Chicago, July 31 - The price of cheddar cheese fell nearly 15 percent on Wednesday in one of the largest one-day declines ever witnessed by Chicago dairy traders amid evidence that recent higher prices have slowed demand.
As the price of cheese fell, so did the price of the milk that is used to make cheese. Some milk prices fell the daily limit of 75 cents per 100 lbs in Chicago futures markets.
"A 28-cent drop in the barrels (cheese), I think that is the largest drop we've ever had," said one Chicago dairy trader.
Cheddar cheese in 500 lb barrels fell 28 cents at the Chicago Mercantile Exchange to $1.65 per lb. This cheese is made into consumer food products, such as the individual cheese slices used on home-cooked hamburgers.
The cheese prices set at the Chicago Mercantile Exchange often determine what food processors and consumers eventually pay.
Cheese prices had been trending higher recently, as have prices for other foods, due to higher input costs such as feed and fuel. However, some recent government data indicated the higher cheese prices may have slowed sales, said Alex Gulotta, president of the dairy brokerage firm Valley Futures.
"It may be a classic case of high prices cure high prices," said Gulotta.
However, Gulotta said it is too early to predict if cheese and milk prices will continue lower. Input costs remain high and there was evidence in Wednesday's trading that buyers were still willing to step into the market.
Also, since there is a lag between when prices are set in the Chicago market and what consumers pay, it is too early to predict if retail cheese prices will be affected by Wednesday's events.
Gulotta said market action over the next few days will provide a better indication if cheese and milk prices are in a downtrend.
CME milk futures prices fell sharply on Wednesday due to the drop in cheese. August milk futures were down 67 cents to $17.97 per 100 lbs, a four-month low. Milk for September delivery fell the daily maximum of 75 cents to $18.14.
Milk prices had appeared susceptible to a downturn because of their high level relative to cheese, said Alan Levitt, who writes a dairy report for the Chicago Mercantile Exchange.
"The milk futures have had a premium to cheese that wasn't warranted," said Levitt.
Since milk is used to make cheese, its price is largely determined by the price of cheese.
"Based on where cheese is now, milk is still overpriced," said Levitt.