Analysts Predict 2024 Uptick In U.S. Cheese Prices And Demand
While Cheddar prices at the Chicago Mercantile Exchange (CME) in the last weeks of the year have been lower than expected, dairy analysts say market fundamentals point to increasing demand for U.S. cheese both domestically and abroad in the months ahead.
Cheddar barrels and blocks last week fell to their lowest levels since July, with barrels ending the week at $1.3925 per pound and blocks at $1.3900. While prices have gained a few cents to start off this week, averages still are a bit lower than some analysts expected for this time of year.
“I think the drop in cheese prices caught most people off guard.,” says Mike McCully, owner of McCully Consulting, South Bend, Indiana. “There may be some influence of the end of the year — inventory targets, cash flow, etc. — that has pushed prices down in the short term as evidenced by heavier CME trading volumes. Supplies don’t seem burdensome, but ample for current demand.”
Market Dynamic Predictions For Early 2024
McCully adds that he forecasts prices in the $1.60s, give or take a dime, in the first quarter of 2024, so prices may move back up after the first of the year.
“It seems the lull in the markets has made people complacent. That could set the stage for an upside surprise in prices,” he says.
The Impact Of Global Pricing On U.S. Cheese Exports
Cheese struggled with a modest amount of Cheddar surplus — whether from fewer exports or reduced consumption if the 2022 trends held, notes Sara Dorland, managing partner at Ceres Dairy Risk Management, Seattle.
“That was enough to send more cheese to the CME, weighing on prices,” she says.
However, unlike last year, U.S. cheese currently is the lowest global price, Dorland adds.
“That should help provide more competitiveness into countries like Australia, South Korea and Japan,” she says. “Ultimately, consumer demand will be the gatekeeper for 2024 prices. It seems reasonable to expect prices to improve but remain similar to the five-year average given current data.”
Bearish Pressure On U.S. Cheese Prices As 2023 Ends
Dave Kurzawski, senior broker with StoneX Group Inc., Chicago, says the lower CME cheese price may be reflective of both weaker U.S. and export demand, inventory rebalancing, new cheese processing capacity or all of the above. The higher cost of money also may figure into the heavy weight of the U.S. cheese market as finance departments reduce inventory costs. He also notes, however, that U.S. cheese now is the least expensive cheese in the world, which likely will stir both domestic and export demand heading into 2024.
USDA’s Dairy Market News says cheese market tones had been under some bearish pressure during the final weeks of 2023.
Challenges In U.S. Milk Production
“A number of cheese plants are running light holiday schedules, which has kept milk handlers very busy and put strong pressure on spot milk prices this holiday season. Contacts are expecting an abrupt shift next week, as bottling plants and other operations begin to clear more milk, but this week has provided operational cheesemakers with plentiful milk volumes. Cheese demand is quieter seasonally, according to most Midwest contacts. With extra milk, some say cheese inventories could build somewhat over the next week(s), particularly when more cheese operations return from holiday downtime,” Dairy Market News says.
Meanwhile, the United States may need to add upwards of a quarter of a million milk cows to the herd in the next 18 months if milk production is to keep pace with slated greenfield and existing plant expansions, Kurzawski says.
Heifer Replacements And Their Impact
“Although components are strong, in November, the herd fell by 11,000 head. We’re going the wrong way on cow numbers,” he says.
Kurzawski notes the often-disregarded piece is heifer replacements.
Milk Production Struggles And Their Effect On U.S. Cheese Market
“We’ve done a great job of co-mingling the dairy and beef industries over the last six to seven years, and the dairy industry may pay a price sooner or later,” he says. “Heifer replacements are not well available — certainly not at a price that makes much sense to dairy farmers today — and this problem will be revealed in earnest should dairy demand recover in 2024.”
Dorland agrees that U.S. milk production could struggle to keep up with this year and last year. Replacements cost/availability, beef-dairy cross-breeding programs and lackluster price outlooks could keep farm expansion plans in check, she says.
2024 Milk Production Outlook
“With more capacity, that could mean more competition for existing milk supplies or better basis, meaning fewer discounts and possibly premiums, to entice more investment,” she adds.
McCully says he has been more optimistic on milk production for 2024 and expects something near average growth of 1% versus 2023. However, there are significant headwinds to expansion including a drop in milk prices, tight supplies, high cost of heifer replacements and higher interest rates.
Innovation And Price Competitiveness In U.S. Cheese Industry
“I see growth turning positive in the first quarter, but only modestly so. The rate is expected to pick up in the second half as farms expand to fill up the new plant capacity coming online. The ‘watch out’ is the culling rate and if it picks up again with the drop in milk prices heading into the new year,” he says.
McCully adds that in 2023, U.S. milk production has been below year-ago levels for five consecutive months. “This would usually result in milk prices over $20 per hundredweight, but that hasn’t been the case because of lackluster demand for various reasons. Some is the COVID era hangover as consumers have shifted buying and eating patterns. For example, downsizing in packaging and restaurant portions add up to less demand,” he says. “To boost demand, both in the domestic and export markets, the U.S. cheese industry will need to focus on innovation and delivering products the customers and consumers are demanding. However, with a lot of commodity-style cheese production, to increase demand, it usually means competing on price and taking share from other higher-priced suppliers.”
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Source: Cheese Market News
