SPOT CHEDDAR PRICES MOVED PAST $2.30 per pound in mid-September trading on the CME to post the highest spot price for blocks in 27 months. It points to how tight cheese supplies have gotten in both the U.S. and Europe, the world’s two largest cheese-producing regions.
STALLED PRODUCTION AND HEALTH CONCERNS stand among the factors for the recent strength in cheese prices. In the U.S., milk production has been down for 13 straight months and highly pathogenic avian influenza (HPAI) was just confirmed in multiple California herds. In Europe, bluetongue outbreaks have put pressure on milk production prospects.
U.S. CHEESE PRICES WERE SLUGGISH earlier this year as concerns abounded with the prospects of some $4 billion of new cheese plant capacity coming online and new cheese production searching for a home.
THAT CAUSED CLASS III PRICES TO BECOME INVERTED when compared to the Class IV futures for butter and powder products. Some forecasts suggested that the inverted markets could persist well into 2025.
IN JUNE, CME FUTURES PREDICTED THE SPREAD between Class III and Class IV would be $1.50 for the final four months of the year, with Class IV having the higher average at $21.50 per hundredweight.
IN THE FINAL TRADE PRIOR TO LABOR DAY, the September-to-December Class III bundle moved to $21.95 and Class IV averaged $22.40 for those same four months. By mid-September, boosted by higher spot cheese prices, Class III leapfrogged Class IV and moved to a $23.20 average, with Class IV still holding strong $22.60 per cwt.
WHILE MARKETS HAVE BEEN FACTORING in tight milk production and cheese output through year’s end, the New Year still indicated a potential inversion with a $20 Class III average for January-to-April 2025 contracts and a $21.60 Class IV net for those same four months.
BUTTER MARKETS REMAIN STRONG as spot prices have been above $3 per pound since May. In Europe, butter has approached $4 territory.
DAIRY MARGINS IN JULY WERE THE HIGHEST since May 2022 at $12.33 per cwt. based on current milk and feed price conditions. Forecasts for the remainder of the year expect margins to improve to nearly $16, according to the Dairy Margin Coverage (DMC) program.
WITH ANOTHER BUMPER CROP HEADED FOR THE BIN, new crop corn has trended lower to $4.05 per bushel and soybean meal traded near $320 per ton. For the near term, U.S. corn, soybean, and wheat prices rank among the lowest for major exporting countries. These lower prices, not seen in five years, should further enhance margins to produce milk.
