a strong impetus for plants to take additional loads and build inventory in a market that has the potential to head lower.

Western cheese demand from food service and retail was unchanged from the previous week. Domestic sales are below previously forecasted levels, as higher prices have caused customers to alter purchases. International demand remains steady; with Asian countries continuing to secure loads for second quarter. Milk is available, despite declining output in the region. Cheese inventories are ample.

Cash butter keeps flirting with $3 but closed Friday at $2.99 per pound, up 8.25 cents on the week, down 2 cents from the July 1 close at $3.01, but is $1.3475 above a year ago. There were 43 sales on the week and 216 for the month, up from 112 in June, highest monthly total since August 2020.

Tight cream supplies in the Midwest and higher multiples for Class IV spot cream has encouraged procurement of butter by manufacturers. While butter stocks align with seasonal sales expectations, loads are being purchased out of the West to counterbalance rather limited new production and inventory levels for future use. Retail sales continue to edge lower while food service saw a solid spike in sales, according to DMN.

Seasonally higher temperatures are reducing milk output in the West and thus cream output while demand for cream is strong from both ice cream and butter makers. Butter output is steady to lower as some plants report labor shortages. The butter shortfall in the June Cold Storage report is contributing to bullishness in prices though demand from retail and food service is softening, says DMN.

Grade A nonfat dry milk saw a Friday finish at $1.64 per pound, 4.50 cents lower on the week, 13.25 cents below its July 1 standing, and 37.25 cents above a year ago. There were 11 sales on the week and 49 for the month, up from 40 in June.

Dry whey closed at 44.50 cents per pound, down a penny the week, down 5.5 cents on the month, and 5.75 cents below a year ago. Only 1 sale was reported for the week at the CME and 15 for the month of July, down from 47 in June.

As I reported last week, port congestion issues have returned. The July 22 Dairy and Food Market Analyst stated; “Protests by truckers at the Port of Oakland, a port responsible for roughly one-fifth of dairy exports, snarled supply chains. In addition to canceling voyages, the new hiccup created a shortage of containers to move U.S. dairy products overseas and had management teams talking ‘contingency plans.’ Although we were unable to confirm it, we believe the protests likely freed up cheese last week and was one of the primary catalysts for lower cheese prices,” the Analyst stated.

The latest from Ukraine is that an agreement was signed July 22 to provide a Black Sea export corridor with joint coordination staffed by all four parties involved to monitor activities. StoneX says, “The three ports it opens account for over 50 percent of Ukraine seaborne exports and analysts expect export capacity to move closer to 5 MMT per month once things are moving.”