Traders in US cheese futures now hold contracts worth 64m pounds of block cheddar, a sharp increase from the start of the year, with companies racing to lock in supplies in anticipation of accelerating demand as the American economy reopens from coronavirus lockdowns.

Outstanding volumes in the Chicago Mercantile Exchange’s block cheese futures market has soared to 3,200 contracts, up from 469 at the start of this year and the highest level since the futures were launched in January 2020.

The jolt of trading activity in late March and earlier this month, which pushed up futures positions, came after a stronger than expected recovery in US restaurant sales as well as expectations of continued robust demand from households ahead of the American grilling season.

Prices for the 20,000 pound blocks of cheese for June delivery have eased to around $1.87 a pound from highs of almost $2 earlier this month. But some buyers are moving to secure supplies for later in the year in case prices begin rising as the American economy heats up, said Nate Donnay, director of dairy market insight at commodity brokers Stone X.

The CME added block cheese futures to its range of cheese contracts last year, but they drew in very little open interest until the last couple of months. Compared to actively traded commodities like oil and corn, cheese contracts are dominated by specialist companies and traders, and do not attract many speculators.

Line chart of CME block cheese futures open interest (contracts) showing Cheese futures trading activity jumps

But heightened volatility over the past few years in the main cheese contract, which represents the price of block and barrel cheese, has pushed hedging activity in to the block futures, analysts say, just at a time when the US reopening is likely to pump up demand.

US natural cheese sales clocked in at $859m in March, 18 per cent higher than the same month in 2019, although down 21 per cent from last year at the start of the pandemic when shoppers rushed to stock up on food and household products, according to the International Dairy, Deli, Bakery Association.

Line chart of CME block cheese futures ($ per pound) showing Restaurant boost for cheese futures

During the pandemic, cheese consumption in the US remained steady. Full-service restaurants’ market share remained just below pre-pandemic levels, but cheese-heavy fast food restaurants, which include pizza and burger takeaways, were performing strongly, according to food service data firm Black Box Intelligence.

Other supporting factors for higher cheese prices are worries about lower milk production this year due to adverse weather and higher feed prices on the back of rising grain markets, said Mary Ledman, global dairy strategist at Rabobank.

That could tail off as pent-up restaurant demand leads people to eat out more. “Retail [sales] and government purchases should slow down later this year,” said Donnay.

With variability in storage and maturing times, it is harder for cheese suppliers to react to sudden shifts in demand and market expectations compared to other commodities.

Despite the rise in cheese production capacity earlier this year, prices have remained firm, reflecting a robustness of the cheese market, according to Ledman. “This has taken people by surprise,” she said.