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 9 a.m. Pacific 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 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 higher, to $2.65 a pound.
That was a 165% turnaround from mid-April, when the same block of cheese would have cost $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.”
Bulk prices for everything from mozzarella to Parmesan are quoted at a premium or a discount to the CME’s block cheddar price. And these wholesale prices filter through to the price consumers pay at grocery stores and restaurants.
And much like higher-profile markets, cheese prices have been whipsawed by the uncertainty facing the U.S. economy and bolstered by government actions.
“A lot of the dynamics that we’ve come to trust with regard to food service and retail demand have been thrown out the window,” said Dave Kurzawski, a dairy broker in Chicago with brokerage firm INTL FCStone.
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.
From the restaurant industry, “80% of the volume went away,” said Jeff Schwager, president of Sartori Cheese.
Sartori Cheese operates two plants in Wisconsin, where 600 employees produce and age hard cheeses such as Parmesan, Asiago and fontina. For a while, retail demand and orders from prepared-food makers — which use Sartori cheese in frozen pizza, salad dressings and other products — helped offset the loss from restaurant closings. Then in May, outbreaks of the coronavirus in the meatpacking industry halted production of many prepared foods.
Similar situations were playing out elsewhere. Beginning in late March, as demand disappeared, cheese stockpiles began to grow. Storage space became scarce. In the following weeks, some producers began to dump their cheese on the Chicago spot market at steep discounts. Prices plummeted.
“We got swamped with cheddar for a time,” said John Umhoefer, executive director of the Wisconsin Cheese Makers Association.
The glut didn’t last long. In April, with cheddar at $1 a pound — a level last seen in 2003 — cheese made in the United States was suddenly priced far below foreign competitors. By the middle of that month, exports began to pick up, according to cheese traders, providing domestic makers with a new source of demand, and helping to stabilize prices.
“We were the most competitive price in the world, and everyone was coming to the U.S. to buy,” said Brian Fletcher, vice president of commercial services at Rice Dairy, a brokerage consulting firm in Chicago.
Also helping to steady the market: the government.
Not long after the price of cheese bottomed out in April, the Department of Agriculture announced plans to spend $3 billion to buy food from farmers, including $100 million a month on a variety of dairy products. The announcement helped put a floor under prices, analysts said.
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.”