Why US cheese market is showing strong recovery

Let's start with the supply side of the market. Milk supply in the US still grew in April, but considerably less rapidly than the previous month(s). In March, the lead compared to 2019 was still 3%. Last month, growth slowed to 1,5%, bringing milk production in the key 24 states to 8,08 million tonnes.

Anticipating a drop in demand
The slowing growth is a result of the fact that dairy farmers in many American states had to dump milk because processors faced major sales problems. Dairy farmers have anticipated this drop in demand by, for example, drying cows off early and switching back from milking three times a day to twice a day.

Milk production per cow was 0,9% higher in April than a year ago, while in March the increase was still 2,2%. The number of cows shrank by 4.000 to 8,85 million. This relatively small decrease is probably because many cattle and pig slaughterhouses in the US had to close their doors due to many corona infections among staff. 

Recovery after significant write-down
Corona is spreading rapidly in the US. In total, more than 90.000 Americans have died from the lung virus, the highest death toll worldwide. To contain the wave of infections, rigorous measures were taken, just as in Europe. A downer for the dairy sector. Because when public life was virtually paralyzed by closing schools and restaurants, cheese and milk powder became unsellable. Stocks rose rapidly and the cheddar price in Chicago fell from $4.000 to around $2.300 per tonne at the end of April. In the meantime, sentiment is picking up unexpectedly. For example, the cheddar price rose again to almost $4.000 during the month of May. 

Multiple factors 
The rapid recovery is probably a combination of several factors. The corona measures are being relaxed, allowing restaurants to carefully reopen in some places. Almost nowhere in the world is as much out-of-home consumption as in the US, so the relaxation will undoubtedly boost demand for cheese.

In addition, President Donald Trump announced in May that he would purchase $3 billion worth of agricultural products, including dairy that would be donated to the food bank. Another reason is that American cheese prices had fallen faster than in other dairy exporting countries, resulting in a more favorable competitive position on the world market. What is of course also a factor is the weakening growth in milk production. The US Department of Agriculture (USDA) has adjusted growth downwards to 1,6%. Initially, growth was estimated at 2,5%.