Over the past two months, there has been a divergence in cheese prices. The monthly average block cheese price on the CME for July was $1.9126 per pound. This compares to the average price for June of $1.8941 and $1.8753 for May. Barrel cheese showed an average price of $1.9239 per pound for July.
This compares to the average price for June of $1.9516 and $1.97844 for May. The block/barrel price spread has been inverted for quite some time indicating that the spread has slowly moved closer together. It remains inverted but not to the extent that it had been. A positive aspect is that both categories are substantially higher than at the beginning of the year. This has certainly been welcomed as milk prices have been too low for too long.
Milk prices have been increasing, but there is growing concern stronger prices may not hold through the end of the year. There has always been a strong correlation between milk and corn. They do not follow each other in tandem, but the ebb and flow are generally similar.
That is where some of the concern lies as corn prices have declined substantially and may see further declines as the corn matures and the potential for increased production is possible. Farmers are holding substantially more inventory than a year ago. A large volume of corn could come to the cash market before harvest and may put further pressure on the corn price.
The June Agricultural Prices report showed the average corn price at $4.48 per bushel compared to $6.49 for June 2023. The higher milk prices and the current feed prices have substantially improved the income over feed price. The income over feed price in June was $11.66 compared to $3.65 a year ago and is the highest income over feed prices since June 2022.
Cheese buyers have not yet seen the need to step up more aggressively to purchase for the usual increased demand through the end of the year. They have been purchasing on price breaks and steadily increasing ownership without much fanfare. This has left the market in a sideways pattern. Cheese inventory is lower than a year ago, which should be of some concern but so far that has not been the case.
Cheese prices have remained in a range with sellers showing interest in moving cheese at the upper end of the price range while buyers show greater interest as prices decline. This would indicate that supply and demand are currently balanced.
That should change as stocks are used to supplement production during the second half of the year. A tighter supply of fresh cheese will support the market as cheddar cheese up to 30 days of age is what is traded on the daily spot market. An increase in demand for fresh cheese will push the market higher despite large supplies of aged cheese.
The demand for various varieties of cheese has been changing. This has resulted in increased production of other types of cheeses. American-type cheese production remains strong, but the output of Italian-type cheese is outpacing the production of American cheese according to the monthly Dairy Products report. Italian-type cheese production in June totaled 485.785 million pounds compared to 457.208 million pounds for American-type cheese. Italian-type cheeses are Mozzarella, Parmesan, Provolone, Ricotta, and Romano. There are few other Italian-type cheeses, but production is limited and not specifically reported individually by the USDA.
Mozzarella has increased in popularity in recent years followed by Ricotta. Another category that has seen an increase in popularity has been Hispanic cheese. Consumers have developed a taste for other varieties of cheese with more being made available through the food service industry.
*I will be at the World Dairy Expo from October 1st through 4th. Please visit the AgMarket.Net booth 664 in the Trade Center. I will also be part of the panel for the live taping of the US. Farm Report in the Tanbark on Wednesday, October 2nd from 12:00 – 1:00 pm. On Thursday, October 3rd, I will be presenting at the 3:30 Knowledge Nook session on the topic, “Making the Most of Your Farm Income Potential”. I hope to see you there!
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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