Monday, April 13, 2009

Cheese Exports & Imports Impact Prices

In the April 9 post, the U.S. domestic consumption of cheese was analyzed. It did not show any significant changes from historical trends. Domestic cheese consumption is steady and predictable and does not contribute to price volatility.

In this post, the imports and exports of cheese are analyzed and the volatility starts to show. First the Exports:

Through much of 2008, the U.S. dollar (USD) was weak and exports were at the highest levels in years. However, as the USD strengthened in late 2008, U.S. cheese became more expensive on the global market. As the price went up, the exports went down. As the exports went down, cold storage inventories went up and prices went down (see the graphs linked in the right hand panel).

There is a similar but reverse impact on cheese imports. When the USD was weak in early 2008, cheese imports were at the lowest levels in five years. Domestic cheese was less expensive. However, when the USD strengthened in the 4th quarter of 2008, imports surged.

Expressing it differently, if exports and imports are netted, the volatility over the last 5 years really shows.

Below is the weighted average value of the USD vs. 6 other major currencies. It's easy to see how the swings in the value of the USD parallel the exports and imports of cheese.

The price of Class III milk is really determined by the cheese price (April 7 post). The demand for U.S. cheese, which significantly influences the price, primarily varies with exchange rate fluctuations.

What's the short term outlook? The USD is strengthening, cheese prices are remaining low, and inventories are still high - not a pretty short term picture.

In an upcoming post the countries we export and import cheese to and from will be analyzed. Later, the long term factors influencing cheese and protein prices will be covered.


  1. John:

    So, Class III "dictates" the price and, this is basically 34 to 38% of the total milk, and then, the price volatility comes from the cheese inport/export market (c.a. 10% of the total milk); in other words, the whole pricing issue is reduced to just a few % of the total milk?