Posted: Thursday, September 15, 2011 11:00 AM
Indicators keep buyers at bay, producers cautious
There's not much activity in cheese markets at present, and one analyst expects it to stay in a holding pattern for awhile yet.
"There's just no momentum one way or the other," said Jerry Dryer, editor of Dairy & Food Market Analyst.
There are some willing buyers and sellers but not many, he said.
Buyers have pushed back from the long run of prices at $2 per pound and above and are digesting the lower prices that have settled into the market in the past few weeks, he said.
"Buyers' fingers are crossed, hoping markets will go lower," he added.
Blocks ended the week on Sept. 9 at $1.78 per pound, down 35 cents per pound from Aug. 5, and barrels ended the week at $1.72, down 41 cents from Aug. 5.
"I suspect we have put in the floor and will bop around near that level to higher. We could revisit the $2 price if feed prices and weather take a little out of production," he said.
On the supply side, Dryer said, people are waiting to see what toll the heat took in the Upper Midwest.
High feed prices, feed supplies and quality could also play a role in production going forward, he said. And seasonal sales to schools are starting back up.
With all the things that are going on, people are just waiting, trying to figure things out, he said.
"It's a pregnant pause," he said.
Cheese production and inventories are also in the mix. While July's cheese production dropped, marking the first year-over-year decline since March 2008, inventories increased, according to USDA-NASS.
Total cheese production was down 2 percent from July 2010, and American-style cheese production, at 52 million pounds, was down 4.3 from a year ago and down 3.5 percent from June.
"With the cheese price in record-high territory, manufacturers were reluctant to make cheese unless there was an order, Dryer said.
Nonetheless, inventories are likely not helping prices, according to John Kaczor, in a recent California Milk Producers Council newsletter.
"One of the possible reasons for the current price correction could be rumors that some manufacturers' cheese stocks were too large and were growing," he said.
USDA's latest cold storage report appears to support a general belief that American cheese has gotten ahead of demand, he said.
American cheese inventories were nearly 31 million pounds above June's, nearly all of the total cheese inventory increase of nearly 35 million pounds. American cheese inventories are up 9 million pounds over July 2010, and total cheese inventories are up nearly 15 million pounds.
"It's concerning," said Michael Marsh, executive director of Western United Dairymen's Association. "We don't want it to grow too large."
The international price for cheddar had been significantly lower than U.S. prices, but that has changed, which could make the U.S. the seller of first resort, off-taking additional inventory and pushing U.S. cheese prices higher, he said.
"International demand continues to be the story, (and) if the international price goes up, I would expect ours to go up," he said.