Tight Cheese Supplies Drive Prices Higher as Dairy Market Faces Continued Constraints
Source: DairyNews.today
In early September, cheddar block prices surged to $2.27 per pound, the highest level in 27 months on the Chicago Mercantile Exchange (CME), reflecting tightening cheese supplies in both the U.S. and Europe, the world’s largest cheese-producing regions.
Corey Geiger, lead dairy economist at CoBank, highlighted the impact of global factors such as the European Union’s bluetongue outbreak and ongoing issues with highly pathogenic avian influenza in the U.S.
The rise in cheese prices has led to a sharp reversal in dairy markets. Earlier this year, cheese prices were under pressure due to the expectation of $4 billion in new cheese plant capacity coming online. This dynamic had caused Class III futures, which track milk used in cheese and whey production, to trend below Class IV futures, which represent milk used for butter and powder products.
However, by early September, Class III futures for the final four months of 2024 climbed to an average of $22.90 per hundredweight, surpassing Class IV futures, which averaged $21.50. This shift was largely driven by soaring spot cheese prices, signaling stronger demand as the dairy industry heads into the high-consumption holiday season.
Despite the near-term rally, traders remain cautious about whether the upward trend in cheese prices will hold. CME futures for 2025 suggest a return to a Class III-Class IV price inversion, with January-to-April 2025 Class III futures averaging $19.80, while Class IV sits at $21.50.
Supply Constraints and Declining Milk Production
One of the driving forces behind rising cheese prices is the ongoing supply shortage. U.S. milk production has declined for 13 consecutive months, a trend not seen since the late 1960s. In July, milk production continued to fall, and the USDA even revised its June milk production figures downward, reflecting a sharper decline than initially reported.
This contraction in milk supply has significantly impacted dairy replacements. Dairy replacements have become increasingly scarce, and prices have skyrocketed, with some replacements fetching as much as $3,000 at auction. Geiger notes that dairy cow culling has also decreased, with 301,400 fewer head culled from January to late August 2024 compared to the same period last year. Overall, the number of dairy cows culled has been down every week since Labor Day 2023.
The scarcity of replacements and the high costs are causing dairy farmers to reduce culling and focus on expanding their herds internally, though it will take years for new replacements to become productive. This supply crunch is likely to cap milk production growth in the U.S. for the foreseeable future.
As the U.S. dairy market faces tightening supplies and rising demand, particularly with the approaching holiday season, cheese prices are expected to remain elevated in the short term. However, with structural challenges such as declining milk production and high replacement costs, the market may continue to experience volatility in the coming years. Dairy producers are grappling with these dynamics as they navigate supply shortages, high replacement costs, and an uncertain global trade environment.
The rise in cheese prices has led to a sharp reversal in dairy markets. Earlier this year, cheese prices were under pressure due to the expectation of $4 billion in new cheese plant capacity coming online. This dynamic had caused Class III futures, which track milk used in cheese and whey production, to trend below Class IV futures, which represent milk used for butter and powder products.
However, by early September, Class III futures for the final four months of 2024 climbed to an average of $22.90 per hundredweight, surpassing Class IV futures, which averaged $21.50. This shift was largely driven by soaring spot cheese prices, signaling stronger demand as the dairy industry heads into the high-consumption holiday season.
Despite the near-term rally, traders remain cautious about whether the upward trend in cheese prices will hold. CME futures for 2025 suggest a return to a Class III-Class IV price inversion, with January-to-April 2025 Class III futures averaging $19.80, while Class IV sits at $21.50.
Supply Constraints and Declining Milk Production
One of the driving forces behind rising cheese prices is the ongoing supply shortage. U.S. milk production has declined for 13 consecutive months, a trend not seen since the late 1960s. In July, milk production continued to fall, and the USDA even revised its June milk production figures downward, reflecting a sharper decline than initially reported.
This contraction in milk supply has significantly impacted dairy replacements. Dairy replacements have become increasingly scarce, and prices have skyrocketed, with some replacements fetching as much as $3,000 at auction. Geiger notes that dairy cow culling has also decreased, with 301,400 fewer head culled from January to late August 2024 compared to the same period last year. Overall, the number of dairy cows culled has been down every week since Labor Day 2023.
The scarcity of replacements and the high costs are causing dairy farmers to reduce culling and focus on expanding their herds internally, though it will take years for new replacements to become productive. This supply crunch is likely to cap milk production growth in the U.S. for the foreseeable future.
As the U.S. dairy market faces tightening supplies and rising demand, particularly with the approaching holiday season, cheese prices are expected to remain elevated in the short term. However, with structural challenges such as declining milk production and high replacement costs, the market may continue to experience volatility in the coming years. Dairy producers are grappling with these dynamics as they navigate supply shortages, high replacement costs, and an uncertain global trade environment.
23.09.2024
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