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Strong Demand Shown for Cheese

Published: Friday, June 26, 2020

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

CME Cheddar blocks started the third week of June Dairy Month losing 2 cents and stayed there until last Friday when they rocketed up 15 cents on three unfilled bids to a new record high $2.65 per pound, up 13 cents on the week and 82.50 cents above a year ago. The barrels finished at $2.2850, down 4.75 cents on the week, 54.75 cents above a year ago and 36.50 cents below the blocks. Trading activity saw seven cars of block sold on the week at the CME and six of barrel.

Most Midwestern cheesemakers continue to report six- and seven-day workweeks and mid-week spot milk prices were at least 50 cents over class. Pizza cheese producers report gains in customer activity as more pizza shops report stronger sales numbers.

Some western contacts say they are running more milk through cheese vats than ever before. Retail demand has remained strong. Food service accounts are still below seasonal purchase levels, but buyers are trying hard to refill the pipeline. That, plus the surge of government purchases, keeps production at full capacity, with some at over 125 percent. The down side is that U.S. cheese prices have risen to a point where they are not as competitive as the EU, so exports are slowing.

The Dairy and Food Market Analyst reports that cheese processors are reluctant to produce unlimited product for fear of having to write-down inventory values and the Analyst's ear to the rail says, "Customers are balking at record costs and postponing orders."

"Historic prices are the outcome of a historic supply-demand imbalance," the DFMA states. "This week, we found more evidence to uncover the drivers of this unusual event: While the industry has focused its attention on foodservice companies 'restocking,' new data available this week points to an idea that most think is an impossibility; limited-service restaurants (heavy cheese users) are experiencing above-year-ago sales at the same time that retail sales of cheese are up double-digits. Because of the strength of total cheese demand, we now think cheese prices will remain well supported through much of July," the DFMA stated.

Cash butter fell to $1.80 per pound last Wednesday but closed last Friday at $1.85, 2 cents lower on the week and 54 cents below a year ago on 25 sales.

Central butter makers tell DMN that cream remains out of their fiscal reach. Bulk butter offers are quiet and butter availability is a concern, in general. A growing number of butter marketers are concerned about inventories coming into the fall.

Retail butter sales are solid in the west. Export interests have declined as U.S. butter does not have a competitive advantage. Butter sales in food service are steady to still sluggish depending on the area. Some restaurant owners have no interest in reopening, says DMN, despite the easing of phase restrictions.

Grade A nonfat dry milk climbed to a Friday close of $1.0325 per pound, up 2.75 cents on the week but 1.25 cents below a year ago. Thirty-three cars sold on the week.

Dry whey closed at 32.75 cents per pound, 1.5 cents higher on the week but 1.5 cents below a year ago, as the increased cheese production results in increased whey output. Twenty-five cars exchanged hands on the week at the CME.

Checking demand, USDA's latest data shows cheese disappearance plummeted in April due to the crash in foodservice demand. HighGround Dairy points out that domestic and export demand were both lower in the month.

"The year-over-year decline was easily the steepest on record (data back to 1995)," said HGD, "and was the lowest of any month since May 2016. Total disappearance was down 119.1 million pounds versus the prior month, consistent with the 108 million pound monthly stocks build in April."

Retail cheese demand in May, however, was "exceptionally strong," according to HGD's Lucas Fuess in the June 22 Dairy Radio Now broadcast. Sales were at double-digit growth versus the prior year on a year to date basis, and "IRI data confirmed dairy aisle sales were up 20.7 percent year over year, outpacing total store dollar growth of 12.4 percent for the week ending May 24. Cheese sales were up 18.2 percent on a volume basis and 26.6 percent on a dollar basis," according to HGD.

"April butter disappearance held slightly higher versus prior year levels for the second consecutive month as extremely strong retail demand balanced out a foodservice demand collapse," according to HGD, and "was the strongest total April butter disappearance since 2014, but total disappearance remained below a year ago."

"May demand has been the strongest, up 33 percent year-to-date," said HGD, "with a 50 percent jump reported in the latest week's data. Frozen pizza sales were up 19.6 percent by volume and 21.9 percent on a dollar basis from prior year at the end of May," and HGD said "There are notable gains on ice cream sales, up 13.4 percent that week."

April nonfat dry milk demand remained below a year ago for the fourth consecutive month, as lower domestic demand negated strong exports and saw the lowest April disappearance since 2011, according to HGD.

Dry whey declined slightly, versus the prior year after a slight March increase, and was pulled lower by weak domestic demand even as exports climbed to the highest monthly volume since August 2018, according to HGD, and saw the lowest total disappearance for the month of April since 2015.

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