May 13, 2016

Cheese, Cheese, Do We Have Cheese!

 |  By: Dairy Talk

Welcome back to the 1980s. Current U.S. cheese inventories are reaching levels of the mid-80s, when semi-annual bumps to the dairy support price drove so much cheese production USDA had to store the stuff in Kansas City caves.

Back then, the burdensome inventories brought a decade of pain as the U.S. dairy industry re-calibrated and consumers slowly ate their way through to the back of those cheese caves.

But there are a couple of caveats before past-as-prelude prognostications can be made. In 1983, there were 88 million fewer Americans to eat cheese and pizzas and tacos. On a person basis, the inventory today is about 3,700 lb. In 1983, it was about 5,200, or 40% higher.

Plus, Americans (vegans don’t know what they’re missing) are eating a lot more cheese. In 1983, cheese consumption was about 20 lb. per person compared to 34 lb. today.

Remember, too, that cheese inventory levels soared to a billion pounds just five years ago, and they didn’t lead to a price calamity. In fact, the average All-Milk Price in 2011 averaged over $20/cwt, powered by growing consumer demand.    

“But I think we are pushing the envelope this time,” says Robin Schmahl, a hedging specialist with AgDairy, Elkhart Lake, Wis. “We are increasing production and we are increasing demand, and we’re still building inventories. So we may be tipping the scales to the other side.”

Mark Stephenson, a University of Wisconsin dairy economist, tends to agree. “I am a little concerned,” he says. High inventories mean cheese buyers might hold off ordering cheese today fearing prices will soften later. Mistiming the market could cost them millions.  

The other point is that U.S. prices have been well above world prices in much of 2015 and all of 2016. That means U.S. cheese exports have fallen as well. January through March cheese exports are down 18%, and exports in 2015 were 14% less than the year before. Between 2009 and 2014, U.S. cheese exports were growing 30% per year on average. 

But there is hope the slide in exports could be changing. U.S. cheese prices have toppled below $1.30/lb., and global prices are now within a few cents of that.

However, given the time it takes to sign contracts, source the cheese to contract specifications and actually deliver it via ship can take three to six months of more, says Schmahl. “So even if we get our prices comparable to world prices, it will take a while,” he says.