Jerry Dryer
Marketing Analyst
Tel: (800) 243-7037

CHICAGO—Yesterday, the barrel market finally did an abrupt about face after sinking lower and lower throughout November.

Barrels were trading at about $1.45 early in November, but closed the month last Friday at $1.15. Last week, I was asking sources: Will the barrel price fall far enough to hit the support price?

"Yes!" That's the answer I got from two sources late last week. Others weren't convinced that the barrel cheese price would fall to or below $1.10 (the current government support price), but they were not ruling out the possibility.

Most barrels end up in process cheese and usage has been well below year-ago levels. There has also been some "real junk" (under grades) product floating around in the market.

There were unfilled bids for two loads of barrels below $1.15 (The settling price during the abbreviated week of trading of Thankgiving.) at the Merc; one at $1.10 and the other at $1.11.

The more difficult question last week: Can the block cheese price continue to hang on at $1.36 despite a total collapse in the barrel price? The block-barrel price spread stood at 21 cents on Friday, five or six times the usual price gap between the two products.

Most block cheese lands on a retail shelf as a chunk or shredded item. These sales are seasonally strong and block supplies seem to be in relatively good balance with demand.

Buyers, who were sitting on the their hands waiting for the block price to move lower, can't afford to sit any longer. They need to replenish stocks to carry them through the holidays and beyond. Folks I talked to last week gave blocks a 50-50 chance of hanging on at $1.36; and almost certainly at or above $1.30.

Why? Commercial disappearance of milk and dairy products was up 1.9 percent during the third quarter, according to estimates released by USDA last week in the Livestock, Dairy & Poultry Outlook. Commercial disappearance of butter and American cheese was down; other cheese was sharply higher.

Through the first nine months of this year, commercial disappearance of all products was up 1.7 percent.

Commercial disappearance of American cheeses trailed year-ago levels by 1 percent during the third quarter and was down 1.3 percent for the year; but the problem has centered on barrels/process cheese sales.

Retail sales of natural American cheese were robust until the wholesale price spike of late July reached grocery store dairy cases. However, process cheese sales, both retail and foodservice, have been very sluggish all year.

The pizza business, on the other hand, has helped drive other cheese sales sharply higher. Commercial disappearance of other cheeses, primarily mozzarella, was up 3.2 percent during the third quarter and was up 2.1 percent through the first nine months of this year.

The junk that was hanging around the neck of the barrel market has gone away, at least for the short term. Meanwhile, holiday sales are chewing up the available supply of block cheese. Yesterday's 13-cent spike in the barrel cheese price may not hold, but it won't evaporate either.

I expect blocks and barrels to trade in a relatively near price range at or maybe a nickel below current levels for the foreseeable future.