The block Cheddar cheese price hit the highest level in almost five years and is the highest priced cheese in the world.

FC Stone dairy broker Dave Kurzawski explained in the September 16 Dairy Radio Now broadcast that tightened milk supplies resulting from crimped margins on U.S. dairy farms the past few years meant lower cheese output. That plus Class IV milk prices topped Class III prices which pulled some milk from the cheese vat, resulting in lower Cheddar output, the cheese traded at the CME.

He also credited “very strong domestic cheese demand.”

U.S. cheese and butter exports have surely been hindered by the strong prices but are not a total disaster. Kurzawski also reported that China announced this week that it would suspend its tariffs on U.S. whey on September 17. China has been buying more U.S. lactose the last couple months, he said, as “They’re going to try, come hell or high water, to rebuild their hog herd,” devastated by African Swine Fever. Kurzawski said it will be a slow process but “The U.S. is well positioned to help them.”

The cheese price was the topic of the week, according to Dairy Market News, but a number of contacts are concerned with what markets will do in the near future. Some expect a sharp fall-off while others question where the ceiling is. Midwestern cheese sales remain healthy, even with the price upticks. Demand is steady and inventories are in balance. Available spot milk became tighter, with spot prices from 50 cents under to $1.75 over Class III early in the week.

Western cheese makers have plenty of milk and are running plants near full capacity. Strong seasonal pizza demand is particularly promoting the production of mozzarella. The wide price spread is encouraging block production. Some contacts are trying to “make sense of the lift in cheese prices on the CME, especially for the 40-pound block price.” They see demand as adequate to keep cheese stock piles from ballooning, but export demand has been stifled by the higher prices compared to world market prices.

Contacts suggest that supplies of block cheese that meet CME trading requirements are limited, giving a push to block prices. Demand has been strong for block cheese with some suppliers heavily committed over the next few months but with “languid consumer demand” for processed cheese, there is currently no shortage of barrels and 640s.

“The concern is how well the market can regain a balance. Block and barrel prices may moderate somewhat, but the concern is that stronger milk prices and cheap feed may incentivize more milk production and, subsequently, more cheese production. A few contacts suspect that without the potential for new market opportunities the U.S. may again have a lot of cheese that is hard to sell.”

Butter producers have different reports on the effect of lower market prices in terms of demand, says DMN. Some say orders are picking up while others say demand remains quiet. The cream picture has remained similar. It is available, and plant managers are taking advantage of continued accessibility. Producers suggest they are working on 2020 cream contracts currently.

Western retail orders for print butter are not as good as sellers would like, says DMN, but food service intakes remain “stout,” helping to keep inventories under control. “Global butter sales are steady, but with the strong value of the dollar and higher U.S. butter prices compared to the EU, export demand is unlikely to improve in the near future. Stocks of butter are currently readily accessible. As cream availability increases in the West and high freight costs limit the move of cream across regions, butter manufacturing is more active.”

July U.S. fluid milk sales staged a small uptick, first positive move since April 2018. USDA’s latest data shows 3.6 billion pounds of packaged fluid sales in July, up 0.2% from July 2018.

Conventional product sales totaled 3.4 billion pounds, down 0.1% from a year ago. Organic products, at 217 million pounds, were up 4.6% and represented a tad under 6% of total sales for the month.

Whole milk sales totaled 1.3 billion pounds, up 3.6% from a year ago and made up 35.1% of total fluid sales in the month. Sales for the seven month period totaled 8.7 billion pounds, up 1.2% from a year ago. Skim milk sales, at 265 million pounds, were down 8.1% and made up just 7.3% of total milk sales for the month.

Total packaged fluid milk sales, January through July totaled 26.6 billion pounds, down 1.8% from a year ago.

Conventional products year-to-date totaled 25.1 billion pounds, down 1.7%. Organic products, at 1.5 billion pounds, were down 3.3% and represented about 5.5% of total fluid milk sales for the period.

The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92% of total fluid milk sales in the U.S.

The U.S. Dairy Export Council’s President and CEO Tom Vilsack has returned from a seven-day trip to China and Japan, saying he is “optimistic about the long-term health of U.S. dairy exports despite challenges caused by current trade disputes.” “With hard work and patience, we will continue to grow both volume and value for the U.S. dairy industry,” Vilsack wrote in a letter to members sharing takeaways from his trip. “We are on the right track to compete to win.”

After meeting with U.S. dairy suppliers and customers in China, Vilsack said the reality of why U.S. dairy exports to China have fallen 43% over one year was brought home. Exports have been hit by a one-two punch of retaliatory tariffs and the spread of African Swine Flu that has killed much of China’s pig population, reducing the need for feed that utilized U.S. dairy ingredients.

“In that environment the best we can do is look for ways to maintain the relationship in the hope that the trade dispute gets settled sooner rather than later,” he said, “recognizing we have no control over when or if that will happen.”

Cooperatives Working Together members accepted eight offers of export assistance this week to help capture sales of 1.014 million pounds of Cheddar and Monterey Jack cheese. The product is going to customers in Asia and the Middle East through February 2020.

These contracts bring the year-to-date totals to 41.2 million pounds of American-type and Swiss cheeses, 277,782 pounds of anhydrous milkfat, 4.2 million pounds of butter (82% milkfat), 4.3 million pounds of cream cheese and 37.8 million pounds of whole milk powder. The products are going to 26 countries and are the equivalent of 792.8 million pounds of milk on a milkfat basis.