Dairy Processing - March/April 2023 - 67

make processed cheese. While they
are both Cheddar cheese, they have
different demand drivers. They also
have different supply drivers.
There are only a few cheese plants
in the country that can shift between
producing blocks or barrels. There are
also some processors that can move
milk between different plants to try
and shift some production between
blocks and barrels, but for the most
part, the supply side can't adjust very
quickly to the relative prices.
The widening spread over the past
six months has likely been driven
by more milk shifting into barrels.
Exports are becoming an increasingly
important part of the US cheese
industry. US cheese exports went
from absorbing 2.4% of production in
2009 to 7.2% of production in 2022.
The US is the second largest cheese
exporter in the world with Europe
being the largest. While the US is
increasingly building up a loyal and
consistent demand base in the global
market, relative prices between US,
EU and Oceania supplies still factor into
buying decisions.
EUROPEAN PRICES
Cheese prices in Europe have fallen faster and further than
US prices have in late 2022 and early 2023. That has likely
taken some export demand from the US. Processors who
were exporting cheese have likely shifted some of the milk
out of the varieties they were exporting and into Cheddar
barrels, which are pushing down the CME spot barrel price
relative to blocks. The good news is cheese prices in Europe
bounced a little higher during February and seem to have
found some support.
The US cheese market looks relatively balanced, with
the exception of the darkening outlook for exports in the
second quarter. Cheese production growth has been on the
mild side with production in December up 1.5% and January
up 3.2%. Domestic cheese demand has been decent, up 1.1%
in December and up an estimated 3.1% for January. That has
kept cheese stocks in balance, which were actually down
0.3% from last year in January. The lower cheese prices over
the past year, along with weaker prices for all dairy products,
are pushing down milk prices for farmers, which is expected
to slow milk production growth as we move through 2023.
So the supply side is expected to stay restrained. The biggest
bearish issue we can point to right now
is exports.
We could still see cheese
prices move a bit lower in
the second quarter as the
slowdown in exports leads
to heavier stocks. But steady
to higher cheese prices in
Europe, along with slowing
milk production growth in the
US, should be supportive for
cheese prices in the second half of
the year and we could see both blocks
The US is the
second largest
cheese exporter
in the world.
Europe is
the largest.
and barrels of cheddar back above $2.00 a pound during the
fourth quarter.
Editor's note: This material should be construed as
market commentary, merely observing economic, political
and/or market conditions, and not intended to refer to
any particular trading strategy, promotional element or
quality of service provided by the FCM Division of StoneX
Financial Inc. ( " SFI " ) or StoneX Markets LLC ( " SXM " ). SFI
and SXM are not responsible for any redistribution of this
material by third parties, or any trading decisions taken
by persons not intended to view this material. Information
contained herein was obtained from sources believed to be
reliable, but is not guaranteed as to its accuracy. Contact
designated personnel from SFI or SXM for specific trading
advice to meet your trading preferences. These materials
represent the opinions and viewpoints of the author, and do
not necessarily reflect the viewpoints and trading strategies
employed by SFI or SXM.
Nate Donnay is the Director of Dairy Market Insight at
StoneX Financial Inc. and has been applying his expertise
in large complicated systems and statistical analysis to the
international and US dairy markets since 2005.
DAIRYPROCESSING.COM | MAR-APR 2023 67
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