Cheese Price Roller Coaster May Be Headed Down

(December 11, 2007) The cheese price roller coaster may be headed down. The block price lost four cents Monday, dropping to $2.1525 per pound. Two cars traded hands. Barrel was unchanged, holding at $2.16, with no activity. Butter was also unchanged, holding at $1.33, on one car sold.

Market analyst and editor of the CME’s Daily Dairy Report, Alan Levitt, reported in Tuesday’s DairyLine that it’s hard to know whether we’re heading down or how low it will go because “We don’t know where the level of support is at this point.”

“The market keeps moving up and down,” Levitt said, “It doesn’t trend in one direction anymore like it used to in the old days so every time the price drops a little bit, buyers come back but this time of year, we’ve been expecting a decline.” The futures have been pricing it in, Levitt reported, and “We’ve been expecting that once the holiday buy in was met, demand would drop back a little bit and the price would retreat so we may be seeing the start of that.”

Levitt said the market is very different from what it was, even a year ago and one of the factors that is affecting it is exports. Exports remain very strong, he said, and USDA’s Dairy Market News reports that Oceania Cheddar cheese is trading at around $2.50 per pound and European prices are even higher.

“The U.S. is still the most competitive source of cheese in the world in terms of the countries with the supply capability to meet the demand,” Levitt said,” So exports continue to clear the U.S. market.” October trade data will be available later this week, he said, and will give us the next indication of where things are.

The other factor is the rising cost of feed. Corn, soybeans, wheat futures have all taken off in the last few weeks, he said, and that will squeeze milk producers in 2008. The nearby December corn futures are close to $4.00 per bushel, he said, and contracts on the rest of the board through 2010 are averaging over $4.30, so “The expectation is for very strong prices there.”

Soybeans hit a new high of over $11.00 a bushel on Friday, according to Levitt. December wheat closed over $9.00, the highest price in a couple of months. Feed costs were about 34 percent higher this year than last year, he concluded, and next year’s costs are going to be higher still so, “In that environment, I think milk prices are going to need to stay high or production is going to pull back.”

World Ag Expo is February 12-14, 2008 in Tulare , California . This is the world largest farm equipment show and attracts farmers from all over the world. Expo features a huge dairy display and Wisconsin producer, Dean Strauss, of Sheboygan Falls , Wisconsin , talks about why he attends every year on Wednesday’s DairyLine and John Ellsworth has his weekly "Success Strategies" program in our second half.