June 8, 2016

Fresh Cheese Market Tightens

 |  By: Fran Howard

Even though the world is flush with milk and dairy products, U.S. buyers are looking—at times unsuccessfully—to buy fresh cheese. It appears strong demand for cheese headed into the summer grilling season is helping to tighten the U.S. cheese market. But will demand be strong enough to clear up the surplus?

“Despite dismal U.S. dairy data released late last week, market participants have been searching feverishly for cheese,” notes Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.

In the first four trading sessions of June, CME blocks tacked on 8.5 cents and barrels climbed 7 cents. USDA’s Dairy Market News reported last week that both retail and food-service orders for cheese have been firm.

“Given the latest data on exports and production, the run-up in spot cheese could be related to stronger domestic orders ahead of the summer grilling season and the July 4th holiday,” notes Dorland.

Last week, USDA released its monthly Dairy Products report, which showed U.S. cheese production in April climbed 1.4% to 992 million pounds, compared with the previous year. Mozzarella production rose 2.8%, while cheddar output climbed 3.3%

Last week’s data also showed that U.S. cheese exports in April fell to their lowest monthly total since November 2012. Exporters shipped only 46.7 million pounds of cheese to foreign shores in April, or 33% less than the previous year. At the same time, U.S. cheese imports climbed to 31.2 million pounds—the largest volume for any April since 2007.

“Domestic cheese prices still hold a significant premium to world prices,” says Dorland. “It seems unlikely that increasing exports could cause nearby tightness in the U.S. cheese market. And even if exports were increasing, spot cheese prices would still have to contend with crushing cold storage stocks of more than 1 billion pounds.”

Cheese traded on the CME has to be less than 30 days old, while USDA’s Cold Storage report reflects cheese intended to be held for more than 30 days. Thus the current tightness in fresh cheese could be temporary, but domestic demand has also been strong.

“A good amount of milk will be headed to cheese vats this month,” Dorland notes. “However, USDA’s latest data shows year-to-date 2016 commercial disappearance is running 7.5% ahead of the same period over the past three years, thus strong U.S. consumption could go a long way toward clearing up excess stocks by year’s end.”