Dairy Processing - January/February 2024 - 66

COMMODITIES OUTLOOK
New capacity
Plants coming online in 2024 could shift the cheese market.
by Nate Donnay | nate.donnay@stonex.com
I
t is going to be an interesting year for the US cheese market.
We are starting the year with new processing capacity
coming online that is depressing prices, and there are even
bigger increases in capacity that are slated to come online in
Q4 and early 2025 that will have a significant impact on cheese
supply and milk demand.
2023 IN REVIEW
First, let's review 2023 a little. Growth in cheese consumption
slowed in 2023 as consumers were squeezed by inflation. All
of the data isn't available yet, but it looks like domestic cheese
consumption was only up 0.8% in 2023 compared to average
long-run growth around 2.5%.
Cheese exports in 2023 were also weak as European
exporters undercut US prices early in the year, meaning
cheese demand was on the weak side. Processors responded
by limiting cheese production and largely balanced the weak
demand and kept inventories mostly flat compared to 2022.
Late in 2023, a medium-sized cheese plant in Texas started
up. Capacity at that plant is reportedly around 90 million
pounds of American style cheese per year, although plants
often start up at half-capacity or less while they work the
kinks out. This increase in production is coming up against
weak demand and cheese prices trending lower with the CME
spot market in the $1.40s in late December 2023.
The market usually adjusts when new capacity comes
online. The new plants are typically larger and more efficient
and will undercut existing plants, which might reduce
production or close. The lower cheese prices also generate
more demand, which helps to balance the market, but this
process can take months to play out.
NEW FACILITIES
The interesting dynamics are going to happen in the fourth
quarter. A large American-style cheese plant is scheduled to
start up in Dodge City, Kan., with capacity around 300 million
66 JAN-FEB 2024 | DAIRYPROCESSING.COM
pounds of cheese a year. Plus, a large mozzarella plant in
Lubbock, Texas, also with capacity near 300 mil. lbs. will be
starting up in Q4.
There will also be a couple of medium-sized plants or
expansions in the Upper Midwest and New York that will come
online in late 2024 or the first half of 2025. This might be the
largest increase in cheese processing capacity that we've ever
seen in an 18-month window.
These companies are making large investments in these
plants, with the Dodge City plant reportedly costing $650
million and the Lubbock plant reportedly around $1 billion.
Once the plants are built, they represent a huge fixed cost and
there will be an incentive to run milk through them to try and
start to recover those costs.
One big issue will be milk availability. US milk
production has been weak and farmers in the South
Central/Western US have been cutting cows during 2023.
With interest rates high and farm level margins below
average, there doesn't seem to be much interest in
expanding milk production to fill these new cheese plants,
causing more buyers competing for the same amount of
milk, which suggests over order premiums are probably
going to increase in the South Central region.
The US cheese market is currently dealing with a mediumsized
increase in processing capacity which has pushed prices
lower, but the aggregate supply and demand data doesn't
look heavy and the relatively high prices on the world market
should help to pull US cheese prices up into the $1.70s in
coming months. But new capacity coming online in Q4 or
early 2025 could push prices back down again.
Editor's note: This material should be construed as
market commentary, merely observing economic, political
and/or market conditions.
Nate Donnay is the Director of Dairy Market
Insight at StoneX Financial Inc.
©kovaleva_ka-stock.adobe.com
http://www.DAIRYPROCESSING.COM
Dairy Processing - January/February 2024

Table of Contents for the Digital Edition of Dairy Processing - January/February 2024
