• Cheese prices drop unexpectedly, but analyst predicts they'll rebound

    Tags: Cheese

LYNDEN, Wis. -- The price of a 40-pound block of cheddar cheese on the Chicago Mercantile Exchange dove an unexpected 5 cents on Jan. 31 to trade at $1.11 per pound.

That price not only is below government support levels, it equals the price for 500-pound barrels, which rarely occurs.

According to Dairyline.com, Jerry Dryer, editor of Dairy Market Analyst, wondered whether the price drop resulted from manufacturer eagerness to show large year-end inventories on their balance sheets or from market fundamentals.

It's a good time of year to "jack up inventory values, making the year-end balance sheet look a little better," Dryer said. Since 2002 was such a bad year for cheese manufacturers, he said "those that had margins have found them slim, and a lot of them haven't had margins. So a little inventory value would make the banker a littler happier come year end."

Dryer said his industry contacts tell him prices should rebound some after the first of the year. Retail sales have been strong and the Super Bowl, a big driver of cheese and pizza sales, is just a month away.

He also said the nation's biggest cooperative, Dairy Farmers of America, has worked down its inventory and will need to buy cheese soon.

"They've been able to move that market before, and we may see them move it in January," Dryer said.

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