August 26, 2016

Satisfaction in Cheese Purchase, for Now

 |  By: Mike Opperman

The recent USDA purchase of surplus cheese is a short-term fix seeking a long-term solution, says John Newton, Ph.D, director of market intelligence for the American Farm Bureau Federation. That organization along with 61 senators and other producer organizations requested USDA to take the action that resulted in USDA making a $20 million cheese purchase.

While the purchase was smaller than requested—some asks were as high as $150 million—Newton says they are satisfied for now. “Anything that could be done to shore up the balance sheet as quickly as possible is good for producers,” he says.

“A 1% reduction in supply should equate to a 2.5% increase in cheese prices, holding all else constant,” Newton says. “Purchases will continue over the next few months and dairy markets will react to a number of changing supply and demand variables so the impact of this purchase could be overshadowed by larger moves.” Newton says that in this instance the market reacted to “buy the rumor, sell the fact”. Prices soared once rumors surfaced about pending USDA action, but tumbled when the final purchase details were announced.  

“The purchase enables the movement of product at a time when producers need it the most and it helps to get the market back to a stable supply/demand situation,” Newton says.

Long term he sees solutions that strengthen market development to support a more stable milk price. Passage of the Trans-Pacific Partnership and support of other trade agreements will help a stagnant export market. Newton looks to adjustments to the Margin Protection Program (MPP) in the next Farm Bill as another opportunity to support dairy producer balance sheets.

“We need to look at all options for MPP including feed adjustments, regionalization opportunities and others to make that program truly viable,” says Newton.