Retail Cheese Demand Declining as Consumers Cut Back on Spending
Published: Friday, November 4, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Most cash dairy prices in Chicago were weaker the last week of October. The Cheddar blocks closed Oct. 28 at $1.96 per pound, down 9.75 cents on the week, lowest CME price since Sept. 12. Wednesday was the first time in four weeks they were below $2 per pound but are still 28.50 cents above a year ago.
The barrels finished at $1.9250, 16.50 cents lower on the week but 10.50 cents above a year ago, and a typical 3.50 cents below the blocks. Sales totaled four cars of block for the week at the CME and three of barrel.
Cheese market tones are under pressure, according to Dairy Market News. Midwestern retail Cheddar and Italian style cheesemakers report continued strong demand and some are not even accepting new orders or new customers, because any available cheese they have is spoken for through the rest of the year. Processed cheesemakers, however, report that buyers are stepping back to avoid any extra inventory in the final quarter of the year. Milk is not as long regionally and spot milk prices are still slightly under to slightly over Class III. Cheesemakers and customers are working through 2023 contracting, says DMN, and "increases in costs, particularly of freight and payrolls, have become an added stress for both buyers and sellers."
Retail cheese demand in the West is declining and below some expectations. The decline is reportedly due to higher grocery prices which are causing customers to modify purchases. Food service demand was unchanged this week. Export demand remains strong with continued interest from Asian buyers securing loads for second quarter. Cheese production is steady, though some plants report labor shortages and continued delayed deliveries of production supplies are preventing them from running full schedules. Block prices topped the barrels on Oct. 25, first time since early August. Contacts say recent increases in barrel production and spot availability contributed to the barrel price decline, says DMN.
Spot butter saw its Friday finish at $3.14 per pound, down 6 cents on the week, lowest since Sept. 26 but still $1.20 above a year ago, with 11 sales on the week.
Butter plants report that demand has remained seasonally strong despite the near-record prices. Some expect it to continue, but as cream availability and churning rates increase, producers are aware of the potential for butter inventory growth near-term. Cream prices were holding a steady pattern and handlers expect cream to remain readily available for the rest of the year. Cream and butter contract negotiations for next year are also underway. Butter market tones remain in "rarefied air," says DMN, but there is some market pressure as cream, churning rates and butter inventories are all in a growth trend.
Western cream demand is strong from Class II producers and regional butter makers. As milk production trends higher in the region, cream is becoming more available. Some butter makers say labor shortages are still preventing them from increasing their churning so they are limiting cream purchases. Overall butter production is steady. Strong demand is present from both retail and food service customers. Butter inventories are tight, confirmed by the latest Cold Storage report, but contacts say the drawdown was smaller expected for this time of year and that could put some bearish pressure on prices, warns DMN.
Grade A nonfat dry milk held at $1.42 per pound for four sessions, lowest since Oct. 5, 2021, then gained a penny last Friday to close at $1.43, 12.75 cents below a year ago. There were four sales reported on the week.
Dry whey closed last Friday at 43 cents per pound, down a penny on the week and 20 cents below a year ago, with only one sale reported on the week at the CME.
StoneX Oct. 25 Early Morning Update stated, "The milk supply is still relatively constrained compared to where we have been in normal years. The cost to add cows, rather than cull them, and the cost to add onto, or build new, dairies is prohibitively high. It's likely to be an issue down the road. Our take is broadly: when demand is slow, milk production matters less, generally speaking.
"When demand is strong, it magnifies any milk production problems. The dairy herd in Oceania and the U.S. is still looking tight, which will pose some bullish sentiment if it continues. Long-term, there are plenty of headwinds to impact supply across the globe, as dairy prices fade so will milk prices which will impact farmer margins. Feed costs are still higher than they have been historically, and environmental restrictions will continue to impact EU and NZ farmer's ability to add supply at a quick pace."
Broker Dave Kurzawski, speaking in the Oct. 31 Dairy Radio Now broadcast, underscored the Update's take on the milk supply and, regarding the weakening markets, said holiday demand has either been "sorted out or taking a breather."
When I ask about "China, the elephant in the room that is not in the room," Kurzawski blamed the COVID lockdowns for China's lack of market participation but says they will be back, though whey imports currently are "a bright spot."
"We're not awash in milk," he exclaimed. "We're not putting powder away in intervention stocks in Europe. We don't have this massive overhang of supply so any change in the demand side will be felt quite quickly by the markets."
He expects more volatility ahead but said "It's still possible for a rally on cheese, powder or dry whey. You can't rule out a 20 or 30 cent pop up on cheese anytime in the next three or four months," he concluded.
Culling in the week ending Oct. 15, totaled 59,400 dairy cows, down 600 from the previous week and 1,300 head, or 2.1%, below a year ago.
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