Cheese prices collapse

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Cheese prices have tumbled nearly 70 cents during the past month to levels not seen in nearly three years.

On Dec. 2, the block cheese price closed at $1.79 per pound at the Chicago Mercantile Exchange. That soon changed as the month of December sent prices sliding down a slippery slope.

The New Year brought little relief. On Jan. 5, block prices fell below support-price levels — to $1.1275. Barrel cheese fell to $1.0975. Government purchase prices are $1.1314 for blocks and $1.1014 for barrels.

Why has this happened to cheese prices?

Prices normally soften after the holiday-buying season, explains Bob Cropp, professor emeritus and dairy economist at the University of Wisconsin-Madison, but a decline of this magnitude comes as “a surprise to everybody.”

The biggest driver behind the current low prices is demand, and “not because we’re flooded with milk,” Cropp adds. The milk supply is growing a little over 1 percent. In 2006, when cheese prices dropped to these same lows, the milk supply was up 3 percent.

The economic downturn hurt demand both domestically and internationally. Up until the last few months of 2008, exports were strong, Cropp explains. But since the world economy has softened, exports also are down.

On the domestic front, cheese stocks are building and buyers of cheese are not interested in taking on any more inventory right now.

People haven’t stopped eating cheese, Cropp adds, but sales of cheese are slow because restaurant traffic is down.

The news is not good for milk prices. Milk futures prices through March are below $11, with $14 not evident until later in the year.

“I simply think prices cannot stay this low,” Cropp says. Feed cost has come down, but it hasn’t come down enough to make $11 milk profitable. In which case, the industry could see more producers exit the business and more cows leave herds this year.

At the close of trading on Tuesday, blocks fell another 4.75 cents to $1.08 per pound at the CME. Barrels closed 3.75 cents lower at $1.06 per pound.



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