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  • CHEESE MARKET ANALYSIS: Cheese prices may soar to $1.80

    Tags: Cheese

Jerry is the editor of Dairy & Food Market Analyst Inc.

DELRAY BEACH, Fla.—March Madness arrived a month early in the dairy markets and it looks like it will hang around for a few more months.

Record scores—excuse me—record prices were established during February as the cash butter price at the Chicago Mercantile Exchange advanced 30.25 cents, the barrel cheese price

Jerry Dryer
climbed 21 cents and the block cheese price moved up 16.5 cents. All three prices stayed on the move during the first week of March and forecasters are expecting more.

By the end of February, all three prices were at record high levels for the month: Butter stood at $1.8525; block cheese, $1.40 and barrel cheese was $1.465. One year ago, all three prices were hovering just over a buck a pound.

We haven't seen cheese prices like this during February since 1998, when both blocks and barrels were in the low $1.40s for most of month and averaged about $1.42 for the period. This year, the February highs were higher; however, the monthly average prices were lower. Blocks averaged $1.3958 for the month and barrels averaged $1.3586.

Where's the ceiling?

With prices this high, this early in the year, two questions are on everyone's mind: Will these prices be sustained? Will they go even higher?

Sooner or later, high prices kill demand. Last year, block cheese prices were above $1.50 for four months; three of those months, at $1.60. Then, the market broke at the end of October and finished the year at $1.305.

Cheese inventories were relatively high throughout this period of high prices and production just about matched year-earlier levels. Retail cheese sales were running about 5 percent ahead of year-earlier levels during the first half of 2003, but foodservice demand was sluggish.

By the end of October, retail cheese sales had dropped below year-earlier levels and foodservice sales remained in the doldrums.

Milk and cheese production dropped below year-earlier levels just about the time the cheese price came off its high price. But the higher prices earlier in the year continued to hinder sales until late in the year.

I'm convinced that current prices are sustainable for at least three or four months and maybe, longer. The economy is stronger, retail sales are above a year ago and the foodservice business is regaining traction.

The problem: Cheese prices may just keep right on climbing. Some pundits are telling me the block cheese price will march on up to at least $1.80. If that happens, all bets are off. Strong economy or not, sales will take a hit. Foodservice and retail promotions will evaporate and pizza operators will trim the portions.

Shrinking demand, however, is only one side of the equation. Most indicators point toward lower milk production and reduced cheese production until at least the fourth quarter of this year and possible longer.

A cheese price of $1.80 probably is not sustainable, but $1.50 may be. If history repeats itself, prices could break lower by mid summer. Tighter supplies; however, suggest that March madness will likely hang on until at least the fourth quarter.

Other commentaries and analysis by Jerry Dryer ...
* CHEESE MARKET ANALYSIS Cheese prices may slip lower before reversing
* CHEESE MARKET ANALYSIS: Expect a smoother cheese market roller coaster ride
* CHEESE MARKET ANALYSIS: Weather, feed and culling to keep cheese prices high
* CHEESE MARKET ANALYSIS: Cheese prices: How high? How long?
CHEESE MARKET ANALYSIS: Cheese prices will retreat -- but when?
* Cheese prices to remain low for 2003
* CHEESE MARKET ANALYSIS: Cheese prices are on the way up

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