Analysis dairy business
Record high cheese prices back to square one
Cheese prices are falling like a brick. Although the dairy sector and dairy farming often find this news annoying, it is the bitter reality on the market. With prices back at long-term levels, the cheese market is actually back to square one.
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In the period from 2015 to 2022, the German cheese price (Kempen quotation) was on average €3.194 per tonne. For convenience, €3.200 per ton was the average cheese price in the period after the disappearance of the milk quota in Europe. That is exactly the level at which Gouda foil cheese is currently traded on spot. The Kempen quotation is much higher, but that is not a reflection of the market.
In other words: cheese prices have been reduced from extremely high to average in just a few months. You would say that this also includes an average milk price, but that is not yet an issue. This is because processors respond to dairy market developments with a delay of three months. However, this does mean that milk prices will also drop significantly in the coming months, which is almost inevitable.
Much more milk is cheesed
In short, it is the growing imbalance that is putting pressure on the market. Due to the sharp increase in milk production in Europe, much more milk has been cheesed in recent months than many had estimated. As a result, stocks have piled up in the cheese warehouses. In the Netherlands, production was 2,5% higher in October, according to the latest figures from RVO. A further increase is likely, given the growth in milk supply.
The growing production is offset by limited sales opportunities. After all, high inflation has resulted in a drop in demand, which means that retail will need fewer volumes in 2023. In addition, buyers are hiding now that prices are falling so quickly. And you can't blame them for that, as milk production will continue to expand seasonally until May.
Bottom not in sight
As quickly as the cheese market rose last year, the accumulated profits are now evaporating just as quickly. Many factories look on with dismay, but have no choice but to accept the situation. In principle, the cheese market is back to square one with prices close to the long-term average. At the same time, this could also be an argument for a bottom in the market, but this has not yet materialized.