January 10, 2019

Mountain of Cheese Weighing Heavy on Class III Prices

 |  By: Mike Opperman

There’s a mountain of cheese sitting in inventory across the country. And until demand picks up here in the U.S. and globally, it’s not going anywhere fast.

How we got to 1.4 billion pounds in inventory is mostly due to shifting appetites. 

“What has changed, and changed fairly noticeably and fairly recently, is people are turning away from processed cheese,” Andrew Novakovic, a professor of agricultural economics at Cornell University recently told National Public Radio. “It’s also the case that we’re seeing increased sales of kind of more exotic, specialty, European-style cheeses. Some of those are made in the U.S, a lot of them aren’t.” 

High inventories have had a negative impact on cheese prices. As the graph shows, prices for blocks of Cheddar reached the lowest levels since 2016 late last year, and remain at their lowest point since 2015. 

cheese prices

When cheese prices drop, so do Class III milk prices. The formula for calculating Class III prices within the Federal Milk Marketing Order places heavy weight on the price of cheese. 

“It’s the accumulation of past imbalances,” says Nate Donnay, director of dairy market insight with INTL FCStone. “It isn’t so much that the large inventory itself has pushed down prices, the inventory is the result of production exceeding consumption during past months.” 

“With dry whey prices steady to higher, nearly all of the drop in Class III can be attributed to cheese,” says Donnay. “Class III went from $16.09 in September to $13.78 in December.”

Donnay points out that it’s really a global issue. As the chart suggests, global cheese prices have been falling which has added downward pressure to U.S. prices. 

global cheese prices


A fine line to balance. If 2017 per capita consumption was 37 pounds, this is about 4.75 pounds per capita in storage. If it's mostly in private ownership of storage, the calls for government to Do Something About It is misdirected.