Wholesale prices for cheese and butter have been extremely volatile. Both the Chicago Mercantile Exchange (CME) and the National Agricultural Statistical Service (NASS) numbers have been volatile although sometimes in opposite directions with wide differences. The NASS price is used for milk pricing. The first section of this post will cover the volatility of cheese and butter prices as reported by NASS. NASS conducts weekly surveys from 89 entities and publishes them on Wednesday of the next week. These are used to set Federal Order milk prices. The price of Cheddar is used to represent the cheese price in the Federal Order pricing. This post will cover cheese and butter as they are key elements of Federal Order milk payments.
On May 8, the Coronavirus Food Assistance Program (CFAP) was published. By that time plans were in place to reopen the U.S. for business. The impact was immediate. Nothing had really changed at that time, but the speculation of recovery set-off significant price increases. Cheese prices shot up by 90 percent to $2.13 per pound and butter shot up by 64 percent to $1.83 per pound.
Typically cheese and butter inventories levels in cold storage have the greatest influence on wholesale prices. In this case, the increases appear to be fueled by an expectation of economic recovery and government stimulus.
|Chart I – NASS Weekly Cheese Prices for 2020|
|Chart II – NASS Weekly Butter Prices for 2020|
There have been press articles stating that cheese production is being ramped up to make cheese available for Coronavirus Food Assistance Program (CFAP). If this were the case, it would defeat one of the intents of the program which is to lower the bloated inventories and bring them back to normal levels and restore normal prices.
It has also been reported in the press that some cheese inventories are in tight supply. If that is true, it must be for just specific categories of cheese in specific locations. Expanded pizza sales during the quarantine period have undoubtedly put pressure on Mozzarella cheese inventories and may have caused tight inventories is some locations.
Chart III is for orientation purposes. The two cheeses, Cheddar and Mozzarella, make up 63 percent of total cheese production. Cheddar is especially important because it is used as the “cheese” price for Federal Order milk payment and Cheddar is also the quoted price for cheese on the CME. As seen in Chart I below, Cheddar makes up just 29 percent of total cheese production, but it is used as a barometer for all cheese prices.
|Chart III – Cheese Production by Cheese Type|
The analysis will be presented in three parts. Cheddar will be first because it is the most important, then Mozzarella, and then butter.
|Chart IV – Production of American Cheese|
Disappearance of Cheddar is represented in Chart V by the disappearance of American cheese from cold storage. Disappearance for the month of April 2020 was extremely low, down 9 percent from the average for the last three years for the month of April. With the significant reduction in food service, this is not surprising.
|Chart V – Disappearance of American Cheese|
|Chart VI – Inventory of American Cheese|
|Chart VII – Production of Mozzarella Cheese|
Disappearance of “Other” cheeses, primarily Mozzarella, was down nine percent from the prior three years of April (Chart VIII). Considering that Mozzarella is a growth product and the drop in disappearance is an unusual occurrence but it does follow the drop in production.
|Chart VIII – Disappearance of “Other” Cheese|
The inventory of “Other” cheese was at an April record high level of 647 million pounds. Disappearance was down much further than production decreases resulting in a significant increase of 16 percent in inventory (Chart IX). May cold storage inventories decreased by only two percent.
|Chart IX – Cold Storage Inventors of “Other” Cheese|
|Chart X – Production of Butter|
Butter disappearance (Chart XI) was down from the prior month, but up significantly for the month of April 2020 compared to April in the prior three years. April butter disappearance increased 10 percent from April in the prior three years.
|Chart XI – Disappearance of Butter|
The record churning of butter exceeded disappearance leaving a record high April butter inventory as shown in Chart XII. The butter disappearance was better than the prior three years of April, but the rise in churning was exceptionally high and very significant. May cold storage inventories showed a further increase of three percent in butter inventory.
|Chart XII – Inventory of Cold Storage Butter|
The impact of COVID-19, closing of restaurants and quarantining, have created an impact never seen before. The May cold storage data released yesterday is noted in the above inventory charts. There does not appear to be sufficient changes in inventory levels to justify the NASS increased wholesale prices of cheese and butter. When there is new information that helps provide guidance it will be immediately covered in the blog.
Editor’s Note: John Geuss is a dairy consultant based in Florida. This information appears in his Milk Price blog column sponsored by Addiseo and is published here with permission. He may be contacted at firstname.lastname@example.org