Cheese Market Posts New Highs

(November 28, 2007) Downes-O’Neill dairy broker, Dave Kurzawski, said in Wednesday’s DairyLine he doesn’t see cheese prices turning around “today” but warned, “When you get to new highs like this you don’t have much warning before it does turn around.”

“The buyers in the cash market have been doing what they’ve been doing for a few months now,” he said, “Trying to acquire product.” “There’s very little of it being brought to the CME spot market and, so long as that is the case, I think there’s more room to the upside on the block market and I think the barrels will follow in time to keep that spread somewhat at a reasonable distance.”

When asked why this is occurring and if exports were contributing to this, Kurzawski answered that exports have been good the past few months but, “year to date, demand for American cheese hasn’t been tremendous.”

He called it a “mixture of new demand abroad for natural American cheese” but it’s also a situation where a lot of milk that had been going to butter powder is now being drawn to the cheese vat but “it’s just not there yet.”

The November Federal order Class III milk price is announced Friday by USDA and Kurzawski believes it will likely be close to $19.25 per hundredweight, where it settled Monday. But he quickly added; that $19.25 may be on the low end and suggested it may be closer to $19.30. He said there’s been some resistance to the November contract, some good selling pressure and he believes that traders were exiting long positions and moving to other months into the future.

Looking to 2008, the January to December pack average has hovered $16-$16.50. Kurzawski said there’s “an era of dis-belief in the cash market” which he believes is unfounded.

“There’s some anomalies in the supply-demand situation on cheese in this country,” he said, “And until we figure that out I expect there’s going to be some support in the nearby months and that should help continue to maintain that average but I don’t think we’ve yet seen the highs for the 2008 pack average.” He believes there’s more room to the upside.