Cheese Prices up 33% and Class III Prices up 27% in 2019

July Class and Component prices were announced on July 31, 2019.  Producer milk prices scored a a major increase with Class III milk up 27 percent from the start of 2019 and up 8 percent from the prior month - Chart I.  Cheese prices were up 33 percent from the start of 2019 and up 8 percent from the prior month - Chart II.  The underlying data that calculates these prices was very positive and historical patterns indicate that further increases are probable.

Chart I - Class III Milk Prices - 20 Years of Data

Chart II - NASS Cheese Prices - 20 Years of Data 

Hopefully, this is not a signal to increase herd sizes.  Further reductions in the milk supply will be needed to avoid a return to low prices.

Chart III shows the impact on component prices.   Milk protein prices increased by 110 percent since the beginning of 2019, from $1.14/lb. to $2.40/lb.  Butterfat prices are up 7 percent from the beginning of 2019 and are currently $2.69/lb.

What is driving the great price increases when cheese inventories are still high and excesses from 2018 and not fully reduced?

Chart III - Component Prices - 20 Years of Data

Chart IV shows the cheese inventories for the last 20 years.  In 2014, inventories were very low and, as a result, cheese and Class III prices were strong.  Currently, cheese inventories are still high from the over production in prior years.   The low inventories of 2014 and the current inventory levels are circled in Chart IV.

Chart IV - Total Cheese Inventories - 29 Years of Data

When NASS does their survey of cheese prices, and announces the cheese price, what they are really surveying is Cheddar cheese prices.  Cheddar cheese pricing is the only item for which data is collected to establish the "cheese" price.  Chart V shows the relative production of Cheddar to total cheese production.  In 2000, Cheddar made up of 36 percent of the cheese production, but currently it makes up only 29 percent.

Chart V - Production of Cheddar and Total Cheese - 20 Years of Data

The next two charts show views of total cheese production and Cheddar cheese production in an expanded format and for just the last 10 years.  Chart VI shows production of total cheese.  The 2014 drop in total cheese production is barely perceptible and the increase 2018 is very brief.  It does show some decrease in total cheese production in 2019. 

Chart VI - Total Production of Cheese

Chart VII shows production of Cheddar cheese only.  Cheddar cheese production dropped significantly in 2014 which reduced Cheddar cheese inventories and brought excellent cheese values to the FMMO milk formulas. As a result, Class III prices increased to over $24/cwt.  However. Cheddar cheese production then increased from 2014 to 2018 by 15%, bloating inventories and decreasing prices. Currently, Cheddar cheese production is currently declining.  With lower production, inventories will shrink, and prices will increase

Chart VII - Production of Cheddar

Cheese prices have escalated by 33 percent this year.  Historically a significant increase, as seen in the first half of 2019, will continue for roughly four additional months.  The disclaimer for financial documents is that the past is no indication of future prices, however, history does tend to repeat itself.  It is likely that the cheese and Class III prices will continue to increase in 2019.

Based on this data, and the prior post to this blog, continued milk price increases are likely.  However, as also stated in the prior post, "This is not a time to expand."

Exports will be reviewed in the next post to this blog, and domestic consumption trends will be reviewed in September.