Typically mild cheese market sees sharp swings
Matt Phillips
The wholesale market for cheddar is typically a mild one. But the vagaries of supply and demand during the pandemic have caused sharp swings in cheese prices, which rose to record highs this month — just weeks after plummeting to nearly 20-year lows.
Consumers are buying way more cheese, even as the usually huge demand from restaurants and schools has fallen off. Dairy farmers and prepared-food companies, which supply ingredients to cheesemakers or buy their products, have seen disruptions in their businesses. Together, these countervailing forces have fueled the up-and-down trading in the market.
Like the price of oil, silver and hogs, cheese prices are set, in part, by traders in commodities markets. Each trading day at 11 a.m. Chicago time, the Chicago Mercantile Exchange operates a 10-minute session in which buyers and sellers — typically large dairy food cooperatives, cheese producers or other companies active in the industry — electronically trade roughly 40,000-pound truckloads of young, mild cheddar.
Cheese prices soared to a record high on June 8, when a 40-pound block of cheddar — the bench mark for cheese, akin to a barrel of West Texas Intermediate in oil markets — touched $2.585 a pound on the CME. On Friday, the price of block cheddar jumped even higher, to $2.65 a pound.
That was a 165% turnaround from mid-April, when the same block of cheese would have cost only $1 a pound.
“It’s the most volatility that we’ve seen in the cheese market ever,” said Phil Plourd, president of Blimling and Associates, a dairy commodity consulting firm in Madison, Wisconsin. “If there was a cheese VIX index, it would have been spiking,” he added, referring to the volatility index often described as the stock market’s “fear gauge.”
During the peak of pandemic-related fears in March and April, consumers rushed to grocery stores to stockpile cheese for their coming quarantines. Retail sales surged more than 70% from a year earlier.
But that wasn’t enough to offset the drop in demand from shuttered restaurants and educational institutions, which together account for at least half of the sales of bulk commodity cheese, according to industry estimates. The falloff in cheese demand spilled over into the dairy market, contributing to a plunge in milk prices.
This month, as restaurants around the country slowly reopened, companies that supply cheese began to stock up to ensure an adequate supply. So much so, some cheese factories have struggled to meet demand, as dairy farmers who cut production during the worst of the downturn were unable to supply them with enough milk.
Shoppers continue to buy 20% to 30% more cheese at stores than they did last year, according to data from IRI, a market research firm in Chicago. The return of demand has again pushed cheese prices higher, where they hover roughly 3% below record levels.
“The orders fell off literally in days, and they came back literally in days,” Umhoefer said. “It was all at once, very much a roller coaster.”