Monday, November 19, 2018

Cheese Exports Fall

Export/import data is now available through September.  This post will deal exclusively with cheese analytics.  Cheese prices are linked very closely to the Class III milk price.  This is illustrated in Chart I and the math behind this tight correlation can be viewed in the April 15 post to this blog.  The data behind Chart I show a 96% correlation between the price of cheese and the price of Class III milk.  That means that 96% of the fluctuations in the Class III price can be predicted by the cheese price.

Chart I - Correlation Between the Cheese Price and the Class III milk Price

Because the price of cheese has been stagnant for the last three plus years, the price of producer milk has also been stagnant as covered in the prior post.  The low price of milk is directly caused by the low price of cheese, and the low price of cheese is caused by the high inventories, which will be covered later in this post.

There are three elements that control the size of cheese inventories, domestic consumption, which is very predictable, cheese production that is covered later in this post, and cheese exports.  Chart II shows cheese exports by month over the last 18 plus years.  After a steady climb for 14 years, cheese exports have been stagnant.  While there could be some impact from the newly implemented Mexican tariffs, the stagnant pricing covers a much longer period.

Chart II - Cheese Exports for the Last 18 Years
Chart III below shows the cheese exports for the last five years on a year-by-year basis.  For the last two months, the cheese exports have been below the prior year and for September; the cheese exports are near a five-year low.

Chart III - Cheese Export by year for the Last Five Years
Chart IV reviews the cheese exports YTD by country.   Mexico remains the largest importer by far.  Imports of cheese to Mexico are virtually flat vs. the prior year.  A few other countries like South Korea have purchased more this year, but those increases are small and largely offset by losses in other countries.

Chart IV - Cheese Exports by Country

Cheese production (Charts V and VI) has raced well ahead of prior years.  The data in Chart V shows an increase well ahead of the prior year.  Chart VI shows that for the last three years production has been well above the long-term trend line.

Chart V - Cheese Production for the Last Five Years
Chart VI - Cheese Inventory for the last 18 Years
As a result, Inventory levels have risen well above those needed to support the domestic increase in cheese consumption.

Chart VII - Cheese Inventory by Year for the Last Five Years
With these analytical charts, it is clear that the problem of low producer milk prices centers around over production of cheese and lagging cheese exports.  The over production of cheese is somewhat caused by too much milk.  The lack of cheese exports is a little more difficult to explain.  Certainly, there is some impact from the Mexican cheese tariffs recently imposed.  However, the stagnant cheese exports are a problem of a much longer duration.

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