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Aged Cheddar Inventory Could Be Tight After Lingering Record High Market Prices

Inventories of two year-plus Cheddar could be a bit tight coming off an extended streak of high market prices, with some companies reluctant to risk setting expensive cheese aside.

The main concerns buyers have associated with the high market is the dramatic increase in the amount of cash required to conduct business, said Stan Dietsche, vice president of sales and procurement, Oshkosh Cheese Sales & Storage, Oshkosh, WI.

The CME cash market price for 40-pound Cheddar blocks reached $2.00 a pound back on December 20, 2013, and has remained at or above the $2.00 a pound level ever since.

The block price has been above $2.00 a pound several times over the past decade (specifically, in 2004, 2007, 2008, 2011, 2012 and 2013), but has never before stayed above the $2.00 level for such a sustained period of time.

“It seems to start out at scale, which is cost plus reasonable curing. However, with increased demand and added trades, a pound of five- to six-year Cheddar will be spendy.”
—Stan Dietsche, Oshkosh Cheese Sales & Storage

Block prices have also reached new record highs this year, peaking at $2.3600 a pound in late January and early February, and then, after falling to $2.1050 by mid-February, rising to a new record high of $2.4325 in late March.

The previous block price record, $2.2850 per pound, had been set in May of 2008.

With a market of $2.40-plus, a load of 40-pound long hold Cheddar is pushing $110,000, Dietsche said. Add to that six months of cure time at .0250 cents per month, and your outbound cost has increased about $6,000.

“Thus, a million dollars does not go very far,” Dietsche said.
High market prices will make for some expensive cheese in inventory, according to Bill Novak II of Novak’s Cheese, DePere, WI.

Our biggest problem is the worry about customers not taking their commitment, Novak said.

“One huge problem encountered when buying uncommitted or speculative inventory off the high market is getting full value at the time of sale, especially if the market tanks six months after setting it aside,” Dietsche said.

Oshkosh Cheese Sales & Storage, along with others in the same game of buying cheese for spot sales, has endured a phenomena over the years tagged “High Market Hangover,” he said.

In 1998-99 and in 2005 and 2008, cheese purchased off those high markets was held by default for longer than desired and ended up being sold at a bit of a discount just to move it, Dietsche said.

Committed programs like convertors and manufacturers may also have a problem of not being able to push the full cost, high market cheese uphill to their customers, he continued.

The buy and sell cost of Extra Sharp Cheddar depends in part on demand and how many times a given lot is traded or changes hands, Dietsche said.

“It seems to start out at scale, which is cost plus reasonable curing. However, with increased demand and added trades, a pound of five- to six-year Cheddar will be spendy,” he said.

Predictions For Future Supply

According to Novak, the price and supply of two-, four-, six- and eight-year Cheddar “is fine and prices are fair. These cheeses aren’t priced on or off the current high markets.”

“Obviously, early 2014-made cheeses will be expensive come this fall or next year,” Novak said.

As far as predictions for the next few years, Novak said the new low might be a $1.75 market.

However, inventories of two year-plus Cheddar could be a bit tight coming off this extended long streak of high markets, which capped out at record levels, according to Dietsche.

Some companies will be reluctant to take the risk of setting cheese aside and those that choose to do so, better have the money or financing to back it up.

The committed programs that move Cheddar 52 weeks a year need to set cheese aside every week or they will come up short, he said.

“Though they may long for days gone by of gentle market swings, the volatile market is a fact of life we all have learned to accept,” Dietsche said.

The same goes for those companies committed on a annual basis that make, hold, and convert hard Italian cheese, he said.

“No matter where the market settles, they are required to set aside cheese every month or they will risk going out on the street to purchase it,” Dietsche said.