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Are cracks developing in domestic cheese market?

While gas prices prove to be the pizzeria's "gift that keeps on giving" -- thanks to plentiful supply, despite equally plentiful demand -- there are signs emerging of potential instability in domestic cheese markets.

June 17, 2019 by S.A. Whitehead — Food Editor, Net World Media Group

The good news these days for businesses of just about all types — but especially delivery-centric pizza restaurants — is that gas prices are falling, thanks to lots of stocks of the critical fuel. Joining the good news side of the ledger are two of the publicly traded pizza brands followed here weekly, which showed modest price improvements over last week. Still, there are signs of possible trouble ahead on the cheese markets since that essential pizza-making ingredient is recording increasing divergence in prices paid between barrels and blocks. 

Cheese

On the cheese market, block prices hit their highest point in 2 1/2 years Thursday, creating a large block-to-barrel price rift that soared up to 25 cents earlier last week. The U.S.D.A. Marketing News Service said their contacts were well aware that gaps above 10 cents typically produce market instability with questions arising about whether block prices will fall to meet barrel prices or the opposite.

Overall healthy milk availability supported active cheese production nationally, with steady but mixed reports of cheese demand nationwide and long inventories, particularly for barrels. Friday's closing price for Chicago Mercantile Exchange barrels was $1.61, $1.54 the previous week. Blocks on the CME closed at $1.78, compared to $1.75 the previous Friday.

Wheat

Cash bids for wheat last week were mixed, from 12 cents lower to 33 cents higher. Kansas City U.S. No. 1 Hard Red Winter, ordinary protein rail bid was 12 cents lower, from $5.68 1/4-$5.78 1/4 per bushel. Kansas City U.S. No. 2 Soft Red winter rail bid was not quoted.  

St. Louis truck U.S. No. 2 Soft Red Winter terminal bid was 29 to 33 cents higher, from $5.71-$5.72 per bushel. Minneapolis and Duluth U.S. No. 1 Dark Northern Spring, 14.0 to 14.5 percent protein rail, was 3 3/4 cents lower to 11 1/4 cents higher, from $6.76 1/4-$6.81 1/4 per bushel. Portland U.S. Soft White wheat rail was steady to 13 cents higher, from $5.75-$6.20 per bushel.

Vehicle fuel

Vehicle fuel demand continues to grow at a healthy summer travel season rate, but fortunately, gas stocks are also growing so pump prices have remained relatively low, according to the American Automobile Association and the U.S. Energy Information Administration. 

The national average for a gallon of regular this morning was $2.69, down 6 cents from last week and a notable 17 cents from just last month. That pattern continued across gasoline grades, but remained a little flatter for both diesel and E85. The average price for mid-grade gas was $3.02, down 16 cents from last month and premium came in at $3.28, down 15 cents from the previous month. Diesel was running about $3.01 a gallon today, 9 cents lower than last month, while E85 fuel was $2.33, which is 10 cents under the price we paid last month. 

Natural gas

Natural gas spot prices fell at most locations for the seven days ending Wednesday, June 12. Henry Hub spot prices fell from $2.39 per million British thermal units (MMBtu) to $2.36/MMBtu over the same period.

At the New York Mercantile Exchange, the price of the July 2019 contract increased 1 cent, from $2.378/MMBtu to $2.386/MMBtu June 12, according to the U.S. Energy Information Administration. The price of the 12-month strip, averaging July 2019 through June 2020 futures contracts declined 2 cents/MMBtu to $2.535/MMBtu.

Net injections to working gas totaled 102 billion cubic feet (Bcf) for the week ending June 7. Working natural gas stocks are 2,088 Bcf, which is 10% more than the year-ago level and 10% lower than the five-year (2014-18) average for this week.

The natural gas plant liquids composite price at Mont Belvieu, Texas, fell by 49 cents/MMBtu, averaging $4.32/MMBtu for the seven days ending June 12. The price of natural gasoline, ethane, propane, butane and isobutane all fell, by 1, 17, 12, 7 and 9%, respectively.

According to Baker Hughes, for the seven days that ended on June 4, the natural gas rig count increased by two, to 186. The number of oil-directed rigs fell by 11 to 789. The total rig count decreased by nine, and it now stands at 975.

Publicly traded large pizza company stocks 

In trading last week of large pizza stock, Domino's was the lone loser, dropping in value $6.35 over the week to close Friday at $280.65. The other two larger publicly traded pizza stocks monitored here weekly did manage to pull out some slight gains last week, but nothing to write home about. 

Pizza Hut parent, Yum Brands, for instance, closed up 72 cents Friday to finish the week at $109.79, while competitor, Papa John's finished the week at $50.74, up modestly from the previous week's close of $50.58. 

Photo: iStock

About S.A. Whitehead

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Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.