Guest Columns

Perspective:
Dairy Markets

Autumn: Leaves, cheese prices fall

John Billington and Korri Romero

John Billington and Korri Romero are dairy market advisor and managing editor of market intelligence, respectively, at Ever.Ag*, a brokerage firm that specializes in dairy product price risk management. They contribute this column exclusively for Cheese Market News®.

Autumn in the U.S. The seasonal change this year brought with it the sound of combines in fields, pumpkin spice flavors on sale and tumbling cheese prices at the CME.

Spot Cheddar prices jumped higher in September, with barrels hitting an all-time high of $2.6225 per pound mid-month. Blocks mounted a notable rally, as well, topping $2.30. That put the average cheese prices at $2.40 per pound.

What pushed markets higher? Ever.Ag analysts point to a combination of supply and demand factors.

First, lower cheese prices earlier in the year — ranging between $1.30 and $1.50 per pound — lured in plenty of export business, keeping domestic inventories from building. Even as summer prices rose near $1.90, those values were still attractive versus European Union (EU) Cheddar, which neared $2.70 per pound amid lower milk production, in part from increased cases of Bluetongue virus. U.S. cheese exports totaled 94 million pounds in August, up 15% year-over-year. And for the first eight months of the year, shipments reached 766 million pounds, 22% higher compared to the same period in 2023.

Amid healthy international demand, U.S. supplies were facing headwinds. Outbreaks of HPAI (avian influenza) in key milk-producing regions, coupled with limited replacement heifer supplies, cut into output and sent milk prices rising. USDA reported average spot milk prices in the Midwest as high as $2.25 per hundredweight over class — hardly enticing for discretionary cheesemaking.

But, like tree leaves and Red Delicious apples, what went up came down as we entered fall. The average cheese price is now 50 cents off its recent high, with both blocks and barrels back near $1.95 per pound.

As with the cheese markets’ meteoric rise, a mixture of supply and demand factors brought prices back downward. Export business dried up quickly as spot and futures pricing lost their competitive edge. Data also points to just so-so demand domestically. Scanner data shows retail natural cheese sales climbed less than 2% year-over-year in September despite a slowdown in price increases. Reports by Placer.ai also show restaurant foot traffic dipped on a yearly basis last month as inflation continued to strain consumer wallets.

Meanwhile, supply concerns that seemed pressing over the summer months started to ease. Buyers backed off as prices escalated beyond what their appetite could stomach. That left volume for sellers to bring to Chicago, even as bids tapered. An inverted block/barrel spread also started to encounter pushback, as process cheese manufacturers looked for ways to substitute lower-cost solids in blocks.

Looking into 2025 and beyond, supplies of fresh Cheddar are expected to grow, reducing market anxiety. Four cheese plants came online this year or are expected to be operational by year end. Another six are anticipated next year, followed by one more in 2026.

All factors considered, spot Cheddar is unlikely to revisit its record highs over the next few months. However, a few indicators bear watching as fall turns into winter.

On the supply side, Bluetongue and avian influenza remain wild card factors in the U.S. and EU. The viruses’ impact on milk production and cow mortality could restrict production and provide support for cheese markets. As European supplies are likely to remain muted, the global bid for cheese and butter is likely higher than it was earlier in 2024, which U.S. manufacturers might be able to take advantage of.

At the same time, tapering inflation, lower interest rates and a weaker U.S. dollar may spark a rebound in demand. Holiday demand may also give domestic consumption at least a temporary bump and a short-lived price rally. But rest assured, volatility is far from over in dairy markets.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

*The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made. The information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended to be a solicitation. Past performance is not indicative of future results.

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