Spend Matters welcomes this guest post from Michael Liberty, of Mintec.
In the past 18 months, U.S. cheddar prices have fallen drastically from a high of $2.69 per pound in the last half of 2014 to a 23-year low of $1.72 per pound at the end of Dec. 2015, plummeting 36% since September 2014 and down 7% year-over-year. U.S. cheddar prices have remained low throughout 2015 due to higher production and lower exports.
The value of the U.S. dairy industry makes it one of the most important agricultural sectors, second only to beef in the livestock sector and roughly equal to that of the U.S. maize industry. Milk production in the U.S. has steadily increased since the 70’s, mostly driven by efficiency gains with more milk produced per cow. Holsteins are the main breed of dairy cattle, as they produce the greatest quantity of milk per cow in the U.S.
A third of milk production goes straight into liquid milk and cream production, while the rest is processed into other dairy products. Approximately half of total milk supply in the U.S. is used for cheese production, with cheddar being the second most popular cheese, after mozzarella. Wisconsin is the largest cheddar producing state, closely followed by Minnesota.
The main driver for cheese production is milk, and with current high U.S. milk production, cheddar prices have been pushed down in 2015. Total 2015 U.S. cheese production reached a record 5.3 million tonnes, an increase of 2% y-o-y. In the same period, cheese exports dropped 14% y-o-y due to higher competition from low European cheese prices and a strong U.S. dollar. This increase in supply and low exports has caused 2016 beginning stocks to increase 8% y-o-y to 500,000 tonnes of cheese, which will further limit prices throughout the year.
More recently, prices have resumed their usual seasonal trends, falling through December as production peaks ahead of the holiday period before rising again in the New Year as demand picks back up. Price rises this January were further stimulated by cold weather, disrupting milk deliveries and slowing manufacturing; however, ample supply and good inventories have kept prices from rising any further.
So what does this mean for cheddar? With high milk production and strong output from U.S. producers, supply is likely to remain plentiful in the U.S. China has just celebrated the new year of the monkey; however, 2016 could prove to be the year of the grilled cheese sandwich in the U.S.