Cash block cheese saw more strength Monday, up a penny and a quarter, while barrel was unchanged. Alan Levitt, editor of the CME’s Daily Dairy Report, said in Tuesday’s DairyLine that buyers are just picking up bargain cheese as it’s a good opportunity, relative to where prices have been but no one sees this as the start of a new bull market or a big rally.
Prices remain at six year lows, according to Levitt, and even though Uncle Sam has a standing purchase price of $1.13 on block and $1.10 on barrel, it doesn’t mean manufacturers automatically sell to the government because of the additional costs involved in packaging, grading, and other conditions that take more time and costs. USDA also changed the rules, Levitt said, and no longer buy processed cheese so that’s one less variety we can take off the market.
The last time the government purchased cheese under the price support program was in 2002 and 2003 and in the summer of 2002, cheese prices fell below support in the middle of June and it wasn’t until five weeks later that the first loads of barrel cheese moved to the government and it wasn’t until two weeks after that, that blocks started moving.
And even though there was a 10 month period where blocks averaged $1.13, it was below support much of the time, according to Levitt, and only 14 1/2 million pounds of block and barrel was actually sold to the government. “For whatever reason, manufacturers don’t see the government as a viable option,” he said, “And don’t tend to move a lot of cheese to the government.”
Levitt also reported that the Agriculture Department, in its latest World Agricultural Supply and Demand Estimates report issued this morning, projected that it will purchase 320 million pounds of nonfat dry milk, 20 million pounds of cheese, and 5 million of butter so that will hang over the market for much of 2009.