Guest Columns

Perspective:
Dairy Markets

Historically inexpensive cheese futures: What to do?

Betty Berning

Betty Berning is a contributing dairy economist at HighGround Dairy*, Chicago, a firm specializing in dairy risk management, market analysis, hedge advisory and insurance services. She contributes this column exclusively for Cheese Market News®.

Chicago Mercantile Exchange (CME) Cheddar blocks averaged $1.399 per pound in September, marking their lowest price for the month since 2009, a year in which the all-milk price averaged $12.73 per hundredweight, highlighting the extremeness of this example. So far in October, spot prices are in the low $1.30s, and if this continues, it will be the lowest price of the month since 2006! However, whey prices across the complex are at or near all-time highs, and some in the industry have suggested that cheese is currently a byproduct of whey production, just to get at this extremely profitable revenue stream. While not new — this sentiment tends to materialize when whey prices are high — it certainly rings true right now as spot whey nears its high-water mark; whey protein isolates (WPI) sit at $14.35 per pound, a record; and whey protein concentrate 80% (WPC 80) is priced at $10.50.

What is interesting, though, is just how low cheese prices are, relative to whey. Any other time in history that whey has surpassed $0.80 per pound, cheese prices have been over $1.70. Moving the whey price down a leg to $0.70 per pound shows that outside of 2025 and 2026, cheese prices have been at least $1.60 during these periods. These data points highlight how different this cycle is, and the claim that cheese is a byproduct of whey seems truer than ever.

Cheese prices are not only out of sync with whey, but also well below historical averages for this time of year, when holiday demand tends to push markets higher. The October 2026 cash-settled cheese CME futures contract is trading near $1.40 per pound, and futures through September 2027 are sub-$1.70. Looking farther out, second-half 2027 futures average about $1.70 per pound, matching back-half 2018 and 2019 readings the year prior. In fact, only one year saw July through December cheese futures a year ahead at a lower rate: 2011, which averaged $1.59 per pound at the end of September 2010. Since 2011, only four years have seen back-half futures settle at $1.70 per pound or less: 2015, 2017, 2018 and 2021. While the ink is not dry on 2026 yet, it is on track to join this group of years, currently averaging near $1.55 per pound.

For cheese buyers, this detail matters. Second-half 2027 futures prices are low, and taking advantage of historically inexpensive cheese contracts seems like a wise hedge. Looking at second-half CME Cheddar block prices over the past five years, $1.70 per pound sits around the 35th percentile, highlighting the value in the current strip.

The inevitable question about hedging so far in advance is, of course, what could possibly go wrong? More analysis shows that in years when second-half futures moved lower, production tended to grow or keep growing by 1% or more during the first half of the contract year six of eight times. When prices settled higher than their late September reading the prior year, the picture is more nuanced. For example, in 2019, 2022 and 2024, milk volumes declined year-over-year in the first part of the year, and in 2012, when crop conditions were poor, U.S. milk volumes rapidly pulled back during H2. However, in 2011, 2014 and 2020, demand shocks, shrinking milk supply in other parts of the world and the COVID-19 pandemic caused prices to move higher. HighGround’s bias is that milk volumes will continue to grow, albeit more slowly into 2027, with some declines possible later in the year. Even slower growth is still growth, meaning more milk is likely headed to dairy processors in early 2027, and suggests there could be a small bit of room to the downside, even at these low futures levels.

Looking at years when the following year’s second-half strip averaged $1.75 per pound or less at the end of September, which happened in 2011, 2014, 2016, 2017, 2018 and 2019, prices settled higher in three of those years, rising $0.25 to $0.40 per pound higher. On the other hand, when the strip fell, the change was more muted, ranging from $0.03-$0.18. However, 2026’s back-half futures that have settled (July to September) fell about $0.24 per pound from late September 2025, when they averaged $1.80 per pound. To hedge a potential drop, like what occurred this past year, an out-of-the-money put could be a strategy to protect against severe declines.

With whey prices as high as they are, a pullback in cheese production seems unlikely, adding another bearish factor. Exports make up about 10% of U.S. production, with domestic demand absorbing the rest. The U.S. price advantage relative to other global exporters has allowed it to grow its international presence, and that has been a storyline in 2025 and 2026, taking some of the new capacity added over the past few years. That said, weak foodservice sales at home for items like pizza and cheeseburgers mean demand is not growing fast enough to absorb the increase in cheese production. For processors making high-protein whey items like WPC 80 and WPI, returns are so strong that low cheese prices will do little to slow dryer output and vat volumes, further pressuring cheese prices downward.

In the bullish column, though, a market meltdown in WPC, WPI or a reduction in milk production — not just in the U.S., but also internationally — has the ability to move markets higher. And of course, keeping prices low enough could have a profound impact on demand at some point in 2027. That said, a hedge at current prices certainly seems like a value relative to history.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

*These observations include information from sources believed to be reliable, but no independent verification has been made and therefore their accuracy and completeness cannot be guaranteed. Opinions and recommendations expressed are the opinion of the authors and are subject to change without notice. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

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