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Cheese Consumption Increases Pushing Milk Prices Higher
January 16, 2017

A lapse in U.S. cheese consumption increases during the first half of this year had a serious impact on milk prices and dairy industry profitability.

Consumer demand for cheese during the first half of the year normally holds steady at levels seen at the end of the prior year and then improves in the second half of the year. American-type cheese consumption declines during the first half but is offset by increased consumption of Italian-type cheeses. During the first half of 2016, even Italian-type cheese consumption declined. Cheese consumption during the summer and fall quarters of 2016 was on track to post quarter-to-quarter increases, which resulted in milk prices increasing by 20% from the lows of the spring quarter.

Weak domestic demand for cheese coincided with a surplus in world milk production relative to global usage. Milk powder prices in Europe and Oceania were at their lows last spring, similar to the U.S. This limited the ability of the U.S. to export surplus milk production in the form of powder to other parts of the world. Since that time, milk production in Australia and New Zealand has declined, helping to lift international dairy prices and improving prospects for U.S. milk powder sales overseas. U.S. non-fat dry milk prices averaged below 80 cents per pound during the first half of the year, but were able to reach the $1 mark as 2016 came to a close. U.S. milk powder export volumes were down 20% from a year earlier during the spring quarter but should top year ago levels during the second half of this year by 10%-15%.

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Cheese production during the first nine months of the year was up 2%-3% compared to 2015’s. As consumption lagged, inventories of cheese in cold storage accumulated to record high levels. With the rebound in cheese consumption in recent months, cheese inventories in cold storage have been reduced, and as of the end of November were only up 3% from twelve months earlier, but down 5%-10% (depending on the type of cheese) from the highest levels earlier this year. Cheddar cheese prices reached their lowest values, near $1.30 per pound last May, but should average above $1.70 for 2017’s first quarter as the lower inventories support values. The lower inventories should also provide price support during the first half of 2017, helping to keep the “all farm” milk price near $17 per cwt. This would not have been possible in the absence of better cheese demand that would have left cheese inventories (cold storage) at much higher levels.

Milk producers have responded to the rising prices with more milk. The milk cow herd increased 4,000 cows from October to November, compared to a 2,000 cow increase in November 2015 and contrary to expectations calling for a decline a few months earlier. Milk cow productivity is also sprinting higher, up more than 2% per cow compared to twelve.

Source – Dairy Herd


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