Milk production in June was down 3% from May. Cheese market prices hover well above average, but demand is trending downward now that reopened restaurants have restocked. Buyers in foodservice expect rising COVID-19 cases to again hurt business. Cheesemakers have responded by lessening production, according to the Chicago Mercantile Exchange (CME), but production remains “stable to strong.” Buyers anticipating price drops are holding out to make their next cheese purchases.
The Wisconsin State Farmer summarized the market volatility of the last few months: “Sharp reductions in milk and milk solids production, major government purchases of dairy products for food assistance programs, increased retail sales of dairy products, and a temporary spike in foodservice restocking purchases quickly flipped a switch from severe oversupply to substantial market tightness within a span of weeks, dramatically raising milk and dairy-product prices.” Since then, block prices have declined by almost one-third after hitting a record-high $3 in mid-July. Barrel prices have been falling, too.
The U.S. Department of Agriculture (USDA) continues to purchase cheese for distribution to food banks as part of the Coronavirus Food Assistance Program. The federal government is helping to keep demand and prices higher than they might have been otherwise. However, if schools and universities go online this fall, a major consumer base for dairy products will once again be missing like in the spring. That being said, some of these sales could shift from foodservice to retail.
Prices could soon fluctuate for another reason: Many export contracts between West Coast cheese plants and Asia are expiring this month, according to the Wisconsin State Farmer. These American suppliers sold more cheese and nonfat dry milk around the world to stay afloat when domestic foodservice demand cratered and the United States’ lower prices attracted other countries. “But the price of cheese and nonfat dry milk moved above world prices in June and July which likely slowed exports,” writes Emeritus Professor Bob Cropp of the University of Wisconsin-Madison.
IPAP offers weekly dairy market updates offering data and analysis from the USDA and CME. To see the latest insights, bookmark the Market Recap page and check back each Friday afternoon.