Demand for Cheese Keeps Building
June 10, 2020
CME block cheddar cheese prices made history twice this spring. First, they staged an unprecedented collapse as restaurants and schools were forced to close in an effort to stem the spread of Covid-19. Following that collapse in both demand and prices, CME block cheese prices have now climbed more than 150% in less than two months.
Betty Berning, analyst with the Daily Dairy Report, notes that the recovery in restaurant demand is still in its infancy, leading some to question the cheese price rally. However, she notes that several sectors are now competing for fresh cheese, and that has continued to support prices.
“From the pandemic’s onset, retail sales have been strong as consumers transitioned to eating most of their meals at home and grocers worked to keep shelves full of product,” Berning says. “Today, ongoing increased demand at retail as well as more recent competition from foodservice and food banks have combined to compress the supply pipeline, and that is driving prices higher.”
As many states began to reopen in mid-May and early June, restaurant operators have needed to restock, effectively increasing competition for cheese. Berning notes that as of early June, 43 states have moved from allowing restaurants to offer only takeout or delivery to allowing for some sort of restaurant dine-in option—limited capacity, reservations required, and outdoor dining.
“While sales for dine-in likely will be slow to begin with, the shift from takeout to dining in has created additional demand,” Berning says. “At the same time, throughout the pandemic, pizza chains have reported that their same-store sales were up over year-ago levels, which is yet just another competing factor in the cheese market.”
On April 17, near the bottom of the cheese market, USDA announced the Farmers to Families Food Box program, which includes the purchase of at least $317 million in various dairy products. “Implementation of the program has been much faster than previous government food aid programs and quicker than the agriculture sector expected,” Berning notes. As of June 5, already 5 million of the 40 million boxes had been delivered, with the others expected to be distributed by the end of the month. “This means processors have been hit with orders to fill the boxes for some time now, and there still remains volume to be filled,” she says.
While $1.2 billion in revenue has been earmarked for the program, including food purchases, packaging of the boxes, and distribution, USDA’s Agricultural Marketing Service can elect to extend the program, spending up to $3 billion.
Despite the current strong demand picture, much uncertainty remains. “All three sources of demand—retail, foodservice, and foodbanks—want to have ample product available to consumers, and it is likely some demand is being double-counted,” Berning says. Consumer eating patterns moving forward also remain unclear, as does the forecast for future exports, but for now, competition for cheese remains strong.