US cheese price does not yet suffer from fear of heights

Friend and foe alike are surprised by the rapid recovery of the American cheese price after the sharp drop in April. National newspapers in the US, such as the New York Times, also report the now sky-high cheese prices. The price of cheddar rose to more than $5.800 per ton in Chicago in early July. This while the price had fallen to almost $2.300 per tonne in April, the lowest level in 20 years. Never before has the volatility on the American cheese market been as great as it is now.

The revival has several factors. First of all, cheese producers significantly reduced production during the beginning of the lockdowns when dairy farmers had to flush out the milk. However, retail demand for cheese products has increased significantly. For fear of the virus, barbecues are held at home (even) more often than usual. Of course, cheese on the burger should not be missing. Cheese consumption is at a high level, American dairy analysts claim. As the corona measures have been relaxed again, sales to food service have also increased again.

Second corona wave 
Meanwhile, the number of corona infections in the US is increasing rapidly again, especially in the states of Texas and Florida, where the lung virus was relatively mild during the first wave. This will be followed by stricter measures. The second wave of contamination, in combination with improving cheese production (driven by increased prices), may put a brake on cheese prices.

And although cheese prices appear to be leveling off, there are not necessarily fears of a major correction in the short term. This is partly due to American milk production, which is now showing a seasonal decline. The production figures for May were also lower than last year. In addition, cheese stocks fell significantly in June. Based on a sample, the US Department of Agriculture (USDA) reports a decline of 13% in June, although supplies in May were historically high.

There are concerns for the longer term, because the coronavirus is affecting the American economy and therefore also the purchasing power of consumers. The Congressional Budget Office estimates the economic contraction in 2020 at 5,6% and assumes approximately 10% unemployment. The economy will probably not return to pre-corona crisis levels until 2022.  

Stable market in EU
There is absolutely no sign of similar outliers in the US on the European cheese market. Cheddar and cheese prices in Europe have been very stable in recent weeks. A lack of demand is hindering further recovery. In terms of price, Europe has a competitive advantage on the global market, but this has actually been the case since May last year.