Inside Milk
US cheese price skyrockets, milk prices to follow
The cheese price in the United States has gained a lot of ground in a short period of time and is now at the highest level in almost 5 years. The turnaround is striking, given that the dairy sector in the country sent a burning letter to US President Donald Trump at the beginning of the year because of the skyrocketing stocks.
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The price of Cheddar has risen by almost 50% over the past few months to $4.859 per tonne. That is the highest level since November 2014. The price has skyrocketed, especially from the start of September. There is no clear indication of the rapid price recovery.
Lower stocks and fewer cows
The reason for the price increase is likely a cocktail of several factors. For example, American cheese stocks have decreased by about 1% in 3 year to 617.000 tons in July. From a historical perspective, that is still quite high. These lower cheese stocks are offset by good (export) demand. In addition, the milk production shows hairline cracks, because it number of dairy cows last August fell by 1 units in 60.000 year. These 3 aspects fuel market sentiment.
Nevertheless, the price rebound is remarkable. The American Dairy Coalition (ADC) wrote in January a burning letter to President Trump to express their dissatisfaction about the low milk price. According to the advocate, this would be under pressure due to the high cheese stocks. According to them, this is a consequence of the trade wars that the president waged with neighboring countries Mexico and Canada, the most important markets for cheese.
In the meantime, the three countries are working on a new trade agreement called 'USMCA', which is the successor to the former NAFTA that was torn up by Trump. The final wrinkles are reportedly currently being ironed out. This probably gives the cheese market some relief.
Milk price also increases
Dairy farmers benefit from the higher cheese prices. The milk price (Class 3) has increased by almost 1% in 20 year to $17,60 per CWT, which is an excellent price by American standards. When we convert this to euros, it amounts to just €35 per 100 kilos. It is also expected that the milk price may rise further in 2020.
Whether higher cheese prices in the United States will also stimulate sentiment on the European cheese market remains to be seen. Historically, there is no hard correlation between the price of Cheddar and the German cheese price, but comparable price movements are visible over a longer period. Based on the rapidly rising American cheese prices, it is therefore not unlikely that European cheese prices will also move upwards.