Increase in milk in Europe disastrous for cheese prices

In just a few weeks, foil cheese prices (Gouda and Edam) have fallen from more than €5.200 to €4.500 per tonne, bringing prices back to pre-war levels in Ukraine. We hear from the market that prices are already lower. Insiders even assume that the market may fall through the psychological bottom of €4.000. The price pressure is not limited to the bulk market. Cheddar and mozzarella are following at the same pace.

Back in time
To properly understand the price drop, we have to go back a few months. When gas prices went through the roof in August, a lot of milk was processed into cheese. Cheese then provided the best valorisation of milk. Powdering milk is an energy-intensive process that involves burning a lot of gas. In addition, cheese stocks were low all summer and producers could rely on good sales opportunities in Europe. The powder market has had to deal with a drop in demand in China all year, which caused the market to collapse in the summer.

Figures from RVO show that Dutch processors have started processing more milk into cheese since June. Until May, production figures were below last year's level, but since then cheese production has consistently been above that level. In September, 76.128 tons of cheese were produced, compared to 74.810 tons last year. Although the differences are limited, the increase is striking. Of course also motivated by the higher milk supply. It is likely that a similar trend is visible in other cheese exporting countries. Milk supply is also increasing in Germany recently again, where processors recognize that a lot of milk is processed into cheese. At the same time, they sometimes claim that stocks are still tight in mid-November, although this does not match the rapidly declining market. There is also a considerable increase in milk in Poland, just like in Belgium.

Buyers are milking the market
The increased production is increasing the pressure on the cheese market. Naturally, a drop in demand also plays a role due to increased consumer prices in combination with purchasing power that is under pressure. Supermarket buyers are currently very reluctant to hedge volumes and see the market - from their perspective - developing favorably. There will be hardly any trading before 2023, unless they can negotiate a significant discount on market prices. The food service is also exerting pressure. Exports outside Europe have been under pressure all year, although these volumes are limited in terms of production.

The conclusion seems to be that the high cheese prices are currently being brought back down to earth. However, it will probably take some time before cheese prices are on solid ground again, given the nature of the price pressure at play.