USDA announcing it would purchase about 11 million pounds of cheese hasn’t had a positive psychological impact on prices.
On Aug. 23, USDA secretary Tom Vilsack announced plans to purchase about $20 million worth of cheese from private inventories to assist food banks and pantries. The cheese will be distributed through USDA nutrition assistance programs.
USDA had received requests from Congress, National Farmers Union, American Farm Bureau and National Milk Producers Federation (NMPF) to make the cheese purchase. Section 32 of the Agriculture Act of 1935 authorizes USDA to utilize fiscal year 2016 funds to purchase surplus food to benefit food banks and families in need through its nutrition assistance programs.
In making the announcement, Vilsack said the purchase would also assist a “stalled marketplace for dairy producers whose revenues have dropped 35 percent over the past two years.”
The announcement hasn’t had the desired price impact, at least in the short-term.
In three consecutive days of trading following the announcement last week, Chicago Mercantile Exchange (CME) cheddar barrels declined 8.5 cents, 3 cents and 7 cents, closing the week 18.5 cents less than a week earlier. CME cheddar barrels dropped anther 5.5 cents on Aug. 29-30, falling to $1.6250 per pound.
Cheddar blocks declined 1.5 cents the day of the announcement, then fell 6.5 cents and 4.25 cents on consecutive days, before gaining 2.5 cents on Friday, Aug. 26. Overall, the cheddar block price was 12.5 cents less than a week before. CME cheddar blocks fell another 3 cents on Aug. 29-30, to $1.71 per pound.
At the time of USDA’s announcement, CME cash cheese prices were the highest since November of 2014. CME 40-pound cheddar blocks averaged $1.6613 per pound in July, but rose to $1.865 during August. Cheddar barrels averaged $1.7363 per pound in July, but had been between $1.7750 and $1.88 during August.
With cheese prices tumbling, Class III milk futures suffered a similar fate. September Class III futures prices fell $1.15 per hundredweight between Tuesday and Friday, closing the week at $16.60 per cwt.
Between Aug. 22 and the close of trading on Aug. 29, monthly Class III futures prices for the final quarter of 2016 fell between $1.03 (October) and 69 cents (December), before recovering slightly on Aug. 30.
Having a much bigger influence on prices was USDA’s Cold Storage report, issued Aug. 22.
The report reflected U.S. dairy product inventories as of July 31, 2016, showed total natural cheese inventories of more than 1.276 billion pounds, up 2 percent from June 30 and 10 more than July 31, 2015. It’s the largest inventory of cheese for July since records began in 1917. American cheese stocks, at nearly 770 million pounds, were up similar percentages.
USDA’s announced purchase of 11 million pounds of cheese represents about 0.9 percent of total natural cheese in storage.
And USDA’s July Milk Production report, released Aug. 19, showed July production up 1.4 percent, with cow numbers and milk output per cow continuing to grow.
Vilsack called the cheese purchases part of a “robust safety net” for dairy producers, and said USDA will continue to monitor market conditions in the coming months and evaluate additional actions, if necessary, later this fall.
Vilsack also announced USDA would extend the enrollment period for dairy producers to enroll in the Margin Protection Program for Dairy (MPP-Dairy) to Dec. 16, 2016, from the previous deadline of Sept. 30.
"We understand that the nation's dairy producers are experiencing challenges due to market conditions and that food banks continue to see strong demand for assistance," Vilsack said. "This commodity purchase is part of a robust, comprehensive safety net that will help reduce a cheese surplus that is at a 30-year high while, at the same time, moving a high-protein food to the tables of those most in need. USDA will continue to look for ways within its authorities to tackle food insecurity and provide for added stability in the marketplace."
In its request on Aug. 12, NMPF had asked USDA to purchase up to 90 million pounds of cheese, at an estimated cost of $100 million to $150 million. At that level, NMPF estimated U.S. dairy producers would have seen a 16-cent-per-cwt increase in milk prices over the course of a year.
While USDA’s purchases fell far short of that total, NMPF president and chief executive officer Jim Mulhern said USDA’s decision would help dairy producers.
“This cheese purchase will provide some assistance to America’s dairy farmers through increased demand for their milk, while also serving the needs of Americans who patronize food banks and other charitable assistance organizations that will distribute the cheese purchased by USDA.”
However, California dairy producer Geoff Vandenheuvel, a vice president of California’s Milk Producers Council, called requests for USDA to purchase the cheese a waste of political goodwill.
“USDA purchasing 11 million pounds of cheese out of the roughly 1 billion pounds of cheese per month that is made in the U.S. will have no material impact on the price of cheese, and therefore no real impact on the farmer’s milk price,” he said. “American dairy farmers did not need a bailout at this time. The market was already responding and feed costs have substantially moderated. From a strategic standpoint, it was unwise for the industry to ask the government for anything right now. We need to be smart in how we interact with the politicians who support our industry. There may be times when we could benefit from the government helping us out, but this was not one of them. Our industry spent valuable political good will and in this case, got nothing in return.”
Eric Meyer, a broker with HighGround Dairy, said the purchases will have a questionable impact.
“HighGround believes (the announced USDA cheese purchases) are a drop in the bucket and will have zero impact, other than to allow politicians to let their constituents know they did something for the farm community,” he said. 
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Dave Natzke
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