Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

 

October 24, 2003

 

Cheese Prices Show Signs of Weakness

·        Barrel prices drop 2.5 cents/lb

·        Blocks still holding

 

Block cheese prices have been stuck at $1.60 per pound for the last few months.  That’s good for dairy farmers.  But how long will that last?  Will blocks strengthen or weaken in the weeks ahead?  The Chicago Mercantile Exchange futures market indicates that cheese prices will begin to weaken during the last week in October.  Barrel cheese prices fell a few pennies by weeks end. 

 

American cheese production through August has been down 1.7 percent relative to a year ago.  With heat stress in California and poor forage quality in the Northeast there is no reason to believe that the U.S. milk supply, and hence cheese production, will rebound significantly this year.  I’m projecting that American cheese production for September through December will remain just below year ago levels, if that high. 

 

Imports of American cheese through June were up just over 10 percent.  However, cumulative American type cheese imports were just 40.6 million pounds, small enough not to impact U.S. supply and demand.

 

Commercial ending stocks for American cheese in cold storage facilities fell to 514.9 million pounds.  Of that amount, 8.8 million pounds were Government owned.  Thus net inventory in commercial channels was below year ago levels. 

 

The real indication of future cheese prices is commercial disappearance, or the amount of cheese that was consumed.  By my own calculations, commercial disappearance through September for American cheese was 2.75 million pounds, or 1.6 percent below a year ago.  It has trended upwards the last few months, but at a rate that is still below year ago levels.

 

So here are my thoughts.  If demand remains sluggish and we get any milk production rebound in October through December, look for cheese prices to weaken rapidly.  However, if the milk supply remains even with a year ago (as I expect it will) and demand picks up a bit, we could see cheese prices weaken very gradually.  Again, it all boils down to supply and demand!

 

 

Want to get a friendly weekly reminder via email that my dairy outlook report is available?  Subscribe to my email service.  To subscribe, send a blank email to join-dairyoutlook@lists.cas.psu.edu.