U.S. Cheese Prices Burdened by a Lack of Conviction
Published: Friday, February 28, 2025
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department announced the March federal order Class I base milk price at $21.02 per hundredweight, down 25 cents from February but $2.22 above March 2024. That put the three-month average at $20.89, up from $18.42 a year ago, and compares to $20.73 in 2023. It's the highest March Class I since 2022 and is comparable to $1.81 per gallon, up from $1.62 a year ago.
CME Cheddar block cheese fell to $1.8975 per pound last Wednesday, but it closed the President's Day Holiday-shortened week at $1.90, down 2 cents, but is 35 cents above a year ago, as traders awaited the afternoon's January Milk Production report.
The Cheddar barrels fell to $1.7850 last Thursday, but closed last Friday at $1.80, 1.75 cents lower on the week, but 18.50 cents above a year ago, and 10 cents below the blocks. There were only three loads of block traded on the week and five of barrel.
StoneX stated in its Feb. 19 Early Morning Update, "U.S. cheese prices remain attractive globally and U.S. Cheddar inventories remains subdued, but between new plant capacity coming online, perceptions of better milking conditions out ahead of us, and still valid worries around looming tariff possibilities, there is a lack of both aggressively bullish or bearish conviction by market participants."
Dairy Market News reports that cheese demand was mixed again last week, according to Midwest cheesemakers. Some are oversold while others report seasonally slow sales while some extra loads remain in storage. Production is mixed as well. Inclement weather and plant maintenance kept a handful of plants in the region from full output. Milk availability remains somewhat in line with previous weeks. Cheesemakers in certain areas say milk is a bit short, while others say plant downtime has created a temporary growth in availability. Spot milk prices midweek ranged from $2-under to 25 cents over Class III. Contacts expect somewhat steady market tones in the near term, according to DMN.
DMN says there's a healthy appetite for Class III milk from cheese manufacturers in the West. However, spot loads are somewhat tight for parts of the region. They also anticipate lower spot milk prices to come and thus hesitant to secure extra loads. Cheese production is generally steady. A few cheesemakers note tight stocks and or very limited inventories of certain varieties while other players say demand is in decent balance with supplies. Retail demand is reportedly stronger than food service, according to DMN.
Cash butter climbed back up to $2.44 per pound last Wednesday but closed last Friday at $2.4150, up 3.75 cents on the week, but 43.50 cents below a year ago. CME sales totaled 38 loads for the week.
Some butter plant work schedules were limited last week due to inclement weather, but most were busy as cream continues to fill churns, with spots again reported below 1.00. Butter demand notes were unchanged but butter producers expect customer activity to start its seasonal uptick in the next few weeks. Expectations were more bearish than neutral or bullish, says DMN.
Cream continues to be heavy in the West as well, although distressed offers lessened last week. Cream multiples below 1.00 continued to be reported. Butter manufacturers are building inventory for seasonal demand and some indicate that unsalted inventories are far from heavy. Butter demand is lighter and buyers are purchasing fewer loads at a time than what is typical for this time of year, says DMN, as buyers may be waiting for further price declines.
Grade A nonfat dry milk saw its Friday finish at $1.24 per pound, down 4 cents on the week, lowest since Aug. 13, 2024, but 4 cents above a year ago. There were only four sales reported on the week.
Dry whey finished the short week at 54.50 cents per pound, a penny lower, lowest CME price since July 25, 2024, but still 2.25 cents above a year ago. There were no sales on the week at the market of last resort.
Whey powder production is expected to increase, according to the Feb. 19 Daily Dairy Report. "Whey output is rising along with new cheese production," said the DDR, "and whey processors have nearly maxed out their capacity for whey protein concentrate and whey protein isolates production. Unless demand improves, whey powder stocks will likely keep growing, which will continue to put downward pressure on dry whey and Class III prices," the DDR warned.
Summing up the markets, StoneX broker Dave Kurzawski said in the Feb. 24 Dairy Radio Now broadcast that this is the time of the year we typically see slower demand for cheese, butter and nonfat dry milk. The cheese market price is pretty stable and is trading above the norm, so a couple penny rise or fall doesn't change the dynamic much, as fresh block Cheddar is relatively tight.
The global price for butter is well over $3 per pound, as per last Tuesday's GDT, but there are differences in butter, he said. The U.S. makes a salted 80% fat product while the world wants unsalted, 82% fat. The reality is we have plenty of cream in the U.S., but we have a big price discount to the world so maybe we can move a little more butter abroad at this time.
When asked if the Trump tariff "tit for tat" is a "Sword of Damocles" hanging over the markets, he said "Yes," as traders await the March 1 deadline. He quickly added, however, "This whole thing almost blew up a couple weeks ago and both Mexico and Canada came to the table inside of 72 hours and tried to make a deal." He said the direction that things are moving is positive in our trade relations and he doesn't believe March 1 will be a "massive tariff problem."
Meanwhile, down on the farm, "Dairy margins continued steady to slightly weaker over the first half of February with milk prices moving sideways in nearby months to lower in deferred contracts while corn costs increased and soybean meal declined," said the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
"USDA confirmed record cheese exports in 2024, with December shipments totaling 96.7 million pounds, up 21.2% from 2023 and a record for the month," the MW stated. "Total cheese shipments rose to 1.13 billion pounds, up 17.8% from 2023, and representing a record 7.9% of U.S. cheese production. Shipments to Mexico led the increase, up 29.6% from the prior year and accounting for 38% of total cheese exports for the year."
The MW detailed the tariff threat situation as well as the postponements, which I reported on last week. It also pointed out that "Mexico included cheese on a list of products targeted for retaliatory tariffs if the Trump administration followed through on its tariff threats, and with new cheese plants coming online, preserving trade with Mexico will be a priority this year."
"Total cheese production of 14.25 billion pounds in 2024 was up 41.76 million from the prior year, with Italian-style cheeses up 2.4% year-over-year while American-style production fell 3.9%. Mozzarella production bested 6 billion pounds for the first time ever, up 3.6% from 2023 while Cheddar production fell 6.1% to the lowest annual volume since 2020," the MW concluded.
The Agriculture Department's monthly Livestock, Dairy and Poultry Outlook, issued Feb. 18, mirrored milk price and production projections in the Feb. 11 World Agricultural Supply and Demand Estimates report.
The outlook reported, "In 2024, the farm milk margin above the feed costs reported by the Dairy Margin Coverage Program (DMC) was above the $9.50 per hundredweight threshold that triggers payments for dairy producers who choose the highest levels of coverage for most of the year, except for January and February when it was slightly below this level. Moreover, since August DMC margins achieved the highest levels in the program's history. The evolution of DMC margins in 2024 comes in stark contrast to 2023, when they dipped below the catastrophic level of $4 for two months and below the $9.50 threshold for another nine months."
The outlook also stated, "Based on recent data indicating a smaller-than-expected dairy herd size in 2024 and fewer replacement heifers as of Jan. 1, the forecast for the 2025 dairy herd has been revised downward by 15,000 head, bringing the total to 9.375 million for the year. Yield per cow remains unchanged from the previous month's forecast at 24,200 pounds of milk per cow. As a result, the revised milk production forecast for 2025 stands at 226.9 billion pounds, a reduction of 300 million pounds from the previous month's estimate, but an increase of 1 billion pounds compared to 2024," the outlook stated.
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