News

Pizza party! Block cheese crashes to $1.45

June 27, 2004

LOUISVILLE, Ky.—For the second time in three days, the price for block cheese plunged during trading at the Chicago Mercantile Exchange.

After holding at $1.80 for 21 consecutive sessions, prices slid 19.5 cents on June 23, followed by a drop of 15.5 cents on June 25. The $1.45 mark is the lowest for blocks since Feb. 18.

Dairy analysts suspected the sharp correction was inevitable, since Dairy Farmers of America, the nation's largest dairy cooperative, had supported the $1.80 price for nearly six weeks. In that brief span DFA purchased about 16 million pounds of cheese, a feat dairy analyst Alan Levitt hasn't seen before.

"Historically, they've never been able to stand in there as long as they did, but I say that with the caveat that we've seen things this year that we've never seen before," said Levitt, by phone from Crystal Lake, Ill. "In the past, (DFA) has stood in there for three, maybe four weeks, and then moved away. But this time it was much longer. ... Somebody definitely needed the cheese."

In an odd twist, the price of 500-pound cheddar barrels wound up a penny higher than blocks on June 25. Barrels typically trade a nickel lower than blocks, which may signal decline for barrels—or an increase for blocks—when trading resumes next week.

Either way, Levitt said no one's certain where the market will head Monday. If traders sense supplies are ample, however, prices will fall further.

"What I do know is the price has to stabilize before it can go back up," Levitt said, adding that once a bottom is reached, prices typically remain steady for a period before turning north. Market psychology also will play a powerful role in the days to come. "As long as people think it can go lower, they won't buy," and that will pressure prices downward.